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How to Profit from the Organic Food Movement

organic-food-movementThe organic food movement gets larger every day, with more American’s buying locally raised and organic vegetables, meats, beers, and snacks.

This notion has created a significant demand for high quality foods, specifically organic and “all-natural” products. Today, consumers are better educated than ever before about the health benefits of avoiding processed foods. And that knowledge is creating more demand for locally grown and organic foods.

Some investors have been profiting from the health food craze by investing in Whole Foods Market (NYSE: WFM).

As the largest and best-known organic grocery store chain with 367 stores, Whole Foods has been growing rapidly. Over the last three years, sales of grown by 40% to reach $14 billion in 2014. Meanwhile, Whole Foods stock is up an impressive 860% over the last five years.

You may have missed out on the biggest profits with Whole Foods stock. But there is a little known company that’s at the epicenter of the organic food movement.

That company is Where Food Comes From (NASDAQ: WFCF). The company is well positioned to profit from the eating healthy and local food movement. And that could mean big gains for the stock.

Where Food Comes From is in the business of third party food auditing. In simple terms, the company goes to different plants and production factories to inspect the cleanliness and make sure food companies are producing their food as it is advertised.

This company is tiny, with a market capitalization of just $45 million. Yet Where Food Comes from has a lot of clients you’ve already heard about. Among these are Costco Wholesale (Nasdaq: COST) and Chipotle Mexican Grill (NYSE: CMG), two growing food companies.

With 18 years in the business, the company has a head start on industry relationships, expertise and general knowledge of food auditing. That puts the company in a dominant position in the food auditing business. With more than 10,000 customers, Where Food Comes From is the #1 independent agricultural auditor in the country.

Revenue and profits have been modest thus far.  In the first 9-months of 2013, the company’s revenues were $3.7 million. With a net loss of one penny per share, Where Food Comes From is essentially operating at breakeven.

But those results don’t represent the potential for this company to become much bigger. Where Food Comes From wants to become a one-stop solution for all standards in the food industry. Demand for this type of solution exists today and is growing rapidly.

The key piece of this story rests on the company becoming the industry standard for the retail and consumer market. By acting as a third party auditor, the firm provides transparency between consumers and suppliers.

I believe there is potential for Where Food Comes From to become a nationally or even globally recognized stamp of approval for quality food. If the company were able to achieve that ambitious goal, its value would be far more than the current $45 million market cap.

Just to put things in perspective, the total current market for food auditing in the U.S. is estimated at $100 million. That’s pretty small.  But if you consider the labeling business at $2.7 billion, it’s easy to see why the company has its sights on this much bigger market.

Recently, Where Food Comes From began trials of a labeling program in several prominent high-end retailers. Some of the first stores to participate were Heinens Supermarket and Delmonico’s in New York. Any positive feedback should result in a wider rollout of these services at other retailers.

If this initiative to expand to the labeling market is successful, Where Food Comes From stock has a lot of room to run. This micro-cap has been building a reputation second to none in its niche, and now its time to take things to the next level.

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