On November 30th Health Canada approved the use of stevia as an additive in food and beverage products, which means new markets are opening for growers, producers and manufacturers of stevia. It also means that Canadians, especially the 9 million diabetics or pre-diabetics, can now enjoy the benefits of stevia with its zero calorie and zero glycemic index. Prior to November 30th stevia was only available in Canada in natural health products. Health Canada received three separate food additive submissions for approval for the use of steviol glycosides as a tabletop sweetener and a sweetener in a variety of unstandardized foods.
With Health Canada's approval stevia continues its growth to be the worldwide natural zero calorie alternative to sugar, high fructose corn syrup and artificial sweeteners, such as aspartame and Splenda. According to Elaine Watson at Food Navigator within the next few months new markets will open for stevia, such as India, Thailand and South Africa as they are expecting regulatory approval. With the large populations of the new markets slated to open, and the growing consumer demand for healthy alternatives to sugar - this will be a huge win for stevia producers. At this time stevia's largest market is the U.S, though sales in Europe, Mexico, China and Brazil are expanding. And now with Canada's approval, companies should soon be clamoring to get its stevia-based products on grocers' shelves as quickly in 2013 as possible.
So how can an investor profit from stevia's popularity and growth? The major bottlers such as Coca-Cola (KO) or PepsiCo (PEP) are already using stevia as a sugar substitute in a number of their products, and it appears they will continue to add more to their low calorie or zero calorie pipelines. However, since the two bottlers control such a high market share already, it probably won't affect the stock price as it would smaller companies. Following are some companies that could see their stocks move upward. The list includes growers and producers focusing on developing a sweeter stevia product, or food manufacturers and bottlers adding stevia to more of their product lines.
Monster Beverage Corporation (MNST) is hardly considered a small company, but it is in a great position to benefit from the Canadian approval with its line of stevia-sweetened Blue Sky Sodas and Hansen's low calorie juices, which are already on the market. Monster is the leading distributor of energy drinks with its line of Monster Energy, Java Monster, X-Presso Monster, as well as soda and juices through its Hansen's, Blue Sky sodas, and Hubert's Lemonades. Monster carries a diet energy line, Monster Zero Ultra, Monster Low carb, and Monster Absolutely Zero, all sweetened with the artificial sweetener Acesulfame - K. With the changing consumer demand for a healthier alternative to sugar, Monster may want to look in its rear view mirror at Starbucks' (SBUX) energy drink, Refreshers, which is a natural product and uses stevia as its sweetener. It may start catching up, as it becomes a more desirable choice for the new generation of consumers. With countries approving stevia's use, it also gives Monster a golden opportunity to enhance its product line and attract new customers with a healthy alternative. Stevia is not new to Monster; it is already used it in many of its products. Time will tell if Monster will set itself apart from the rest of the field and develop more products, especially its diet Monster energy drinks, sweetened with stevia.
Monster Beverage is an $8.84 billion market cap company. Even though the stock has been hammered over the past six months, down over 30%, partly due to the tragedy of the 14-year old girl who died after consuming two Monster Energy beverages, it still has a rather high P/E ratio of 28.4 compared to the industry sector average of 15.1. Monster Beverage announced its net income rose 5% in the third quarter, to $86.1 million, or $0.47 per share, from $82.4 million, or $0.44 cents per share. Revenue, which rose almost 30% in the last three quarters, increased to $541.9 million from $474.7 million. Some analysts are beginning to think that the worst may be over for Monster, and on Dec. 6th Consumer Edge Research upgraded Monster from a neutral to an outperform. It will be interesting to see if other analysts follow suit, as the overall rating still remains neutral. Earlier this year there was some talk about a takeover target by Coca-Cola, which helped the stock price to raise over $83.00 per share. However, Coca-Cola quickly squashed the rumors, perhaps due to Monster's high multiple. Now with the stock price down to $51.54 per share, its multiple lower, and its price-to-book value at 9.94 being well below the industry average of 25.1, it may be time for Coca-Cola to re-examine its interest in the company. If so, I'd look for the stock to rise again.
Sunwin Stevia International (SUWN.OB), based in Qufu, China, a vertically-integrated manufacturer of stevia products and traditional Chinese medicines, announced the installation of new high-tech production lines to expand its stevia production capacity to 1,300 metric tons, including 500 metric tons of high-grade stevioside Rebaudioside A (Reb A), and 500 metric tons of steviosin, a stevioside extract used by the pharmaceutical industry. Sunwin began its expansion project in April anticipating an improvement in demand for stevia as a healthy low calorie sweetener and is now poised to capitalize on the industry's upward trend. With Canada's approval of stevia, it becomes apparent that the company was correct as stevia continues to grow in worldwide acceptance. Sunwin's new stevioside extraction line uses a state-of-the-art crystallization process that substantially reduces the production time while increasing product yield leading to a substantial reduction in overall processing costs as utilization rates increase. Sunwin has begun trial production of its new lines and anticipates its added production capabilities to be fully operational in the first quarter of 2013.
