Examining Healthier Options in Our Diets and Investments
As I have gotten older my health has become more of an issue to me. I now pay more attention to the types of food I consume and find myself gravitating towards the healthier, “better for you” products. With that in mind, I decided to take a look at the “health food” segment of the market to see if there were any stocks that would merit an investment at this time. From gluten free foods to vegan diets to zero calorie drinks, the “healthy” food segment has exploded in the last couple of years.
Boulder Brands, Inc (BDBD) is a brand I have come to use on a daily basis. The company operates in two market segments, Smart Balance and Natural. The Smart Balance segment offers buttery spreads, spreadable butters and blended butter sticks, enhanced milk products, peanut butters, cooking oil and cooking sprays, and light mayonnaise dressing products. The Natural segment provides buttery spreads, sticks, soymilks, nut butters, and vegan mayo dressings under the Earth Balance brand name-- shelf stable and frozen gluten-free products. With all the attention of late towards gluten free foods and the vegan lifestyle, this is a stock that has seen a lot of interest. In the last six months shares have increased 90%. In a sign the market is gaining a lot of attention, Italian gluten free food maker, FinGelit, is planning to conduct an IPO soon.
The company plans to list up to 30 percent of its capital and will use the proceeds to keep growing in a fast-expanding market, also leveraging on new products. The gluten-free food market is expected to reach 4 billion euros in revenue this year and similar large market gains are to be expected here in the U.S.
BDBD has annual revenue of $432m with a PE of 33.52. Operating cash flow comes in at $28 million. BDBD is carrying $239m in debt that is a cause for concern. BDBD also has a very large short interest in the stock at over 8%. As an investment I would need to see BDBD retrace some more before considering an entry.
General Mills, Inc (GIS) has seen this healthy trend develop and has been pushing to reformulate its brands since 2010. Today, General Mills offers more than 300 products for the increasing number of consumers seeking to live gluten-free. New gluten-free products launched in the U.S. this summer include:
· Vanilla Chex cereal
· Betty Crocker Gluten Free Sugar Cookie Mix and Gluten Free All-Purpose Rice Flour Blend
· Pillsbury Gluten Free Chocolate Chip Cookie Dough, Gluten Free Pie and Pastry Dough and Gluten Free Thin Crust Pizza Dough
· LARABAR uber bars in Baklava, Sticky Bun, and Coconut Macaroon flavors
GIS has a market cap of $30b and pays a nice dividend payout of $1.52 annually, for a 3.19% yield. For my long-term investments I always like to get a dividend, and the return here is attractive. GIS has $1.77b in free cash flow, a PE of 17.8 and trades for only 4.4 times book. Another positive here is that the return on equity is a very handsome 22%. For a stable, dividend-paying stock in my target market, GIS is a solid investment choice.
Coca-Cola (KO) is also getting in on the health food craze as well. The company, along with Pepsi, has launched new sodas flavored with stevia leaf to combat the perception that its drinks cause obesity. Coke signed a deal with Cargill to use its Truvia brand of stevia sweetener to flavor its Sprite sodas. Stevia is the fastest growing of all zero calorie sugar substitutes on the market. The global market for stevia rose from roughly $20 million in 2008 to an estimated range between $800 million to $2 billion in 2011. Sales of Cargill’s stevia-based sweetener, Truvia, jumped 73.7% between 2009 and 2010. Today Truvia accounts for 9.1% of the sales of the sugar substitutes in the U.S.
Coke also invested in Swiss firm Evolva (SWX:EVE) in March. Evolva is working on a fermentation process to produce the relevant steviol glycosides for use in sodas. The patents for this technology (which both Evolva and Cargill use) belong to the small California-based company, Stevia First (STVF). The company has exclusive and worldwide patent rights to this native steviol-producing enzyme and could be a stock to watch closely with this growing trend towards more sensible food options. Last week the STVF CEO gave a very insightful update on the companies prospects, detailing their commercialization plans as well as an outline of their patent protection plans. Investors interested in this new sweetener should take a strong look to invesitage further.
The health food trend we are experiencing is one that is expected to continue growing. In this article I have examined differing companies in the sector. BDBD is a play on the foods I actually use, which was the reason for my interest at first. The stock appears to be slightly overvalued right now, but is one I would consider for investment on pullbacks. GIS is the clear leader for a play on the health market. It pays a dividend, has a very nice story, and is the kind of stock that should see safe-haven buying in a market such as this. The mega company has hundreds of health food options that I use on a daily basis, and its valuation is good.
Warren Buffet owns stock in KO, and that is always a positive sign for a long-term investor. The company’s soda sales have been declining, but a focus on zero calorie products could help it. The interesting play on a Coke investment is with STVF. However, if the stevia sweetener market continues to increase in sales, the patents owned by STVF could prove to be very valuable.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.