Profit From a Major Food Trend

This weekend, I watched the movie Food, Inc. on DVD. Coupled with the barrage of food recalls in recent years, the movie made me ask a few questions:

• Maybe what I had for lunch was more yucky than yummy?
• What options do investors have to profit from consumer interest and awareness of what they eat?

While there are a number of natural and organic brands in the market, many have been swallowed by large companies. For example, Dean Foods (NYSE:DF) owns Horizon Organic, a producer of dairy products, while Kellogg (NYSE:K) owns Kashi, a natural brand of whole-grain products.

I looked at four options for exposure to this trend.

Source: Capital IQ and Motley Fool CAPS. TTM = trailing 12 months.

Chipotle: Many consumers have enjoyed its mammoth burritos, but they may not have known they were stuffed with natural ingredients. The pork and chicken that Chipotle serves is naturally raised, as is the beef served in about 60% of its locations. Some 35% of its beans are organic, and 100% of its cheese and sour cream are made from growth-hormone-free milk. With just more than 900 stores, Chipotle has room to grow, and it sports above-average margins. Founder Steve Ells' appearances on Nightline and Oprah Winfrey's show should also increase consumer awareness of Chipotle's food pedigree.

Hain Celestial & United Natural Foods: Hain owns a portfolio of natural and organic brands, such as Earth's Best and Terra, sold at natural food and traditional grocery stores. Hain doesn't serve all of the stores directly -- a majority of its sales go through distributors. United Natural Foods is the largest of its distributors, representing 20% of Hain's sales. In turn, 33% of United Natural's sales are to Whole Foods. Unfortunately, both Hain and United Natural have undercooked margins.

Whole Foods Market: The recession and increased competition from traditional grocers like Safeway (NYSE:SWY) have conspired to put pressure on Whole Foods. However, the organic grocer still posts industry-leading gross margins thanks to its unique stores, and with fewer than 300 locations, it has healthy expansion potential.

Of these companies, I favor Chipotle and Whole Foods. They are both margin leaders, suggesting they are well-positioned in the food chain to capture whatever premium consumers will pay for natural and organic. Additionally, they have strong growth prospects. While Chipotle and Whole Foods carry lofty valuations, the market probably has it right this time. A Fool could do worse than wait for a pullback to get a piece of these still-attractive companies.

More for Fools to eat:

• No Organic Bull's-Eye for Target
• Save $100 on Groceries in 3 Easy Steps
• Not Enough Green at This Grocer