Going Organic in Your Investment Portfolio
Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A friend of mine who is a head nurse at a local hospital once said that even if people don't buy organic everything, that at the very least they should purchase organic dairy. That advice resonated with me, and thanks to places like health-food retailer Whole Foods (NASDAQ: WFM), these items are easy enough to find. The ease at which consumers can purchase Greek yogurt and other health-foods is thanks in large part to one of the industry's major distributors -- United Natural Foods (NASDAQ: UNFI).
The health-food distributor is an industry powerhouse, having grown its sales and earnings at a compounded rate of more than 15% each year over the past 10 years, according to remarks made at a recent Baron Investment Capital conference. Over the past two years, revenues have climbed some 40%, or $1.4 billion, and year-to-date shares of United Natural Foods similarly have soared 40%.
United Natural Foods is North America's largest distributor, merchandiser and marketer of natural, organic, and specialty foods, as CEO Steven Spinner explained at the Baron Investment conference.
"We bring products from the fields and into the point of retail," he said. "There is a good chance you're eating products where we manage the supply chain."
Indeed, the company is among the most strongly positioned to capitalize on the growth that the health food market is experiencing.
Over the past two years, the organic market -- which is valued at about $78 billion and is only beginning to scratch the surface of the total market potential -- has grown between 7%-9%, Spinner noted, while adding that United Natural is uniquely positioned to capture that growth as well as claiming market share from competitors.
There are two primary demographics driving the growth of organic. Among them, the generation of young adults born in the last two decades of the 20th century is a group with some of the most awareness about organic foods and healthy eating. According to Spinner, this group will be among the catalysts for growth in the organic segment over the next 10 years.
Another category, which Spinner refers to as the "crossover" group of consumers, includes those that have incrementally been increasing their exposure to organic products over the years. He expects this group, too, will be a significant driver of market growth in coming years, helping to expand and strengthen organic foods' tiny 4% grip on the total food retail market.
Something that is lacking in the U.S. organic food market is the absence of public policy that would require food growers that use genetically modified organisms (GMOs), such as pesticides, to disclose that information in food labeling. The U.S. has lagged other countries that uphold this requirement, so far. The GMO-issue will be addressed in California in November, when Proposition 37, a law that would enforce GMO labeling in the state, will be on the election ballot.
The GMO issue has plagued companies like Monsanto (NYSE: MON), which insists that its use of these organisms on its corn crops and other agricultural products is safe. The company argues in its informational material that GMOs are not a health hazard and labeling foods that are genetically modified would unnecessarily cripple consumer confidence. Shares of the dividend-paying stock are up 23% year-to-date, but it will be interesting to see how investors treat the stock following the California election.
United Natural Foods is a key supplier to Whole Foods, the latter of which has come under fire of late for allegedly not properly labeling GMO products. On Monday, the health food retailer boasted of its disclosure to customers when it revealed its plans for the forthcoming Thanksgiving holiday. Whole Foods, which has seen its shares grow more than 16% since July, said it would only buy from suppliers that respect the Turkeys while they are raising them and said it would avoid any supplier that practices the use of gestation crates.
Investing in organic food suppliers or companies that use GMO practices brings to the forefront the concept of socially responsible investing, or at least investing in companies with mission statements and beliefs that are similar to our own. Where does the line between our virtues and a company's bottom line get drawn, and while I find it difficult to buy into a company with opposing values to my own I have a feeling the answer to that question is different for almost every investor.
Dive In, Investors
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 brand new premium report on the company, The Motley Fool walks through the key must-know items for every Whole Foods investor, including the key opportunities and threats facing the company. We're also providing a full year of regular analyst updates to go with it, so make sure to claim your copy today by clicking here.
GerelynT has no positions in the stocks mentioned above. The Motley Fool owns shares of Whole Foods Market. Motley Fool newsletter services recommend 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.If you have questions about this post or the Fool’s blog network, click here for information.