Organics - Green Chip Review

Profits Continue to Rise in Fair Trade Sector

In 1996 there was a woman at our local organic food store (Whole Foods had not purchased it yet) offering samples of organic, fair-trade chocolate. And while just the smell of the 70% Dark concoction made me salivate like Pavlov’s dog, she really depressed the hell out of me.

You see, while I was trying to enjoy the bittersweet taste of perhaps my only real addiction, she started rattling off all the reasons our chocolate consumption helps fuel things like poverty, child labor and slave trafficking.

My original thought during this impromptu lecture was, “Lady, just let me enjoy my chocolate!”

But I must admit--she got to me.

What can I say . . . I’m a sucker when it comes to human rights.

Throw in a market opportunity on top of that, and you’ve got me, hook, line and sinker.

The Advantage of Responsible Capitalism

A few years ago, the US State Department released a human rights report that found there are nearly 110,000 child laborers working in hazardous conditions on cocoa farms in and around the Ivory Coast.

This is where 43 percent of the world’s chocolate comes from.

Another 27 percent comes from Nigeria and Cameroon, two countries that don’t seem to have much of a problem with child slave trafficking, either.

Now bear with me, I promise this isn’t a lecture. In fact, even if I sound like an absolute greedy bastard at this point, there is an enormous opportunity here for investors.

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But before we get to that, we have to identify the conventional market conditions in which the chocolate industry operates. Because these, as you will soon see, present a way for us not only to make money, but actually to help change an industry that is in dire need of a wake-up call.

This, my friends, is the advantage of responsible capitalism!

All Will be Fair in Coffee and Chocolate

In 2002, the chocolate industry acknowledged that illegal child labor was a major problem at cocoa farms in West Africa. And to avoid proposed legislation that would have forced chocolate companies to mark their products with “no slave labor” labels (which most chocolate manufacturers wouldn’t have a chance of qualifying for), the industry agreed to a voluntary protocol to end forced child labor on cocoa farms by 2005.

Of course the industry dragged its feet and has done very little to address the child slave labor issues that continue to contaminate the industry.

But, as we’ve seen time and time again, the market can dictate change.

That has certainly happened in the coffee industry, where in 2004 U.S. retailers sold approximately $300 million in Fair-Trade Coffee. That’s about 34 million pounds, or 6% of the gourmet coffee market.

By 2005, that number grew to $500 million!

Today, more than 400 companies sell fair-trade coffee, including Starbucks, Dunkin Donuts, Proctor & Gamble, Ben & Jerry’s and Sara Lee.

One company in particular, Green Mountain Coffee Roasters (GMCR:NASDAQ), is a stock we told subscribers about back in 2005. This is a company that’s well known for its fair-trade gourmet coffees.

If you’ve ever doubted just how lucrative fair-trade can be, take a look at this company’s five-year chart:

Who would’ve guessed a fair-trade coffee stock could deliver gains in excess of 400% in four years?!

Of course, we’re talking about chocolate here . . . not coffee.

And while the fair-trade coffee market has been growing and profiting for decades, the fair-trade chocolate industry is still getting warmed up.

In fact, less than 1% of the $13 billion chocolate market is certified as fair trade. But it is growing.

From 2003 to 2004, sales of fair-trade chocolate grew 78%. And 2005 estimates were nearly double that.

So what does that mean for us?

A tremendous growth opportunity.

While there are currently no pure play fair-trade chocolate companies for us to invest in, the potential for one or two of them to go public isn’t out of the question.

Also, there are some up-and-comers that could be prime takeover targets by larger organic fair-trade, and even conventional food processing companies.

In fact, it was about this time last year that confectionary giant Cadbury Schweppes bought organic fair-trade chocolate maker Green & Blacks.

This little do-gooder is the fastest-growing confectionary brand, with more than 5% of the UK market for block chocolate.

Not surprisingly, with an annual growth rate of 69% since 1991, Cadbury swooped in.

Incidentally, Green & Blacks was represented at the LOHAS (Lifestyles of Health and Sustainability) conference I attended last week in California. I spoke with them briefly during a lunch break.

Well, honestly, I probably spent more time devouring their fair-trade samples than actually talking.

