After the publishing industry, dollar stores and technology sector, it is now time for the natural and organic food companies to grab your attention. Apart from an overall increasing appetite for organic products, what is bringing these companies to the fore is the industry’s recent consolidation news of General Mills Inc. (GIS - Free Report) acquiring Annie’s Inc. for about $820 million (read: Annie's Soars on $46 per Share Offer from General Mills).
The natural and organic food companies may now be on the radar of investors, who are more interested in the next takeover target or buyout offer to cash in on.
The food industry is experiencing changes in consumer preference toward products with less artificial sweeteners, sodium and saturated fat. Consumers now prefer a nutritional diet and are ready to shell out extra for it. That is why the organic food industry, which was at its nascent stage a decade ago, now represents over 4% of $760 billion annual food sales in the U.S., as indicated by Organic Trade Association (“OTA”).
Players such as The Kroger Co. (KR - Free Report) , Campbell Soup Company (CPB - Free Report) , Wal-Mart Stores Inc. (WMT - Free Report) and Sprouts Farmers Market, Inc. (SFM - Free Report) are entering as well as expanding their presence in the organic and natural food business.
According to the survey conducted by OTA, sales of organic products in the U.S. surged at its fastest rate in five years at 11.5%, to $35.1 billion in 2013 from $31.5 billion in 2012. Organic products are expected to generate approximately $42 billion in sales this year. Sales in the organic food market have been growing at an average rate of 10% annually since 2010.
But with growing demand for organic food and increasing accessibility to these products, competition to gain market share has heightened. Here is your opportunity to be invested in these companies that might fetch a huge premium in any event of takeover.
3 Prominent Picks
We suggest investing in The Hain Celestial Group, Inc. (HAIN - Free Report) , a leader in natural food and personal care product categories. The stock holds a Zacks Rank #2 (Buy) and has amassed a return of roughly 28.3% over the past year. Though the stock looks pricey with a forward P/E (price-to-earnings) multiple of 26.67x, it should not disappoint investors given the company's long-term expected earnings growth of 14.1%. This Lake Success, NY-based company delivered an average positive earnings surprise of 1.1% over the trailing four quarters.
The WhiteWave Foods Company , a packaged food and beverage company in North America and Europe, is another stock to bet on. This Zacks Rank #2 stock has amassed a return of 90.2% in the past year and has a long-term earnings growth rate of 23.1%. Shares of this Denver, CO-based company trades at a forward P/E of 36.65x, a sharp premium to the industry average but attractive from an earnings growth perspective. The company delivered an average positive earnings surprise of 7.5% over the trailing four quarters.
Another stock that investors may look forward to is Boulder Brands, Inc. , provider of health and wellness food solutions in the U.S. and Canada that has gained 12.2% following the General Mills deal to buy Annie’s. Also a Zacks Rank #2 stock, this trades at a forward P/E of 37.26x, a premium to the industry average, and has a long-term earnings growth rate of 20% that makes it attractive.
We believe that above natural & organic food stocks with favorable Zacks Rank stands well on investors’ platform of both health and wealth.