This Is the Best Stock to Ride the Premium and Healthy Food Wave

Source: WhiteWave

Consumers are increasingly demanding better-tasting, premium, and nutritious food products, and this has led to many food and beverage companies riding on this better-food wave. Assessing product-portfolio diversity and market growth opportunities is critical to picking the winners among the various investment opportunities in this space. In particular, WhiteWave Foods (NYSE: WWAV  ) stands out among its peers.

Multiple bets
There are currently multiple food trends competing for consumer dollars. Some want to enjoy coffeehouse standard coffee in the comfort of their homes and are filling their shopping baskets with creamers to add flavors to their coffee. Others are drinking more milk, in particular the organic, low-fat and lactose-free varieties, to get their regular dose of calcium. Other trending food categories include plant-based foods and beverages and organic food products.

As a result, it pays to be diversified and not bet the farm on any single trend or any individual product category. WhiteWave is one of the few food companies to have leading market positions in different food-product categories that are gaining momentum with consumers.

WhiteWave's premium dairy brand Horizon Organic is the leader in the U.S organic fluid-dairy-milk market; while its plant-based foods and beverages brand Silk accounts for more than half of North American sales. Outside the U.S., WhiteWave's plant-based foods and beverages brand Alpro is the largest player in Europe.

Absolute market share isn't as relevant as relative market share. WhiteWave's brands have more than four times the market shares of their next largest competitors in these categories. This enables WhiteWave to spread its advertising and research and development expenses over a larger sales base than its rivals, thereby giving it an edge in terms of cost efficiency and spending on new product innovation.

WhiteWave continues to build its presence in trending food-product categories that it doesn't have significant market share in; it completed the acquisition of Earthbound Farm in January. Started in 1984, Earthbound Farm is the largest organic produce (non-dairy) brand in the country and enjoys significant mind-share with consumers given its long history and track record in the category.

Significant growth runway
While WhiteWave's leading market share in its product categories might suggest limited growth opportunities, the reverse is true if one examines industry data. Less than one in four households consumes either refrigerated organic milk or organic packaged salad. Organic milk accounted for only 7.5% of total U.S. retail milk sales in 2011, but has since grown to represent 13% of the North American market. On the other hand, organic packaged salad's market share of the total U.S. salad category has increased from 13% in 2008 to 23% in 2013.

Even for refrigerated flavored coffee creamers where market penetration is relatively high at 36%, recent trends are in WhiteWave's favor. From 2011 to 2013, milk lost popularity among consumers to liquid creamers for the purpose of coffee creaming, according to NPD Group. WhiteWave is well positioned to benefit, as its coffee-creamer brand International Delight is the second-largest brand in the U.S.

Another food company benefiting from positive growth prospects is Annie's (NYSE: BNNY  ) , a producer of natural and organic pastas, meals, and snacks. While Annie's is the market leader in mac and cheese pastas, snack crackers, and fruit snacks, its individual products vary widely in terms of market share.

According to a Consumer Insights survey by SPINScan, Annie's overall U.S. household penetration is 6.5%. Going deeper into the individual products, Annie's snack crackers and fruit snacks are only consumed by 1% of households; its mac and cheese products have penetrated 3.7% of households. This suggests cross-selling opportunities for laggards in Annie's product portfolio.

There are also far more consumers with either the desire or purchasing power for Annie's products. Based on June 2012 Nielsen data, about 8 million households with children younger than 18 have consumed Annie's products. However, this proportion is small relative to 19 million households that have indicated their willingness to pay more for healthy food and 22 million households with incomes in excess of $50,000.

Source: WhiteWave

New product innovation
Dominance in growth markets counts for nothing in the future if companies aren't able to sustain momentum with a robust pipeline of new products. WhiteWave has a good track record of best-selling, innovative products. Its Silk PureAlmond Almondmilk (first almond-based beverages outside of core soy products for WhiteWave) and International Delight CoffeeHouse Inspirations (high quality coffee creamers with a wide range of flavors) were ranked among the top 2% of consumer packaged-food and beverage launches in their first year of sale.

Product innovation isn't limited to natural and organic consumer packaged-foods companies; conventional consumer packaged-foods companies like Kraft Foods (NASDAQ: KRFT  ) also have their fair share of innovation success. Kraft pioneered the liquid water enhancer category with MiO in March 2011 and has since introduced variations such as MiO Fit and MiO Energy.

MiO rides on the convenience trend, as more consumers like to make their own drinks on the go. MiO Energy contains caffeine and B vitamins to give consumers the energy they need; MiO Fit is positioned as a zero-calorie customizable sports drink with electrolytes and B Vitamins, minus the sugar.

Foolish final thoughts
Investors are spoiled for choice when it comes to stocks with exposure to growing consumer food trends. In my opinion, WhiteWave is the best proxy for increased consumer demand for quality and healthy food given its diverse product portfolio, strong industry growth prospects, and product innovation track record.

Does that make WhiteWave the Fool's top stock?
There's a huge difference between a good stock and a stock that can make you rich. Good stocks like WhiteWave can make you rich, because it hedges its bets by diversifying across various trending food product categories. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


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  • Report this Comment On March 06, 2014, at 2:35 PM, Decoy0527 wrote:

    With Annie's selling at 46 X annual earnings, a lot of good years are already baked into the share price. Since they manufacture almost nothing, 46 X seems like a very high price. At 20, maybe 25 X earnings I might buy Annie's. Not at 46 X.

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