3 Top Stocks to Invest in the Organic Food Trend

By Markets Fool.com

Organic is probably the most powerful trend in the food business today. Seemingly every week a major company announces a shift toward organic or natural production. In recent months, Kraft Foodssaid it would stop using artificial dyes in its Mac & Cheese, McDonald'sdecided to ban human antibiotics from its chicken, whichTyson Foods-- the nation's biggest poultry processor -- also did, andChipotle Mexican Grillannounced that its kitchen was now free of genetically modified ingredients.

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And that trend should only continue. According to the group TechSci Research, organic food consumption is expected to grow at an annual growth rate of 14% through 2018,which compares to a projected increase in the GDP of around 3% to 4%. Though some organic food stocks have soared in recent years, there is still plenty of time to grab outsized returns in this sector. Below, three of our analysts share their favorite organic food stocks.

(United Natural Foods): ThoughUnited Natural Foods may not be the biggest name in the organic space, it's probably the purest play in the industry. The No. 1 distributor of natural and organic foods in the country, and isWhole Foods Market'sprimary distributor.

Source: Company website.

The company was also the nation's first certified organic distributor by Quality Assurance International, showing it was a first mover in this space. As you might expect for the leading organic distributor, growth has been strong, with sales up 22.5% in its latest quarter. That was aided by its recent acquisition of Tony's Fine Foods, but acquisitions have been an important part of UNFI's strategy, helping it consolidate its leadership in organic and natural distribution. Earnings per share has also increased at a steady rate, up more than 15% annually in the last two years, and sales growth has been consistent, increasing at an annual rate of 15% since 2004. It's P/E is also relatively cheap for its growth at just 25.

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United Natural Foods may not be the flashiest business in the organic space today, but it's well poised to grow alongside the overall trend, and should deliver steady returns as it grows its distribution network and extends its industry leadership.

(Hain Celestial):
There's absolutely no denying the sustained power of the organic food movement. But one of the troubles, from the standpoint of investors, is picking a winner. While I'm heavily invested inWhole Foods, I know that it's wise to hedge my bet with a similar investment in Hain Celestial.

Hain is the parent company of some of the hottest natural/organic brands available.

Source: Hain Celestial

Hain has one distinct advantage over organic grocers. Whole Foods is going to have to duke it out with not only upstart organic players, such asSprouts andNatural Grocers, but also bigger players likeWal-Martthat are looking for a piece of the pie.

Although I think Whole Foods will be able to hold its own, there's no guarantee that'll be the case. But one thing Icansay with a high level of confidence is that Hain investors will win no matter who the predominant organic grocer is. That's because -- via acquisition -- the company owns some of the most popular organic brands on the market.

While the stock's not exactly cheap, today's price is 30 times forward earnings. For investors looking for a fast growing company with solid management and long-term tailwinds pushing it forward, that seems like a fair price to pay.

Bob Ciura:(Whole Foods Market):Whole Foods Market received a lot of attention after reporting supposedly weak quarterly results, but I still believe Whole Foods is the best way to invest in the organic trend. The company's performance last quarter was a disappointment only in the sense that it couldn't live up to irrational Wall Street expectations. But the underlying business remains extremely strong.

Source: Fool Flickr

Whole Foods grew total sales by 10% last quarter, and comparable store sales, which measures sales at locations open at least one year, rose 3.6%. Earnings per share increased 14% year over year. Whole Foods is doing a very good job of producing returns for shareholders, as return on invested capital increased by 68 basis points to 15% last quarter. Clearly, these results indicate that Whole Foods is still growing and maintains an industry-leading brand.

The stock crashed 10% after earnings only because the company barely missed analyst expectations. Whole Foods' $3.65 billion in net revenue fell just short of the $3.7 billion expected, and comparable store sales growth was expected to eclipse 5%. But put differently, investors should feel confident that Whole Foods is successful in the things that it can control. The organic craze doesn't seem to be ending anytime soon, and Whole Foods is arguably the best way to capitalize.

The article 3 Top Stocks to Invest in the Organic Food Trend originally appeared on Fool.com.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Bob Ciura owns shares of Apple and McDonald's. Brian Stoffel owns shares of Apple, Hain Celestial, and Whole Foods Market. Jeremy Bowman owns shares of Apple and Chipotle Mexican Grill. The Motley Fool recommends Apple, Chipotle Mexican Grill, Hain Celestial, and Whole Foods Market. The Motley Fool owns shares of Apple, Chipotle Mexican Grill, Hain Celestial, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.