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Obesity is becoming such a major problem in many parts of the world that health care experts have suggested that it should be tackled with war-like intent, much like battling an epidemic. The problem arises out of the combination of unhealthy eating habits and the lack of exercise. Sugar and high fructose corn syrup can be found in everything from beverages to seemingly "harmless" food items and have become a permanent part of people's diets. The average American consumes 150 pounds of sugar every year, and there is obviously a large market for healthier natural replacement sweeteners.

Extracts from the stevia plant have been used in some countries for centuries as natural sweeteners and have now started to grab attention, especially when there are some safety concerns about the use of artificial sweeteners. Japan's concerns in this respect led to the approval of the use of stevia in the early 1970s, with commercial production commencing in 1971. The U.S. approved the use of a stevia extract rebaudioside A (reb A) in 2008, and the European Union followed suit in 2011. Reb A is one of the four major steviol glycosides found in stevia's leaf tissues that produce its sweet taste, and is the sweetest component at hundreds of times sweeter than sugar. It is also considered to have the least bitter aftertaste.

This compound is available in the U.S. in the form of Truvia, which comes from a joint partnership between Cargill and Coca-Cola (NYSE:KO), and as Purevia, through a partnership with PepsiCo (NYSE:PEP) and the Whole Earth Sweetener Company. Pepsi and Coke have already started using stevia-based sweeteners for some of their products. Stevia-based sweeteners have started taking away market share from sucralose (Splenda), aspartame (Equal), and saccharin (Sweet N' Low). The Wall Street Journal says that Truvia is now a major branded sugar substitute, second only to Splenda in sales.

One small early-stage company, Stevia First (OTCQB:STVF), which is headquartered in the Central Valley region of California, is ready to give the existing players a run for their money. Stevia First is not only focused on refined product sales, but also on supplying its customers with an affordable and steady supply of stevia leaves of consistent quality. Because it is a natural product, supplying steady, consistent quality is not going to be easy to achieve; but such an achievement can provide a substantial competitive advantage. The company intends to overcome the need for continuous laboratory testing to fine tune parameters for manufacturing to compensate for inconsistent levels of Reb A. Stevia First intends to operate an integrated agri-bio business model that takes advantage of a talented pool of farmers, agronomists, and agricultural innovators based in the Central Valley region of California. Stevia First also hopes to establish biotech research partnerships with neighboring universities, which could provide access to government funding for research and development of stevia.

Stevia First has made huge progress in the implementation of its business plan by leasing 1,000 acres of land (leasing has the advantage of conserving capital). The company is building research and manufacturing facilities on the land. Stevia First is also working on multiple methods of stevia production, including farm-based stevia production and fermentation-based stevia production. Both methods are quite complex, and the production and marketing of California-based stevia products on a large commercial scale is not expected for 2 to 3 years. This is also the time frame to develop preparatory stevia plants. The company has licensed intellectual property rights from Vineland Research and Innovation Centre, and the license includes compositions and methods for preparing steviol glycosides and steviol through fermentation-based processes. There is also a separate consulting contract under which the two companies will work jointly on developing stevia.

Stevia First's business model is impressive and it has made satisfactory progress in implementing its plan so far. The company is currently trading around $0.54, between a 52-week range of $0.23 and $3.58. If you are looking to gain exposure to the huge market potential of stevia, you should certainly consider an investment in Stevia First. With a market cap of $27.7 million, it is considered a micro cap company and the risks associated with micro caps is considered to be higher. An investor must weigh the greater risk associated with the potential reward before investing in any company.

Another interesting company that is taking a completely different approach to the sweetener business is Senomyx (NASDAQ:SNMX). This company is not attempting to replace sugar, high fructose corn syrup, or other sweeteners. Instead, it is building a portfolio of taste modifiers. The company currently has more than 300 patents pending approval. These taste modifiers increase the sensitivity of the consumer's taste to existing sweeteners so that smaller quantities of the sweetener can be used in products. The company is developing diverse modifiers for different sweeteners, and the market potential is considerable. Consumers benefit from the lower caloric consumption due to a reduced intake, while the manufacturer saves on cost for the same reason.

S6973 and S6932, which are sucrose modifiers, could potentially be really big for sales or licensing, or even as a basis for acquisition by other companies. The two modifiers allow a reduction of up to 50% in the quantities of sucrose used in order to have the same perceived level of sweetness as unmodified sucrose. Sucrose is used in many beverages and foods, and there could be huge upside here if food or drink manufacturers begin to use these modifiers in their products. S52617 (S-617) also has a lot of potential because it has resulted in a very substantial reduction of high fructose corn syrup and sucrose in taste tests with prototypes of various products. Because of the high levels of high fructose corn syrup used in many soft drinks, success with this product could produce huge volumes of business for Senomyx.

