Who's Cashing in on the Paleo Craze?

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Paleo-mania continues to gain popularity among cutting-edge health fanatics, and is now spreading to the masses. Followers of the "Paleo", or "Caveman", lifestyle eliminate foods from their diets that were introduced anytime in the last 10,000 years. Foods within the Paleo parameters include fruit, vegetables, meat, fish and nuts -- and that's pretty much it. Proponents of Paleo claim increased overall health and higher energy while decreasing dangerous inflammation. Google searches for "Paleo" were at an all-time high in January, as New Year's dieters tried out the latest trend. Which stocks will benefit from 2013's hottest diet?

Gluten, which is in bread, pasta, cookies, and many other processed treats, is strictly forbidden on Paleo. According to an NPD Group poll taken in January, one third of American adults are actively decreasing their gluten intake. Roaming through any natural food grocer, Paleo dieters will find Udi's and Glutino brands of gluten-free products from parent company Boulder Brands (NASDAQ: BDBD). The company just reported a huge quarter with unit sales of Udi's and Glutino up over 60% each. The company expects continued growth of 30% in these brands during 2013. Besides Udi's and Glutino, Boulder also owns patents on several unique natural food products in the Smart Balance family, among other smaller brands. Recently, the company stated their intent to continue developing new growth in the natural and organic food and beverage sectors. But the stock has gotten no respect for Boulder's growth or initiatives. Due to some cash flow and bank covenant questions, shares of Boulder were hammered in late February, losing 30% of their value. For those who believe the gluten-free and organic trends will continue, now is a splendid entry point for Boulder Brands. 

There are very few quick service restaurants that comply with the Paleo way. Burgers and fries are out, as are fried chicken, tacos, and pizza. So what is left? Chipotle (NYSE: CMG), that's what! In the absence of using spears and clubs to drag home dinner, Chipotle is the closest that hunter-gatherers will come to the Stone Age. While Paleo won't allow everything on the menu, Chipotle is far and away the best quick service choice available. The Paleo diet, along with the overall consumer trend toward local and organic fare, continues to push expectations for Chipotle higher, with a corresponding increase in share price. Look for Chipotle to continue growing units and comparable sales at double digit rates in 2013 while continuing to build the strongest quick service brand.

Paleo protocol mandates that all foods are organic, natural, free-range, grass-fed, and local.  So unless you've been living under a boulder for the past decade, you know that Whole Foods (NASDAQ: WFM) is the easiest and most convenient grocery for this costly cuisine. While some regional and national chains now carry limited numbers of organic or local brands, Whole Foods is the likely destination for the Paleo type. With enormous sales growth in the past years and expectations of double-digit growth for the foreseeable future, Whole Foods has proven to be resilient throughout many diet fads. If Paleo pandemonium fizzles out tomorrow, Whole Foods will be right there for the next diet fad.   

In the past, diet trends have lasted for years and have spawned ancillary markets in books, videos, self-help courses, and packaged goods. During peaks of popularity, the Dr. Atkins diet impacted commodity prices of meat and eggs while hurting pasta and potato sales. If the first quarter of 2013 is the dawn of the Paleo revolution, investors could be in a prime position to cash in on the craze.  Look for each of the above companies to give impressive first quarter results, but listen closely for comments that indicate that Paleo is becoming extinct. 

houlijr8 has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, Hain Celestial, and Whole Foods Market. The Motley Fool owns shares of Chipotle Mexican Grill, 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!

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