Regardless, Green & Blacks is the perfect example of what we should expect to see from the chocolate industry well into the next decade . . . and beyond.

As more develops, we’ll keep you posted.

Until next time . . .

Jeff

The Invisible $540 Billion Market

So here we are, less than a week away from Christmas, and nearly every poor soul who’s had to navigate the maze of drooling zombies, drunken Santas and overzealous soccer moms with a tendency to show their teeth if you even consider reaching for the last “Tickle-Me Elmo” on the shelf is now showing signs of fatigue.

Fortunately for this holiday shopper, the internet provides an efficient and extremely convenient alternative to the dreaded mall.

Of course, over the past few years, I’ve tried to purchase only “green” gifts for family and friends. And most of these can only be found on the internet, anyway.

(Hey, if you’re going to talk the talk, you’d better walk the walk. Right?)

I have to admit, though, this year’s search for the latest in solar-powered security lights, rain barrels and small kitchen composting units wasn’t a complete joyride.

You see, despite the overwhelming evidence that the LOHAS community is growing by leaps and bounds every year, many of the companies that supply this premium-price-paying psychographic are still coming up short.

It’s almost as if a good majority of these companies are still being run by those with good intentions—but not an ounce of business sense.

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If you take a look at some of these online stores that peddle “green” products and services, you can’t help but wonder how they stay in business.

I’m telling you, I’ve seen websites that looked like they were designed by 10-year-olds using 1990’s software. I’ve seen online stores with more than 50% of their inventory labeled as “out-of-stock.” I even found one website charging $20 to ship a pair of organic cotton underwear. And when contacted about this, they said it was a mistake and someone entered the information incorrectly. But weeks later, it still wasn’t fixed.

This isn’t rocket science, folks. Yet few of these retailers can actually get their act together long enough to stay in business beyond one fiscal year. And since we’re talking about supplying a young, vibrant market worth about $230 billion in the US and roughly $540 billion worldwide, that’s just pathetic.

Of course, there are a few companies that do get it. And as for them—well, I’m sure they couldn’t be happier to profit in an environment so free of any real competition.

Look at Whole Foods (WFMI:NASDAQ), for example.

Here’s a company that took the early lead in organic retail.

By consolidating all those little mom and pop stores that could never compete with conventional food retailers (or offer much in the way of reasonable costs or selection), Whole Foods Markets quickly became one of the most profitable supermarket chains in the country.

Wild Oats (OATS:NASDAQ), Whole Foods’ number-one competitor, also took advantage of this cluttered market early on. And now Planet Organic (POH.V) is doing the same thing in Canada.

By consolidating all those smaller, less-impressive (at least from an investment point of view) organic retailers, the company is quickly becoming the next organic foods powerhouse to compete with conventional food retailers—and actually make a pretty impressive profit along the way.

Another publicly-traded LOHAS firm that continues to prove itself as a leader in this market is Gaiam (GAIA:NASDAQ).

Here’s a company that’s been supplying the LOHAS market with all its “green” needs for years. And those who invested early in this one have made a fortune.

Just take a look at the company’s stock performance over the past two years:

Not bad for a company that makes a big chunk of its money from Yoga videos and organic cotton baby clothing!

I realize that there are a lot of people that don’t even know this stuff exists. But we do – and we’re cleaning up every step of the way.

Until next time . . .

Jeff Siegel

Managing Editor, Green Chip Stocks

The Company That Delivers 1,700% in Five Years

On Monday, Citigroup cut its rating on Wild Oats Markets (OATS:Nasdaq) from buy to hold.

The reason—valuation and possible disruption from management changes.

Green Chip Stocks has followed Wild Oats for nearly two years now. And the company has delivered. But with the market backing away from organic retailers lately, some investors question whether or not taking a position in one is such a good idea right now.

Heck, just last week, Whole Foods Markets (WFMI:NASDAQ), one of the country’s most successful and profitable grocery store chains, saw its stock fall more than 20% after it warned of slowing growth in spite of recent profits and new store openings.

Whole Foods Markets had delivered three consecutive years of double-digit comparable stores sales growth. But last Monday, company representatives announced they now expect sales growth between 6% and 8% for fiscal year 2007.

