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Organic Gains

04/02/2004 12:00 am EST


Neil George

Editor, Profitable Investing

"Consumers are seeking better dietary alternatives," says Neil George, editor of Personal Finance . "Those companies that enable us to eat well are now set to make more cash." Here, he reviews Whole Foods, Wild Oats, and other favorites in the organic and natural-food market .

"Consumers are demanding more quality and are willing to pay a bit more for safety and taste. As a result, we are seeing an ongoing expansion of healthier, quality-conscious food retailers, ranging from small private operations to the emerging leaders like Whole Foods (WFMI NASDAQ) and Wild Oats (OATS NASDAQ), which continue to gain market share. Consumers who want to avoid the woes of contaminated beef and poultry-and who wish to buy organic and otherwise safe produce and other specialty items- are seeking out these newer vendors. This is why sales growth for Whole Foods and Wild Oats have climbed to 17% and over 24%, respectively, over the past year. Meanwhile, many of the big-name chains were lucky to see even modest gains in sales. At the same time, Whole Foods and Wild Oats continue to expand operating profits at healthy high single-digit to double-digit gains. So the choice is clear: To eat and earn well, it's time to buy Whole Foods and Wild Oats.

"It also makes sense to look at the producers who are already addressing the rapidly expanding demand for healthier and higher-quality foods. Regardless of the dietary fad of the day, obesity is certainly a problem in this country. When looking for the best to buy, look first to Hain Celestial (HAIN NASDAQ), one of the leaders in the health-food business. From specialty and organic foods and ingredients to healthy snacks, Hain is much more than a tea company. Sales to grocers and specialty stores continue to climb-by more than 34 percent in the last year alone-and profits are gaining at a similar remarkable rate.  United Natural Foods (UNFI NASDAQ) is the distributor of an even wider array of core groceries, shipping products to the likes of Whole Foods and Wild Oats as well as to more pervasive smaller, private vendors. Like Hain, United Natural is moving more and more of its fresh, frozen and packaged goods at big-boy growth rates exceeding 13%. And the company is boosting profits by wider margins along the way. Neither of these companies is a household name yet, and may never be. But they're the best behind-the-scenes purveyors supplying the expanding trend of health and quality food consumption. And they're right up front to benefit from continued interest in eating right."

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