Stevia, the herb native to Paraguay whose dried leaves are anywhere from 200 to 400 times sweeter than sugar, has become the hottest product in the zero calorie natural sugar substitute or reduced sugar market. Ever since the Food and Drug Administration (FDA) gave the sweet stevia extract rebaudioside A (Reb A) a Generally Recognized As Safe (GRAS) status in 2008 and the European Union approved it for sale in 2011 companies large and small have clamored to bring the sweet tasting product to market. It makes sense considering the global sweetener market is a $56 billion dollar industry and the U.S. weight loss market is a $60.9 billion market. To be clear, times have changed; this is not the same taste that stevia had years ago when it sat on the health food store shelves. Today's stevia has had much of the bitter licorices and lingering aftertaste bred out, leaving a crisper sweet flavor. Giant food and beverage corporations like Coke (NYSE:KO), Cargill, PepsiCo (NYSE:PEP), and Merisant have worked to develop stevia based products and stevia sugar blends, like Truvia and PureVia for its diet beverage lines and tabletop use. PureCircle (OTCPK:PCRTF) the largest producer of stevia not only teamed up with The Imperial Sugar Company to produce a stevia sugar blend called Steviacane, just last month it secured S&W Seed (NASDAQ:SANW) as its first grower in the U.S. to plant its own line of stevia plants that is supposed to have a cleaner taste with none of the bitter aftertaste. Below are three companies producing, developing or growing stevia, and though they may not get the notoriety as other companies involved in stevia these companies are worth a look.
Archer Daniels Midland Company (NYSE:ADM) the global food processing giant out of Decatur Illinois is no stranger to the sweetener business as it is a major supplier of both high fructose corn syrup (HFCS) and its sugar substitute sorbitol a derivative of corn alcohol that is roughly 60% as sweet as sucrose. Since 2009 ADM has been working on a pilot program with farmers in Paraguay to add stevia to its pipeline of sweetening products. ADM has teamed with roughly 250 farmers in Paraguay to provide training for sustainable stevia cultivation practices, while helping them by providing economic support through firm marketing pricing, assisting in securing loans, and purchasing the farmers' stevia crops when harvested. Properly cultivated an acre of stevia can be harvested three to four times a year, thus the impact on the area's economy can be significant. ADM expects the project will encourage the production of stevia, a labor-intensive crop, as a source of earnings for small farmers. ADM is hoping that the model that they set up with these initial farmers will serve as a model that can be replicated elsewhere, thus develop a new natural zero calorie sweetener for its pipeline.
ADM, with a market cap of $17.12 billion, has shown solid profits over the past 10 years, though 2011 and 2012 have been more challenging due to economic factors and the drought. ADM announced its fiscal year 2012 net sales at $89 Billion. At the end of October the company reported financial results for the quarter ending Sept. 30, 2012 with net earnings of $182 million, or $0.28 per share, down from $460 million or $0.68 per share from the first quarter of 2012. While its bioproducts decreased $179 million to a loss of $26 million sweeteners and starches profit increased $64 million to $94 million, as tight sweetener industry capacity supported higher year-over-year selling prices. The company has also implemented cost reductions by restricting its global workforce saving 150 million in its run rate, and improved processing efficiencies by reducing the costs in ethanol production, maintenance and energy costs, and closing plants that had lower returns. ADM has a strong balance sheet, and is sitting on $1.4 billion in cash which it may use for acquisitions such as Australia's largest grain handler, GrainCorp, where it already owns 14.9% of its shares. The company has operating capital of $14.65 billion with a total debt of $10.3 billion. Since 2007 investors have seen ADM's dividends increase, and in October the Board of Directors declared a cash dividend of 17.5 cents per share to Stockholders of record Nov. 15, 2012, making it the 324th consecutive quarterly payment, a record of 81 years of uninterrupted dividends. ADM stock has been battered and is down over 20% in the last six months closing at $25.47 per share. However, given the solid business practices, cost cutting, and their pipeline of products this is a good stock, and being well off its 52 week high of $33.98 makes it more attractive. At this time I think the upside potential outweighs the downside and I consider the stock a hold though if the share prices drop further it might be a good buy for ones long term portfolio.
