The Real Green Revolution

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

What do megasuccess stories Chipotle (NYSE: CMG  ) and Whole Foods (Nasdaq: WFM  ) have in common? Answer: the green stuff. I refer, of course, to guacamole.

Both these companies offer reliably good, fresh guacamole. And while it may be difficult to say exactly how much money each makes directly off guacamole -- there's not a line for that on an income statement, unfortunately -- it's pretty difficult to imagine Chipotle or Whole Foods without the excellent guac, isn't it? Fast casual chains Panera (Nasdaq: PNRA  ) and Cosi (Nasdaq: COSI  ) also serve avocado on sandwiches and as an alternative to mayonnaise or oil.

Sounds like a ridiculous investment idea, but look at the returns
Suddenly, avocado is everywhere. You can add guacamole to your sandwich at Subway, or to your "California Whopper" at Burger King. On the companies' side, avocado is a premium offering which presents upselling opportunities, whereas for consumers, avocados offer great taste without the junk-food guilt.

"Avocado consumption in the U.S. went from 550 million pounds in 2006 to 1.35 billion pounds in 2010," according to industry mag Produce Retailer, which reports that, "Avocados' nutritional value and taste -- as well as retail and foodservice promotions touting avocados in everything from guacamole to sandwiches, soups and salads -- are driving demand."

It should come as no surprise then that the market's only pure play on avocadoes and guac, Calavo Growers (Nasdaq: CVGW  ) , has returned over 210% since 2006. Sure, past performance is no indication of future returns. But with avocado demand still growing by 10% a year according to industry experts, and a market cap south of $400 million, Calavo Growers may still have a long runway ahead.

The future is now -- and it's guacamole
Calavo Growers buys up avocado harvests from California to Chile, New Zealand to the Dominican Republic, and then sells the avocadoes to third parties such as restaurants, wholesalers, food service companies, and grocery store chains. This fresh products segment accounts for about 80% of net sales. The company has a Foods division, as well, which oversees the manufacture of guacamole and fresh salsa and the distribution of these products to stores, and it accounts for the remaining 20% of net sales.

Customers can also buy Calavo's avocado products online, Harry-and-David style. A gift pack of Hass Avocados retails for $26.95, for instance (and if any of my family and friends are reading this, yes, I'd love one for my birthday).

What may seem a ridiculously niche investment idea has caught the attention of giants like Fidelity Investments, which owns 11% of Calavo Growers' shares, and BlackRock, which owns 7%. That's not necessarily confirmation of an investment thesis -- these are some of the world's largest asset managers, of course -- even if it is suggestive.

A uniquely qualified CEO, plus a growing dividend
Calavo Growers enjoys seasoned leadership: namely Lecil Cole, who may be the only chief executive officer-slash-avocado farmer and cattle rancher around. Cole has previously worked for Safeway and Hawaiian Sweet and owns about 10% of Calavo Growers' shares.

Why else might this investment idea be one worth looking into? Well, the company has also recently upped its dividend, raising the yield to 2%. That's pretty tasty.

Time to take a bite?
Certainly, plenty of individual investors are reluctant to invest in agricultural commodities. Not only are there risks such as changes in weather patterns, natural disasters, and pests (including avocado rustlers, or those who steal from avocado orchards), it's difficult to predict the seesaw of supply and demand without knowing the avocado market intimately.

Still curious? Click here to see what the Motley Fool CAPS community is saying about Calavo Growers. If you like the dividend here but were hoping for more, you can uncover more great picks in our special free report: Secure Your Future With 9 Rock-Solid Dividend Stocks. The report is free today, but it won't be forever, so take your copy while you still can by clicking here.

Catherine Baab-Muguira has no financial interest in any of the companies mentioned here. The Motley Fool owns shares of Panera Bread, Whole Foods Market, and Chipotle Mexican Grill. Motley Fool newsletter services have recommended buying shares of Whole Foods Market, Chipotle Mexican Grill, and Panera Bread. Motley Fool newsletter services have recommended creating a bear put spread position in Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (0) | Recommend This Article (16)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1838405, ~/Articles/ArticleHandler.aspx, 10/26/2016 3:47:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 6 hours ago Sponsored by:
DOW 18,169.27 -53.76 -0.30%
S&P 500 2,143.16 -8.17 -0.38%
NASD 5,283.40 -26.43 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 4:00 PM
CVGW $61.30 Down -1.35 -2.15%
Calavo Growers CAPS Rating: ****
CMG $405.67 Down -7.68 -1.86%
Chipotle Mexican G… CAPS Rating: ****
COSI $0.03 Down +0.00 +0.00%
Cosi CAPS Rating: *
PNRA $194.56 Down -4.06 -2.04%
Panera Bread CAPS Rating: ****
WFM $28.59 Up +0.32 +1.13%
Whole Foods Market CAPS Rating: ****