Stocks to buy

Eating Clean & Investing Green: 3 Organic Food Stocks to Chow Down On

There have been many lifestyle changes in the post-covid world. An important part is a focus on physical and mental health. Eating the right food is an important part of physical health, and with health issues like obesity and diabetes, among others, there is an increasing demand for organic food. From an investment perspective, it’s a good idea to remain invested in some of the best organic food stocks for the long term.

Returning to the demand, the market for organic food in the United States was $76.4 billion in 2022. It’s expected that the market will grow at a CAGR of 8.3% to touch $123.3 billion by 2028. I expect healthy growth to sustain even beyond this period. The beneficiaries will be companies in organic farming or companies retailing organic products.

This column discusses three of the best organic stocks to buy as the world gradually moves towards clean and healthy food.

Sprouts Farmers Market (SFM)

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Sprouts Farmers Market (NASDAQ:SFM) stock is among the best organic food stocks. At a forward price-earnings ratio of 15, SFM stock looks attractively valued and poised for an uptrend. As an overview, Sprouts Farmers is a retailer of natural and organic food products in the United States.

As of Q3 2023, Sprouts reported revenue growth of 7.6% on a year-on-year basis to $1.7 billion. For the same period, comparable store sales growth was robust at 3.9%. An important point to note is that for year-to-date, the Company opened 24 new stores. Aggressive store opening coupled with comparable store sales growth will help deliver sustained growth.

It’s also worth noting that the Company has an annualized operating cash flow potential of $550 million. This provides flexibility to invest in new stores and pursue share repurchases. As the market for organic products grows, Sprouts Farmers is positioned to create value.

Mission Produce (AVO)

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Mission Produce (NASDAQ:AVO) is another quality name in the list of best organic food stocks. When it comes to health benefits, avocado is second to none. As a vertically integrated avocado Company, Mission Produce looks like a long-term value creator.

As an overview, the Company has four state-of-the-art packing facilities in key growing locations globally, including California, Mexico, and Peru. The Company also has sourcing capabilities in multiple countries that ensure a year-round supply of premium fruit. Additionally, the Company has been retailing fresh mangoes to customers in 25 countries.

While revenue has been impacted in the last few quarters due to production and price realization factors, I remain bullish. The global avocado market was valued at $18 billion in 2022. Considering the health benefits, the per capita consumption of avocado is likely to increase in the European Union, China, Japan, among others. With a big addressable market, Mission Produce has ample headroom for revenue growth. AVO stock is likely to be a multibagger in the next five years.

Natural Grocers by Vitamin Cottage (NGVC)

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Natural Grocers by Vitamin Cottage (NYSE:NGVC) stock has witnessed a sudden spurt with a rally of 45% in the last month. This does not come as a surprise, with NGVC stock still trading at an attractive forward price-earnings ratio of 16.6. Further, the stock offers a dividend yield of 2.36%.

Natural Grocers is a retailer of organic groceries and dietary supplements in the United States. Recently, the Company reported Q4 2023 results, and sales increased by 7.6% to $295.1 million. It’s worth noting that the Company has now reported positive comparable sales growth for the 20th consecutive year.

Natural Grocers has already guided for 2% to 4% positive comparable store sales growth for the coming year. With the positive momentum sustaining, I expect NGVC stock to continue trending higher.

Another growth catalyst is the expansion of Natural Grocers brand products. The Company has introduced 101 new products in its brand portfolio in the last two years. As of Q4 2023, these products represented 7.8% of total sales. As the in-house brand portfolio expands and sales increase, it’s likely to impact EBITDA margin positively.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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