The rising price of food can be easily observed in the grocery store and Equities recently pointed to a number of ways investors can position themselves to benefit for the rising demand. The list included largely agricultural ETFs and related stocks, but there are a range of companies, ranging from coffee companies to specialty stockists within the general food industry that appear to benefitting from the changing landscape.
Among these stocks is Natural-foods retailers Whole Foods Market Inc. (WFM). The company looks appealing again, after sinking early in the month. Whole Food reached its highest level in five-years in the spring causing an instant shift out of Whole Foods favor as many suspected it was over bought. The tides appear to be back in the company’s favor though as they expand their aisles and make room for higher profits within their stores. Goldman Sachs analyst Stephen Grambling assumed coverage of whole Foods at a Buy, up from Neutral and added the stock to Goldman’s Conviction Buy list.
In June, BMO Capital Markets upgraded Whole Foods to outperform from market perform and boosted their target price 8 percent to $65 a share. Shares had been down over 13 percent after the April high but the new business plan the company is adopting is assuring analysts that the company is well-positioned for profits.
Whole Foods is simultaneously delivering strong comp growth and profitability while expanding their stores. Double-digit EPS growth and a sustained valuation should also help shares excel in the coming months. The company’s commitment to pursuing a growth strategy of increasing its square footage to help garner more profits from each square foot has proven effective in the past and is now in full force. WFM will increase their square-footage growth rate to 8.5 from 4.5 percent, which is anticipated to help the company further boost earnings.
The inflationary atmosphere is also beneficial for Whole Foods versus other retailers. Being a high priced specialty store, their naturally wealthier clientele will be less deterred by the higher prices and may even stand to benefit from the losses that impact the less affluent.
Green Mountain Coffee Roasters (GMCR)– Green Mountain Coffee Makers has already been a direct beneficiary of the rising prices. The maker of the Keurig brewing system and single-use K-cups, is up 191 percent for the year. A deal with Starbucks to distribute their coffee through the Keurig also helped boost the stock and could continue to provide earnings in the future. That said, the current prices of Green Mountain is such that it appears extended with a P/E ration of 120.04, but shares could continue to grow as the price of coffee rockets. Additionally the company has a smart twist in its business model that offers a continued source of revenue. Most of the company’s profits come not from the expensive Keurig, which is now in an estimated 9 percent of U.S. homes but their sale of K-cups, or the individualized pods is a gift that continues giving as costumers must continue to buy them throughout the use, increasing gross margins. Accordng to Jim Cramer, the company has a multiple of 23 with a 30 percent growth rate.
Starbucks (SBUX)-Starbucks has been experiencing a resurgence of late after lagging through 2009 and 2010. The company’s original business modelwas designed to overtake competition in a given area by over saturating the surrounding locations. The result led to more store locations than could be profitable and had a negative impact on sales. Since then, management began to reduce their store count and concentrate on improving the individual locations. This has proven effective for the company which has also decided to capitalize on the growing middle class in China, by opening over 400 stores in the nation. Additionally, the company is looking to open 1,500 stores in the Middle Kingdom in the next three years. the growing economy in that are and the higher demand for coffee globally could help Starbucks continue on its strong trajectory. Starbucks currently has an 18 percent growth rate that could grow alongside the global middle class