Investors heard that and dumped the stock fast.

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Canadian Green

Whole Foods Markets didn’t get to be one of the most profitable grocery store chains in North America by accident.

You see, the LOHAS market (Lifestyles of Health and Sustainability) is one of the most fertile markets for solid, long-term growth. And Whole Foods tapped it early—while no one else was paying attention.

This is where we Green Chip Investors can often be found snooping around for opportunities.

While shares of Whole Foods Markets and Wild Oats have both taken a bit of a nosedive over the past week or so, savvy Green Chip Investors are not only taking new, albeit smaller positions in these stocks, but also loading up on shares of the lesser-known organic food retailers that offer similar risk . . . but more bang for the buck.

Planet Organic (POH.V) is a perfect example.

Here’s an organic food retailer that pretty much runs the show in Canada when it comes to this market.

The company operates 62 stores throughout the country, and continues to deliver for investors.

Since the company has been public, it has finished with a gain EVERY single year!

But since it’s not a household name, like Whole Foods and Wild Oats, it gets little attention from the mainstream. Which, I can assure you, is fine with Green Chip investors looking for a solid organic food play at an extremely low price.

While Whole Foods Markets trades around $49.00 a share and Wild Oats trades for around $15.00 a share, Planet Organic closed the day today at $2.16 a share.

Now don’t get me wrong. I’m not saying Whole Foods Markets or Wild Oats won’t deliver for investors. Quite the contrary, actually.

Whole Foods Markets earnings are strong.

During the three months ended September 24, the company had net income of $39.8 million. During the comparable period in 2005, the company made $9.1 million. (This was after taking a one-time charge.)

And the company is still opening new stores left and right. Whole Foods’ CEO, John Mackey, expects to open 18 to 20 new stores this fiscal year.

Wild Oats, while not delivering super-impressive numbers this past quarter (same-store sales grew only about 1.6 percent), still maintains significant market share, too, despite some analysts who suggest the likes of Safeway and Wal-Mart will eventually steal their organic thunder.

Mark my words . . . this is not going to happen!

It is true that Safeway and Wal-Mart are beefing up their organic offerings. But the LOHAS market, more than 50 million strong (about 30% of US adults), is not going to go rushing into big-box retailers and conventional supermarkets for their organic food needs.

This is a loyal psychographic that will continue to spend their wads of cash at those stores that provide a complete LOHAS atmosphere. Organic foods, fair-trade coffee, yoga DVDs, etc.

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Unfortunately, those who have not completely immersed themselves in this market cannot possibly understand it . . . or profit from it.

We saw this when Whole Foods Markets first went public and some analysts laughed it off as a ridiculous idea that would fall flat on its face within a year.

50 million LOHAS consumers disagreed!

Listen: The profitability of this market has been validated. This isn’t even a debate anymore. And as Green Chip investors we know that this market will continue to provide significant gains.

It happened with Whole Foods Markets, it’s happened with Wild Oats and it’s about to happen again with that little Canadian organic retailer I mentioned earlier . . . Planet Organic . Which, by the way, just recently announced a 549% net income increase from fiscal year 2005!

(Since 2001, Planet Organic’s annual revenues have grown by approximately 1,700% from $1.6 million to over $30 million!)

For more on organic food markets and the publicly-traded companies that operate within this industry, click here now.

Planetary Potential

While wandering through the fully-stocked aisles of organic brands at my local Whole Foods Market, I found myself stopped in my tracks after getting a good, hard look at a delectable miniature chocolate raspberry cheesecake. I was drooling like a malnourished Pavlovian beast caught in the crossfire of dueling bell ensembles.

I'm telling you, some people are addicted to cigarettes, some people are addicted to alcohol - I'm addicted to good food. I need it everyday!

And even after carefully rotating the cake to the side in order to see a price I knew would be ridiculous, I gave into my addiction and forked over $4.99 for something that took about three bites to finish.

It's no secret that Whole Foods Markets offers top quality organic and natural foods to consumers who are more than willing to pay hefty price premiums. However, I must admit that I was a bit shocked after reading about the company's latest ad campaign in New York City.

The Most Bang For Your Buck!