Another flavor modifier, called S2383, also has a valuable application. It improves the potency of sucralose (which is already hundreds of times sweeter than sucrose) and allows for a 75% reduction in the amount of the expensive sweetener that is normally used. Two other flavor modifiers, S6821 and S7958, are designed as "bitter blockers," which means that they take away the bitter aftertaste of some sweeteners, such as aspartame. Since stevia has a slightly bitter aftertaste, these bitter blockers can help improve the flavor, which would also give it additional potential in the market. Senomyx has already received international regulatory approvals for many of its flavor modifiers, and regulatory filings are now commencing for the S52617 modifier for sucrose and high fructose corn syrup.

Senomyx is collaborating with companies like Ajinomoto, Firmenich International, Nestle, and PepsiCo, and this could make it an attractive acquisition target. The company is already generating revenues (just over $15 million in the first half of 2012), and nearly 80% are earned from its collaboration with PepsiCo and Firmenich International. The company's cash burn rate has been limited to $6 million for the first half of 2012. Senomyx ended the first quarter of 2012 with $51.3 million in cash and liquid assets. While Senomyx's products have yet to prove themselves in the market, this company is showing a lot of potential. Senomyx is currently trading around $1.95, between a 52-week range of $1.72 and $5.25. If you believe in the approach of modifying existing sweeteners and its market potential, you should consider investing in Senomyx.

Another company to watch closely in this space is PepsiCo , which has to address health concerns because it has substantial business in foods, snacks, and beverages. PepsiCo has made a move into stevia-based sweeteners by joining hands with Chicago- based Merisant's subsidiary, The Whole Earth Sweetener Company, in developing a stevia-based product called PureVia, which it is using it for some of its products. PepsiCo is focused on providing healthier foods and beverages, and has made a number of moves in this area. The company is well aware that consumers are becoming much stricter about what they eat and drink. Over the years, PepsiCo has acquired companies like Quaker Oats and Sabra, and has introduced a number of health-conscious products, including healthier Frito-Lay options, whole grain products, and low sodium items along with beverages that have lower sugar content.

PepsiCo has recently made a major move away from its traditional beverages by setting up a joint-venture with the Theo Muller Group, a large German dairy company, which will be called Quaker Dairy. The joint venture will sell yogurt and dairy products in the U.S., and this is an important strategy in developing a health food portfolio. The U.S soft drink market has been shrinking over the past several years, but yogurt sales have grown from under $5 billion in 2006 to $6.4 billion in 2011, and could reach almost $10 billion by 2015. This move will allow PepsiCo to go head on with General Mills (NYSE:GIS), the producer of Yoplait, and Dannon, which combined account for nearly 60% of all yogurt sold in the U.S. Driven by the expected revenues from the joint-venture, Pepsi wants to generate revenues of $30 billion from its health product portfolio, but it will take some time for results from Quaker Dairy to materialize. In the continuation of this strategy, PepsiCo has already acquired a 66% stake in Wimm-Bill-Dann Juice Company, based in Russia, for $3.8 billion, and has cemented a partnership with Saudi Arabia's Almarai. Both of these companies are the largest dairy producers in their respective countries.

PepsiCo has been very proactive in growing its businesses, and this is evident from its operations in two major emerging markets, India and Brazil. PepsiCo has not been afraid to diversify its products and modify them to suit local tastes. Revenues in India grew 30% last year to $2 billion, primarily due to Pepsi's ability to market products that cater to local tastes. Products for the highly price sensitive rural markets had appropriate price points such as the snack Lehar Iron Chusti in the state of Andhra Pradesh at a price of Rs 2 (<4¢). PepsiCo is now planning a national launch of the snack as well as the introduction of Quaker Oats in affordable snack pack sizes. Brazil is the second largest producer of crackers and cookies in the world, and Pepsi has acquired Mabel, the country's second-biggest cookie maker, in a deal worth $520 million.

Unlike its giant rival Coca-Cola, whose sales have been relatively flat, PepsiCo has lots of growth potential, and there is a considerable upside to its stock price as a result. The stock has been trading around $71.11 recently, between a 52-week range of $61.50 and $73.66. The dividend yield of around 3% is an added bonus, and I highly recommend this stock to investors.

Disclosure: I am long PEP, OTCQB:STVF, KO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: 3 Companies That Could Soar On Massive Stevia Market Opportunities