We recently compiled a list of the 10 Best Organic Food and Farming Stocks To Invest In. In this article, we are going to take a look at where United Natural Foods, Inc. (NYSE:UNFI) stands against the other organic food and farming stocks.
The Rise of Organic Food and Farming
Organic farming practices focus on using natural methods to cultivate crops, avoiding synthetic fertilizers and pesticides. This approach not only enhances the quality of food but also contributes to preserving biodiversity and maintaining healthy ecosystems. The organic food and farming sector provides economic benefits as well, creating jobs and supporting rural communities.
The global organic food and farming industry has experienced significant growth in recent years, reflecting a shift in consumer preferences towards healthier and more sustainable food options. According to a report by The Business Research Company, the global organic food market was valued at $244.82 billion in 2023. The market is expected to grow at a compound annual growth rate (CAGR) of 15.1% during 2024-2028 to reach a value of $489.75 billion by the end of the forecast period. This growth is largely driven by increasing awareness of health benefits associated with organic products and a growing concern for environmental sustainability.
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The 25th edition of the yearbook “The World of Organic Agriculture,” published by the Research Institute of Organic Agriculture (FiBL) and IFOAM – Organics International, highlights significant growth in the organic farming sector. Presented in February 2024 at the BIOFACH trade fair in Nuremberg, Germany, the report reveals that by the end of 2022, the area under organic management reached 96.4 million hectares. This marks an impressive increase of 26.6% or 20.3 million hectares compared to the previous year.
Australia continues to lead the world in organic farming area, boasting 53 million hectares, an increase of 17.3 million hectares. The report shows that organic farming area increased across all continents, reflecting a global trend towards more sustainable agricultural practices. In terms of producers, the number of organic farmers worldwide rose to 4.5 million in 2022, which is nearly a 26% increase from 2021.
Support for organic agriculture is gaining momentum globally, with many countries implementing action plans to promote organic farming practices. The number of fully implemented national regulations for organic agriculture rose to 75 in 2023, indicating a commitment to enhancing and regulating this sector.
According to the report, the global organic market reached nearly EUR 135 billion in 2022. The United States was the largest market, valued at approximately EUR 56.6 billion, followed by Germany at EUR 15.3 billion and China at EUR 12.4 billion. While some European countries saw a decline in organic sales, Canada and the US experienced growth in retail sales, with increases of 9.7% and 4.4%, respectively. These figures indicate that consumer interest in organic products is strong, particularly in North America, where health consciousness is driving demand.
Methodology
To compile our list of the 10 best organic food and farming stocks to invest in, we looked for the largest organic food and farming companies. We also reviewed our own rankings and consulted various online resources to compile a list of the best organic food and farming stocks. Next, we focused on the top 10 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s Q3 2024 database of 900 elite hedge funds. The 10 best organic food and farming stocks to invest in are ranked in ascending order based on the number of hedge funds holding stakes in them as of Q3 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up view of organic fruits and vegetables in a local retail store.
United Natural Foods, Inc. (NYSE:UNFI)
Number of Hedge Fund Holders: 22
United Natural Foods, Inc. (NYSE:UNFI) is a leading distributor of natural and organic foods in North America. The company supplies over 250,000 products, including organic, conventional, and specialty items, to more than 30,000 locations across the United States and Canada. UNFI serves various types of customers, such as natural product superstores, independent retailers, eCommerce providers, and food service providers. United Natural Foods, Inc. (NYSE:UNFI) is one of the best food stocks to buy.
The company’s management believes that United Natural Foods, Inc.’s (NYSE:UNFI) scale and expertise in natural and organic products position it well for future growth. The ongoing demand for healthier food options continues to rise, making UNFI a strong player in this evolving market.
In the first quarter of fiscal 2025, the company reported a 4.2% increase in net sales, reaching $7.9 billion. Adjusted EBITDA also saw a significant rise of 14.5%, totaling $134 million. This positive performance reflects the company’s effective execution of its multi-year strategy and value-creation initiatives that have strengthened relationships with existing customers. United Natural Foods, Inc. (NYSE:UNFI) is focused on optimizing its distribution network, having closed several distribution centers while enhancing operations at others. The company also moved natural volumes from York to a larger, soon-to-be automated facility in Manchester. These changes are expected to create greater efficiencies and improve service delivery.
With its solid financial performance and strategic initiatives for operational efficiency and growth, United Natural Foods, Inc. (NYSE:UNFI) represents an attractive investment opportunity in the organic food sector. Miller Value Partners stated the following regarding UNFI in its “Deep Value Select Strategy” third-quarter 2024 investor letter:
“During the quarter, our two largest positive contributors were Gannett (GCI), whose market share price up 20% and United Natural Foods Inc. (NYSE:UNFI), with a market share price up 31%. United Natural Foods’ share price continues to recover from recent 20-year lows however is still down 60% from its former high. The company’s new CFO recently highlighted a new three-year transformation plan focused on building market share in the natural foods sector, expanding higher margin digital services and rolling out six sigma/lean initiatives to improve operating efficiencies. UNFI is also rolling out a simplified contract structure with their clients which will eliminate layers of complexity positioning the company to achieve greater operating efficiencies overtime. There remains a wide gap between relatively low UNFI margins, and those some smaller distributors are able to achieve. Success on the transformation plan should allow the company to not only narrow that gap overtime but exceed their smaller peers due to their greater size, scale, and higher margin proprietary service offerings. The new transformation initiatives have potential to accelerate profit growth and significantly improve future free cash flow generation. UNFI also has an extensive asset base, and a distribution network across all 50 states and 10 Canadian providences. The company has an extensive distribution and warehouse network, providing a significant margin of safety. As the transformation plan progresses the company says it will focus on optimizing their distribution assets to further improve asset utilization and enhance company financial returns. We believe UNFI long-term upside potential may be multiples of the current share price given our estimation of their long-term earnings power, near 30% discount to book value and Enterprise Value to Revenue of only .1 times! The greatest near-term risk in the company transformation plan would be a delayed recovery in company margins due to the unexpected disruptions from consolidating the Firm’s distribution network.”
Overall, UNFI ranks 7th on our list of the best organic food and farming stocks to invest in. While we acknowledge the potential of UNFI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than UNFI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
