The stevia industry recently got a big boost when cardiothoracic surgeon and television personality, Dr. Mehmet Oz, on his top 25 rated Dr. Oz show aired, "Should You Give Up Artificial Sweeteners?" In the opening segment he "set the record straight" on artificial sweeteners, and millions of people were introduced to his choice for the best sugar substitute available today, naturally-derived stevia. Given the near $60 billion spent on television advertising in 2011 to get products noticed, stevia, at no cost, was introduced as the best sugar substitute to millions of viewers by a doctor who is considered by Esquire Magazine as one of the 75 most influential people of the 21st century. To better understand that television has a great influence on getting a product into the hands of millions of people across the world, one needs to look no further than Oprah Winfrey's frequently-televised book club which would guarantee a writer as a best seller. However, it wasn't only that stevia was touted as the best sugar substitute that opened people's eyes, but it was explained to millions of viewers that, according to Dr. Oz, new research has shown that artificial sweeteners, such as Monsanto's (MON) aspartame, Tate & Lyle's (TATYY.PK) sucralose, and NutraSweet's neotame could actually cause weight gain. These sweeteners may also be the cause of metabolic syndrome, an epidemic sweeping the country. Metabolic syndrome is a combination of high blood pressure, excess belly fat, and insulin resistance-and per Dr. Oz, it has been shown that just one soda with artificial sweeteners is enough to lead to this syndrome.
According to Dr. Oz, stevia appears to be the only major sweetener with no ascertainable side effects. That may come to a surprise for users of the reduced calorie sugar alcohol products such as xylitol, a popular alcohol sugar-based sweetener developed by the DuPont Company's (DD) subsidiary, Danisco, and labeled "natural". According to The People s Chemist, Shane Ellison, xylitol is derived from the crushed fibers of sugar cane, which uses a multi-step chemical reaction "that involves the use of sulfuric acid, calcium oxide, phosphoric acid, and active charcoal. The end product is a bleached, powdery blend of sugar alcohols that taste sweet on the tongue, but are not absorbed by the body." He further stated when asked if xylitol is a natural product, "I don't consider anything natural if it's processed with man-made chemicals." Dr. Oz pointed out the two main issues he has with sugar alcohol sweeteners. One, it is basically a laxative, and after 10 grams-or half a sugar free cookie-bloating, gas, and other digestion issues may occur. The other is that the chemicals in sugar alcohol are causing the bladder muscle to be stimulated when the bladder is not full, thus causing the user to go to the bathroom when they normally wouldn't need to-and worse, the excess stimulation wears out the bladder.
Given that stevia has Dr. Oz's support, there is a good chance that the use of stevia could increase, and this bodes well for investment potential. The question is, which companies selling, manufacturing, or growing have the best chance at increased profits? Obviously, Coca Cola (KO) and PepsiCo (PEP) are two companies that have added stevia in their products worldwide and probably will continue to do so as the popularity of stevia continues to increase. But, as an investor, can you see big profits investing in either company on a stevia play? You probably cannot. However, there are some smaller bottlers and growers that might have better upside potential as more main stream media outlets, like the Dr. Oz show, continue to tout the benefits of stevia, and the public continues to demand more stevia products.
Monster Beverage Company (MNST), the second largest sellers of energy drinks, is also one of the leaders in zero and low-calorie stevia-based drinks with its Hanson's Natural Lo-Cal juice cocktails, and Blue Sky Zero sodas, both sweetened with Truvia, a stevia extract developed jointly by Cargill and Coca-Cola. Blue Sky Zero sodas come in seven flavors: Cherry Vanilla Creme, Lemon Lime, Lemonade, Jamaican Ginger Ale, Creamy Root Beer, and Cola. Monster also carries a lesser-known line of energy drinks, Blue Energy, including a zero-calorie stevia-based product. At this point it seems that Blue Sky Sodas are a niche market for those consumers who are looking for a more natural beverage with no preservatives or artificial colors. But as trends have been changing and natural products have gone more mainstream, given Monster's distribution outlet, the company has the ability, if it so desires, to mass produce and distribute Blue Sky and Blue Energy to outlets across the country. Considering that Starbucks (SBUX) is now in the low-cal stevia-sweetened energy drink business with its Refreshers line, one might see Monster add a stevia-based sugar free energy drink to its Monster line to combat Starbucks. To get a better idea of that potential impact on stevia sales, it should be noted that Monster energy drinks accounted for over 91% of the company s sales in 2011.
