Profiting from Green Lifestyle Trends
Two Winning Stocks from our Recent Editions
In 2000, Time magazine ran a memorable cover story about golden rice, a rice strain genetically modified to contain beta-carotene, a precursor to vitamin A. Vitamin A deficiency is a scourge in the developing world. The lack of it can lead to blindness in pregnant women, miscarriages and leads to as many as 500,000 children becoming blind each year. Golden rice could solve all that.
In fact it's one of the great arguments in favor of food from a genetically modified organism (GMO)--that altered rice like this will solve a lot of the developing world's nutritional problems. So how many people are benefiting from GMO rice right now? Zero. Maybe one day golden rice will attack vitamin A deficiency, but despite the promise shown in that Time cover story, not one grain is in the market. Sadly, golden rice isn't the only superfood that has yet to prove its worth.
Instead, according to the International Service for Acquisition of Agrobiotech Applications, food from GMOs is confined largely to four crops: soybeans (53% of the world total plantings in 2008), corn (30% of plantings), cotton (12%) and canola (5%), with a small percentage of food supply sugarbeets grown in the Rocky Mountains now in their second year of being genetically modified. The U.S. is by far the leader in GMO crops--half of the GMO crops in the world (by acreage) are grown here.
The other great argument for GMO crops is that they promised to boost yields to otherwise unattainable levels. Yet that isn't the case. A graph of U.S. crop growth between 1930 and 2006 (via the Center for Food Safety) shows that the introduction of supposedly higher yielding genetically modified crops has not affected the steady trend of higher food production.
In fact, a large 1998 study found GMO soybeans actually yielded 5.3% less than conventional soybeans. A similar 2001 study by the University of Nebraska found GMO soybeans yielded 6% less than conventional soybeans.
So why do farmers use something that doesn't boost yields and isn't a miracle food? To reduce labor costs. Crops are modified for one of three characteristics: to be herbicide resistant, insect resistant, or both. Quite simply, genetic modification keeps the farmers from having to make as many passes in the field weeding and allows them to use herbicides at greater levels without harming the crops.
Some problems with that: the level of pesticide-resistant weeds is rising fast, negating much of the benefit of herbicide-resistant seeds, plus there are known links from the pesticides to leukemia, low exposure toxicity to frogs, endocrine disruptions (leading to early puberty in animal and humans), low sperm counts and more.
As a father of an 18-month old--and of a baby due in October--I'm not a fan of participating in what is essentially a mass food supply experiment so farmers can save a few pennies on gasoline and spend more money on seeds from Monsanto, Bayer, Syngenta, Dow and DuPont, the five pro-GMO companies that control 80% of the commercial seed market. So my wife and I eat as organically and as locally grown as we can. We're fortunate to be able to do so.
And it turns out, organic farming methods are actually good for farmers as well.
In Africa, 114 organic and near-organic farm projects involving 1.9 million farmers has boosted average yields 114%, while an alternate method of planting rice in Asia (more widely spaced plants with no flooding) raises yields 30% without any chemical fertilizers or pesticides. Introduction of natural predators has been shown to control insect populations better than pesticides, such as the parasitic wasp with the mealybug in Africa, saving the staple crop of 200 million people. This is the breakthrough for which Dr. Hans Herren won the World Food Prize in 1995.
As an investor and editor of Cabot Green Investor, however, I separate my personal feelings from investment analysis, relying instead on sound fundamental analysis I developed at Forbes and Dow Jones and the unique and time-tested technical analysis performed here at Cabot, publisher of the Cabot Green Investor. Yet in this situation, my personal preferences and my investing sense dovetail.
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If you follow the stock market, you already know the stock of Whole Foods Market (WFMI) has been a big winner due to this trend for much of this decade. In fact, in recent years, sales of organic products overall were rising 25% a month (!) until the economic turmoil of last autumn. Naturally, because organics are generally pricier, that rate of growth dropped. Yet while pundits expected the recession to be the death knell of the widespread move to organics, it hasn't been.
The organic and natural foods market segment is still seeing growth of 1% to 5% a month, compared to 0.4% annual growth for groceries at large. What appears to have happened is that consumers haven't cut back heavily on organic groceries, although they have shifted more to bulk organics). Instead, they have cut back more on restaurant dining.
One of the big winners of the move toward organic products I've discussed here before--Green Mountain Coffee Roasters (GCMR). The Vermont company has a large mix of organic and fair trade coffee in its offerings. The beans are sold through outlets like Costco, while McDonald's serves its coffee in the restaurant's New England and Hudson Valley outlets.
Green Mountain also produces the Keurig coffee brewer and its popular single-serve K-cups. The Keurig makers have just begun distribution through Wal-Mart, while high-end coffee-maker company Cuisinart has recently inked a deal to market its own version of Keurig brewers.
Cabot Green Investor readers were told to buy Green Mountain stock on April 15 at 34. Two weeks later it leapt to 49 on huge volume as earnings reflected the fundamentals we pointed out to readers. It's still looking good now at 58, a 63% gain for subscribers thus far.
We also bought into another Green lifestyle stock recently: United Natural Foods (UNFI), which we're expecting to continue to improve as the bull market in Green stocks continues and as the economic recovery gathers momentum. UNFI is the largest distributor of organic and natural foods in the U.S., managing 60,000 products for 17,000 stores, from mom-and-pop corner shops to Whole Foods, which recently extended the company's distribution contract through 2013.
We expect United Natural Foods to do well thanks to macro trends toward organic food, and also because it is taking great strides in making itself even more competitive. While its main competitor, Tree of Life, is being jettisoned by its European parent company, UNFI is expanding and will have national coverage for the first time this year when a new Texas distribution center opens.
United Foods is also pushing into the specialty foods market, finally having worked through the integration of a specialty foods distributor it bought in 2007. Specialty foods aren't necessarily organic, but they appeal to much the same demographic--people looking for high-end jams like Stonewall Kitchen and imported goods like Twinings teas, both UNFI brands.
It also serves loyal ethnic markets with specialty items like foods from Goya and Manischewitz. UNFI has only started to tap the $48 billion specialty foods market, but its distribution heft gives it a great shot at making inroads.
We bought UNFI on May 15 at 25. Shares then were sold down to 22 by a market expecting poor earnings due to the recession, but as we told subscribers in a May 28 update, "we expect UNFI to show a good quarter."
On June 2, it reported earnings that beat Wall Street estimates thanks to stronger-than-expected consumer buying and lower costs. Shares rallied to 26 on strong volume, where it is now building a base for a further move higher.
It pays to know the Green market.
For Cabot Wealth Advisory
Editor's Note: The economic stimulus package is flooding the Green market, creating a once-in-a-lifetime buying opportunity. Be an early investor and profit from the surge, like the one recently seen in Green Mountain Coffee Roasters. Cabot Green Investor Editor Brendan Coffey discovered this stock long before it soared, bringing subscribers 50% gains. Click here now to get started today!