Organic Growth: 3 Healthy Stocks You Should Own
Ben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Natural and organic foods have taken the world by storm over the past years. The market rakes in over $30 billion a year in the U.S. alone and has been growing 10% each year. People are willing to pay a premium for foods that they perceive as being higher quality and nature friendly. As an investor, there are several stocks you can own to take advantage of this growing industry.
Buying a bunny
Annie’s (NYSE: BNNY) produces, markets, and distributes natural and organic foods and snacks such as pizzas, crackers, and the beloved mac & cheese. The small cap company recently wrapped up its 2013 fiscal year with net sales of $171 million, a 21% increase from 2012. With recent quarterly revenue growth of 17.70%, Annie’s is implementing key growth strategies to continue improvement.
The first key growth strategy is to expand mainstream distribution of the company’s key products. Annie’s products are currently available in 26,500 locations across different channels, the largest of which is grocery stores. The company saw good gains in distribution during 2013, but admits that it is still below long-term ACV potential. Another key driver of growth is product location. The company found that consumption of mac & cheese located on main aisles grew almost twice as fast as on the natural aisle. The company is looking to build on this information in the coming year. The next growth strategy is brand building: During 2013, aided brand awareness and trial rate increased 80% and 60% respectively. While this is impressive, the company only had brand household penetration of 6.6%. Annie’s looks to increase penetration during 2014, using targeted PR and social media tools. Finally, the company will continue the product innovation that has gotten it to where it is today. Annie’s has laid the foundation and pipeline to ensure that it can handle expansion, and expects 2014 to be a year of large growth for the company.
Annie’s gross margin of 39.4% is 50 basis points worse than the same quarter last year. This was expected by management, and Annie’s gross margin is still competitively high. With the company’s growth potential, I think Annie’s is a good long term investment.
Acquired organic growth
The Hain Celestial Group (NASDAQ: HAIN) manufactures, markets, distributes, and sells organic goods, and is a direct competitor of Annie’s. The company recently had quarterly sales of $456.1 million, a 21.4% increase, and the largest quarterly sales in the company’s history. Hain’s recent growth has been spurred by the acquisition of Ella’s Kitchen and BluePrint.
Founded in 1996, Ella’s Kitchen is a fast-growing, hip, organic brand located in the U.K. It will be combined with Earth’s Best, another Hain brand, to create a Global Infant Toddler & Kids business. Hain’s executives are extremely excited about this acquisition and hope to change the way children eat. BluePrint is a juice company that offers unique flavor combinations such as pineapple apple mint, lemon cayenne agave, and lime ginger lemon agave. Since acquiring the company, Hain has developed a BluePrint team that is working on product innovation to introduce to customers. Hain can also drive distribution expansion to increase growth and brand recognition of the juice.
These two acquisitions aren’t the only parts of Hain Celestial that have good growth potential. Currently, the company owns eight $100 million brands that they expect to increase to $200-$300 million brands by the end of 2014. Hain also has six $40 million brands that are expect to rise to $100 million. The company hopes to maintain organic growth by continuing U.S. consumption momentum, increasing distribution channels, innovating new products, and increasing productivity and efficiency to offset rising commodity prices.
With quarterly revenue and earnings growth of 21.40% and 68.90% respectively, Hain Celestial is focused on continuing the company’s impressive expansion. With recent acquisitions and organic growth strategy I think the company is a good buy.
2 halves make a...
As you probably know, Whole Foods Markets (NASDAQ: WFM) owns and operates a chain of supermarkets that specializes in natural and organic foods. The company’s refreshingly simple strategy is to focus on improving long term sales growth. The company plans to do this by continuing to build its brand that is defined by having high quality standards. An example of this is Whole Foods' plan to clearly label all products in U.S. and Canada stores that contain genetically modified organisms, or GMOs. The plan is expected to be completed by 2018, and will make Whole Foods the first supermarket to have this labeling.
Last quarter, the company saw a 19% increase in earnings per share, on a 13% increase in sales. The company also had impressive same-store sales growth of 6.6%. This generated $178 million in free cash. Whole Foods invested $104 million in new and existing stores, repurchased $37 million worth of shares, and returned $37 million to investors with dividends. The company expects to open 12 new stores this year. Whole Foods currently has a forward P/E of 29.53 and the company has shown consistent growth in an expanding market.
Annie’s, Hain Celestial, and Whole Foods know that natural and organic foods are healthy, delicious, and profitable. Each company delivers value to consumers and investors alike. Whole Foods offers a premium grocery shopping experience for consumers and Annie’s and Hain Celestial help fill the shelves. The organic food industry is still growing, and these three companies should grow right along with it.
More from the Motley Fool
It's hard to believe that a grocery store could book investors more than 30 times their initial investment, but that's just what Whole Foods has done for those who saw the organic trend coming some 20 years ago. However, it may not be too late to participate in the long-term growth of this organic foods powerhouse. In this premium report on the company, we walk through the key must-know items for every Whole Foods investor, including the main opportunities and threats facing the company. So make sure to claim your copy today by clicking here.
Ben Popkin has no position in any stocks mentioned. The Motley Fool recommends Hain Celestial and Whole Foods Market. The Motley Fool owns shares of Hain Celestial and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!