In August Sunwin entered into a worldwide stevia distribution agreement with WILD Flavors, giving WILD a non-exclusive worldwide right as a distributor to market and resell all Sunwin stevia products. Sunwin is also developing 6 new formulations in conjunction with WILD with the goal of penetrating the $10.3 billion Chinese bakery market by marketing to manufacturers to develop private label products - a move that the company sees will bolster its domestic production base in China.
Sunwin, with a market cap of $45.1 million, has had an impressive 3-month run, up 30% to $0.27 per share, but still off its 52-week high of $0.35 per share. In the past week of trading, its volume has risen to an average of 41,000 shares traded daily. I like the aggressiveness of Sunwin, and its timing appears to be spot on, especially with Canada's announcement last week. Given the continued expansion of stevia globally, Sunwin may well be one of those small companies that may benefit shareholders with impressive stock gains if its success continues.
Stevia First Corp. (STVF.OB), an early-stage agribusiness based in Yuba City, CA, may be poised to benefit heavily from growth of worldwide stevia use even though it has not sold any product as of yet. Stevia First's goal is to develop high-quality stevia at a highly competitive price. It is developing its stevia product using two completely separate methods designed for two completely different customer bases. The first is an industrial-size organic stevia farm in the U.S. This can be very lucrative considering that in 2010 organic food and beverage sales were at $26.7 billion, and in 2011 these sales grew to $29.9 billion. And as of now there is only one organic stevia farm for the industry, and that's in China. Stevia First's other method of producing high-grade steviol glycosides is through a yeast fermentation-based process it licensed from Canada's Vineland Research and Innovation Centre. Even though stevia can be up to 300 times sweeter than sugar, there is actually very little of the sweet components in the stevia plant. The necessary extraction and purification of the stevia account for about 70% of the production costs. The controlled fermentation process makes it possible to convert low-cost plant materials into sweet steviol glycosides, and the process could bypass or significantly diminish the need for stevia leaf production altogether. This process has great potential for the company because, once operational, the fermentation process can ensure a consistent supply of stevia that is not dependent on weather or soil conditions. It can also produce a consistent tasting stevia from batch to batch, plus the process may have the ability to develop new characteristics in the strains of the Reb A that would be sweeter while weeding out the less desirable characteristics, such as bitterness or the lingering aftertaste. This fermentation method, once operational on an industrial scale, should afford Stevia First to bring its stevia to market at a much lower price than farm-grown stevia. That alone should interest manufacturers and producers that could then manufacture their own stevia-based products at a lower cost.
The question is, with stevia being a hot commodity, why isn't Stevia First rushing its production to get a crop in the ground and take advantage of the growing interest in stevia? The answer can be found in an earlier interview with Stevia First's CEO Robert Brooke: "Our goals are not geared towards short-term crop production, but towards building a sustainable stevia industry in the U.S. We are working to create the plant and practices desirable for farm-based stevia production, and also speed the emergence of fermentation-based production methods, since we see large markets for products derived from each." Mr. Brooke went on to explain: "So rather than focusing on small-scale commercial stevia leaf production to make a few bucks in the short-term, our efforts are directed towards building sustainable competitive advantages that will enable us to compete favorably in the long-term with overseas stevia growers and producers."
Stevia First has a market cap of $21.27 million, and its shares trade just below $0.40. The stock has been stagnant lately due to the lack of news coming from the company. However, Mr. Brooke did present an overview of Stevia First's growth strategy at the 5th annual LD MICRO conference on December 5th in Los Angeles. So hopefully there will be some news soon about how the company is advancing. What I find interesting about Stevia First is not that it plans on being a vertically integrated stevia company, but the two methods it plans on developing the actual stevia. The reason I look favorably on its methods of developing stevia is because, even if the company ends up not being a vertically-integrated company and just focuses on producing stevia and selling its product to companies like PureCircle, Cargill or Kraft (KRFT), that alone should could make Stevia First a successful company. However, if its fermentation process becomes successful, I think stevia First could be primed for a buyout by one of the larger manufacturers. For those two reasons alone, I see that stevia First has a lot of potential for growth with the expanding stevia market, and this stock is worth a look at.
With Canada's approval for the use of stevia in food and beverage products, and the outlook of other countries soon approving the use of stevia, there are a number of companies that should benefit from the growth in stevia, including the latter three discussed above. I think Monster will continue to grow and could be a candidate for a takeover bid in the future. I also think it is the least risky of the companies mentioned. However, I think Stevia First has the potential to be biggest mover percentage-wise if, or when, it gets its production off the ground. But, caution is advised: Microcap stocks can be volatile - they offer huge upside potential and corresponding downside risks. These three companies offer good current-level entries for various levels of risk. Interested investors are advised to perform additional research to ascertain which, if any, of these fit their investment criteria.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.