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2 Best Stocks to Invest in Nutritional Supplements

By Bob Ciura - Jul 8, 2015 at 8:45AM

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The nutritional supplements industry is booming. Here's why GNC Holdings and Vitamin Shoppe are two stocks to profit from the trend.

Health and wellness trends are undeniable forces right now. Consumer attitudes toward nutrition, exercise, and overall health are rapidly changing. Consumers have widely embraced the push toward better food, evident in the boom in organic foods. And they're getting more active, and using technological advancements like wearable devices to try to improve their health.

The financial figures associated with this are striking. The Nutritional Business Journal estimated in 2013 that sales of vitamins, minerals, and other nutritional supplements reached $32 billion in 2012, and was poised to double in annual revenue by 2021.

With all this in mind, Foolish investors may be wondering how to capitalize on this trend. Here are two stocks to do just that.

Two retailers capitalizing on emerging trends
Two of the best stocks to invest in nutritional supplements are retailers that sell a great deal of these types of products: GNC Holdings (GNC) and Vitamin Shoppe (VSI).

Source: Vitamin Shoppe website

GNC sells products has through a network of approximately 8,900 locations and its online channels; it reported $2.6 billion of revenue last year, roughly flat with the prior year. Future revenue growth is definitely within reach, as the company continues to open new stores. GNC opened 187 new stores in the U.S. last year, along with 114 new international locations. China could provide GNC a huge opportunity because the company has only a tiny footprint in the world's most highly populated country. GNC opened just two new stores in China last year, a tiny fraction of its more than 2,100 international locations. Boosting the total could really accelerate growth. The company plans to open 150 new international stores this year, which would represent 7% store growth in the international markets.

For its part, Vitamin Shoppe grew revenue by 13% last year and 9% in the first quarter 2015. Management credits deep relationships with its customers as the reason for its success. And, Vitamin Shoppe is aggressively buying back its own stock, which is another bullish sign. The company recently added $100 million to its share repurchase plan, on top of the $26 million left on the existing buyback authorization. These buybacks should help grease the wheels for continued earnings growth going forward.

As far as the future outlook, Vitamin Shoppe should have another successful year in 2015. Management forecasts 6%-8% revenue growth this year, boosted by 60 new store openings. This would represent 8% growth in store locations from current levels. Management also expects $2.05 per share-$2.25 per share in full-year EPS, which would amount to as much as 12% earnings growth this year.

Going forward, there's plenty of room for GNC and Vitamin Shoppe to keep growing. Given the strong growth in the broader industry, both companies are still relatively small. GNC and Vitamin Shoppe hold $4 billion and $1 billion market capitalizations, respectively. And, neither stock is expensive, when compared to their growth potential. Vitamin Shoppe trades for 19 times trailing earnings per share, while GNC is valued at just 16 times EPS, and both stocks are priced attractively in relation to the S&P 500 Index, which trades for close to 19 times EPS on average.

If these companies can continue to grow and surpass expectations, there is likely room for multiple expansion as well.

Great bets on nutritional supplements
The health and wellness trend has had an amazing run for the past several years, and with no signs of slowing down, it's not a bad idea for investors to consider GNC Holdings and Vitamin Shoppe. Both are retailers specializing in nutritional supplements, and both are reporting solid results.

Vitamin Shoppe is firing on all cylinders. It's growing like a weed, and has outperformed GNC for several quarters running, but GNC still has an ace up its sleeve in the form of international growth. And there's also the fact that GNC pays a nice 1.5% dividend yield to shareholders at current prices.

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Vitamin Shoppe, Inc.

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