Skip to next paragraphOver the next two and half months, Whole Foods Markets (WMFI:Nasdaq) will be running print advertisements in Manhattan that will concentrate on dispelling the myth that the organic retailer's prices are higher than its competitors.

While Whole Foods Markets' customers generally don't seem deterred by high prices, the company does have a reputation for overpriced goods. You may have even heard the store referred to as "Whole Paycheck."

Though this clever play on the company's moniker can easily provoke a grin for customers, it has also provoked Whole Foods Markets to address this issue before it weighs them down and sends customers to nearby competitors, like Trader Joes and smaller, less trendy organic co-ops.

Whole Foods executives are convinced that their supermarkets can be both high quality, organic and inexpensive. And in all fairness, beyond their specialty products, the company is competitively priced.

Business Day recently did a survey to test Whole Foods Markets' claim and found that, in several cases, the company's prices were the lowest in comparison to a nearby Food Emporium, Trader Joe's and Walgreen's.

An 8-oz package of Philadelphia Cream Cheese was $1.99 at Whole Foods, while Walgreen's was charging $2.19 and Food Emporium was charging $2.99. A 15-oz box of Kashi Crunch cereal was $2.49 at Whole Foods, while Trader Joe's was charging $2.69 and Food Emporium was charging $3.49.

I also did a little research here in Baltimore and came up with similar results.

One can of white albacore tuna went for $1.49 at Whole Foods, while the local conventional supermarket (Giant) was selling white albacore for $1.79. A one pint bottle of extra virgin olive oil was a buck cheaper at Whole Foods and an all-natural pound cake also came in at a buck cheaper compared to Giant.

But there's a lot more going on here than just price comparisons.

You see, Whole Foods Markets is one of the most successful grocery store chains in the country. Early on, they identified a lucrative niche market - and made a fortune!

Today, even with a number of competitors, the store still has an extremely loyal following.

But as more and more conventional consumers discover the lure of organic goods (thanks in large part to conventional retailers providing the crossover catalyst), price is increasingly becoming an issue.

And Whole Foods Markets isn't leaving anything to chance. That's why they're testing this latest campaign to change that ‘high-price' image.

The company's current customer base is a lock (assuming they continue to cater to LOHAS demands) and the crossover market will certainly respond to the competitive pricing.

Nonetheless, as investors we still have to look beyond proactive marketing tactics and take in the bigger picture.

Sure Whole Foods Markets is an organic behemoth with a stellar track record. And investors who got in back in 2002 watched shares of Whole Foods Markets explode 300% in only 4 years.

But that ride is over.

And those looking for an organic foods stock that'll give you a lot more bang for your buck would be wise to look to our friends in the North.

Planetary Potential

Last year I told you about a company called Planet Organic (POH.V). This is the small organic and natural foods retailer in Canada that's finished every single year since its IPO with a gain.

When I first wrote about this company, the stock was flying. Take a look:

Of course since then, the stock has experienced a steady sell-off...and is now hovering around the $2.40 - $2.50 mark.

But the company is stronger than ever.

Planet Organic's past four quarters have all been profitable. And it's most recent quarter showed a 51.7% increase in sales and a 34.2% increase in revenues from the previous year.

The company's also acquiring and opening new stores at the same aggressive pace it's maintained consistently over the past three years. In fact, just last month Planet Organic signed a new lease for a 10,000 square foot natural foods grocery, just 20 minutes west of Toronto.

And, as a nice bonus, Planet Organic recently announced that it will be trading as a Tier I company TSX Venture exchange. Tier I is the TXS-V's premier level and is reserved for the most advanced public companies with the most significant financial resources.

Of course, it's really Planet Organic's growth strategies that have allowed it to maintain its position as the clear frontrunner in the Canadian organic market.

Practically mirroring what Whole Foods Markets has been doing over the past 10 years, I believe Planet Organic is setting itself up for a run similar to what we saw with Whole Foods Markets back in 2002.

And those who seek a solid, long-term organic and natural foods investment now would be wise to go with Planet Organic.

If you'd like to read more about the burgeoning organic and natural foods markets, visit Green Chip Stocks now.

Until next time...

Jeff Siegel

Managing Editor, Green Chip Stocks