Stevia First Corp. (OTCQB:STVF), a small development agricultural biotechnology company in Yuba City, CA appears to be ready to move forward with its research and development as it recently secured $500,000 in funding. It also is working hard to get the word out through social media about stevia and Stevia First as a company. On Oct. 30th STVF announced that it has entered into definitive agreements with institutional investors for the private placement of $500,000 in convertible debentures and warrants to purchase up to a total of 1,000,000 shares of common stock. The debentures are convertible into a total of 1,000,000 shares of Stevia First common stock at a $0.50 and will and bear no interest and, if not converted, will mature in two years. The warrants will have a term of five years from the issue date and will be at priced at $0.70 per share. With the proceeds STVF plans to extend its research and development operations and for general corporate purposes. One of the conditions of the closing is that the Company will receive lock-up agreements from shareholders that currently own a total 31,500,000 shares, more than 58% of the Company's outstanding common stock, will not be sold until, the earliest, February 2014. For existing investors and shareholders to be willing to lock up their investment in STVF for an extended period clearly sends a signal that they believe in the future of the company. Stevia First's CEO Robert Brooke commented on the funding, "This financing supported by institutional investors is galvanizing, as it lets us continue to move our company forward on multiple fronts. Combined with existing investors' willingness to an extended lock-up period, it's a testament to the excitement and commitment that management and shareholders have to the growth and development of Stevia First."
There may be a good reason for these shareholders to have faith, and it might just lay in one of the two methods that STVF plans of on producing the sweet steviol glycosides. Unlike the other growers STVF has licensed a fermentation process that it believes will cut the cost of producing the sweet steviol glycoside up to 70% while insuring a consistent crop yield and a reliable supply line with the same flavor harvest to harvest. Simply put the fermentation process bypasses the need to grow the actual stevia plants in order to reap the steviol glycoside. The company still has in its business plan to grow a more organic farm based stevia plant on their acreage in the Central Valley of CA. This company is doing some very innovative bio farming, however, the R & D does take time. In an earlier interview CEO Robert Brooke stated that if the goal of the company was to be a commodity stevia leaf grower, "the company could quite easily produce stevia leaf at "commercial-scale" next year." Mr. Brooke went on to explain that the company will be a vertically integrated stevia enterprise, "building long-term value for shareholders, and doing this by seeking to build a reliable supply chain of great-tasting stevia and stevia products for consumers and multinational companies with stringent QC requirements." Stevia First has a market cap of $22.53 million; its stock has had some volatility with a 52 week high of $3.28 in March to a low of $0.23 in mid August. However the last three months the stock has risen over 50% and trades in the mid $0.40's. As with all micro cap companies there is a higher level of associated risk, STVF is no different in that regard, so risk has to be considered before making any investments.
Sunwin Stevia International (OTCPK:SUWN) out of Qufu, China is a vertically integrated manufacturer of Stevia products and traditional Chinese medicines, and mostly has sold its products wholesale to customers in China, Japan and South Korea. However in 2006, Sunwin began to distribute stevioside into the U.S. to health food retailers, national and regional grocery chains with its table top stevia product, OnlySweet. While their stevia product is grown in China, OnlySweet is manufactured in the United States at an FDA approved blending facility. In August Sunwin entered into a worldwide stevia distribution agreement with WILD Flavors GmbH (OTCPK:WILD), giving WILD a non exclusive worldwide right as a distributor to market and resell all Sunwin stevia products. WILD also acquired an additional 7.67 million shares in exchange for its stake in Sunwin USA and granted Sunwin an exclusive ownership of certain flavor formulations for use with Sunwin's stevia extracts developed by WILD. Added to that Domino Foods, which produces and markets Domino, C&H and Florida Crystals brands, and WILD have entered into an collaboration offering with Sunwin ,and the three companies have agreed to partner in focusing their combined efforts to introduce a wide range of all natural, low calorie and no calorie sweetening solutions that contain Sunwin Stevia.
Sunwin, a microcap stock with a market cap of $35.9 million, sells for $0.21 per share, well off its 52 week high of $0.51 per share. Its average volume has been a modest 14,910, though it has fluctuated in trading as much as 173,000 shares on Nov 1 to as low as 100 shares on Oct. 19th. Though it is in the stevia business, and has signed a collaboration agreement with both WILD and Domino, the company relies on small farms in China for their product, plus there has been little news to drive this stock one way or another. Until the company come up with positive news I think there are stronger stevia stocks that offer a greater chance for upside potential.
There is little doubt that Stevia products will continue to grow, and that more companies will be attracted to the profit potential the product can offer. I think the real potential for profit lays with stevia companies that are not just growing the product but are developing methods to improve quality, taste, consistency, while lowering the production costs. ADM is a solid company with a proven track record with a consistent dividend, and the safest bet of the companies profiled. But for a pure stevia play with the best growth potential STVF, with its development of its fermentation process and goal to be not just a grower but a producer as well, appears to be the better choice. Caution must be taken as microcap stocks can trade with higher volatility than large caps, and one should do their research on any investment that involves risk.
Disclosure: I am long ADM, OTCQB:STVF. 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.