Monster lost momentum in August when the company announced it missed the street estimated quarterly profits. Earlier this month, investment services company, Stifel Nicolaus, downgraded MNST from a buy to a hold as it expects a larger drop in sales growth through first quarter of 2013. The firm says Monster Beverage's sales growth missed expectations in second quarter of 2012 and subsequent U.S. scanner data has showed further slowdown. Stifel Nicolaus sees earnings multiples not likely to rise until sales increase and/or expectations are reduced. Monster has a market cap of $10.36 billion and is trading at $56.68 per share, down from its mid-June 52 week high of $83.96 per share, which still gives it a very high P/E ratio for its sector at 31.65. This may have also squashed the rumors of a possible buyout by Coca-Cola. On a positive note, if the demand for sugar-free stevia products continues to increase as it appears, Monster has put itself in a great position with its stevia-sweetened products already on the market shelves to continue to expand, and perhaps once again, catch the eye of a suitor such as Coca-Cola.
Reed's Inc. (REED), a small boutique, natural, new age beverage company based out of Los Angeles, CA has seen its stock skyrocket with a 650% increase year to date. The company has also rolled out its line of natural, sugar free sodas using stevia as the sweetener. Reed's Ginger Brews come in six varieties, all brewed with fresh ginger root, spices, and fruit juices, with no flavor crystals or chemicals as many of the major bottlers use. It also owns Virgil's, with its line of natural sodas including a brewed root beer, and a real cola. Reeds offers a low-calorie ginger brew, and Virgil's has a zero-calorie line featuring root beer and Dr. Better, each sweetened with stevia. In 2011 Reed's had sales of $25 million, a 23% increase over 2010. The company turned a profit in the second quarter of 2012, for the first time, and has an excess of $3.1 million in working capital. Revenue continues to increase into 2012, with its zero-calorie Virgil's stevia beverages increasing sales by 50% over last year. Reed's beverages, with sales increasing, are still a small niche market for those who want a quality, flavorful, natural soda, and are willing to pay a premium. However, given that the stevia craze is probably in its infantile stage, Reed's might be in the right place at the right time, with its products already on the market, ready for expansion. On Tuesday the company announced it had gained authorization for Reed's and Virgil's brands to be placed in the Tops Friendly Markets. Tops Friendly Markets, headquartered in Williamsville, NY, has 153 locations, and is another step for Reed's products into the mainstream channels. The one question is, given the stiff competition in the beverage industry; does Reed's stock have the gas to continue its amazing run that it's seen this year? The stock price shot up, from $1.10 per share in January to $8.18 per share today. Reed's might no longer be a sleeper, but it is still a true budding growth stock. However, it might be wise to wait for a good dip in the price before buying-if that dip comes.
Almost all of the stevia harvested today is grown outside of the U.S. on small farms predominantly in China, Vietnam, and Central America. Given that the World Health Organization estimates stevia could eventually replace 20-30% of all dietary sweeteners, clearly a consistent and reliable supply line would be necessary to meet those demands. An emerging nano-cap company hopes to be one of those future supply lines. Stevia First (STVF.OB), an early-stage agribusiness based in Yuba City, California (the state's most fertile agricultural region) is focusing on developing and producing stevia on an industrial scale. The $28.81 million market cap company recently licensed a new fermentation process developed by Vineland Research and Innovation Centre out of Canada. The license allows the manufacturer to consistently produce the sweet steviol glycoside, rebaudioside A, (Reb A), the sweetest and most desirable part of the leaf, without the need to necessarily grow the plant. If this process can work on a large scale, it should cut the costs of producing the sweet Reb A by as much as 70%. On August 29th, when Stevia First announced that it had bought the rights of this fermentation-based process from Vineland, its stock price soared from $0.40 up to $0.94 before settling in the mid $0.70s by the end of the trading day. Today the stock trades in the $0.50 to $0.57 range. These swings are consistent with micro-cap development-phase companies, especially those with no current sales. Share prices in develop-phase companies swing up or down based on perceptions of their future earnings or the possibility of future earnings. Stevia First is no different.
At this time, Stevia First is strictly a development-phase company developing one of the hottest products on the market today, stevia. That alone should make the company worth a look. However, if its fermentation-based process turns out to be successful, that reality could put it on the forefront as an inexpensive and consistent supplier of stevia, and the company could be primed for a buyout by any of the many larger bottlers who are now adding stevia to its products. But caution must be taken, as this is a volatile company with high risks along with the potential high rewards. Considering that Dr. Oz broadcasted his pick of stevia as the best of the sugar substitutes to millions of viewers, this indicates a new awareness and helps to solidify the product's validity and demand. The odds are that stevia usage will continue to grow, and Stevia First might be one of the companies that could rise along with the stevia boom.