Riding the Organic Wave to Healthy Profits

Posted On December 10, 2014 8:35 am

This company is dominating the organic boom and its shares will continue to grow. An option trade that can deliver 250% return in the next four months.

There has been a dramatic shift in the way people eat.  Food items and dietary choices that were once the province of hippy, dippy health nuts have now gone mainstream.

WhiteWave Foods (WWAV), the leader in organic and alternative dairy products, is benefiting from this booming industry.

The stock has gained an impressive 80% over the past year and is poised to continue climbing.   A purchase of the right call options could deliver a 250% return over the next four months.


The company’s most recent earning’s report on November 10th was met with mixed reaction.  The stock has now pulled back towards the 200 dma near $33 a share which offers a good support entry level.   Based on earnings the numbers the shares should continue to trend higher in coming months.

The company posted earnings of 27 cents a share for the third quarter, beating estimates of 26 cents a share by 1 cent.  Revenue grew 34.3% year over year to $857.5 million for the quarter, above analysts’ estimates of $842.93 million.  The stock initially sold off as the company issued fourth quarter guidance of 28 cents a share which was below the 30c estimate.

But this stalling in the stock represents a buying opportunity.    The reason for the tempered forward guidance is the company is taking a conservative view for the integration acquisition of the So Delicious brand which expands it into the non-dairy frozen foods.   The company is still poised for revenue to increase by 30% and the stock should follow suit.

Tastier Than Soylent Green

Despite it’s less than appetizing moniker plant-based beverages (PBB) is the fastest-growing segments in the food and beverage industry with sales increasing some 19% annually for the past two years.  The products, which include soy and almond milk, represents a $3.5 billion a year category.

WhiteWave is the market leader, about 25% of share of the market.  Its brands  Silk ,which has nearly 60% of the soy market,  Horizon Organic and International Delight  enjoying the No. 1 or No. 2 position in their respective categories in the U.S.  Alpro has the No. 1 position in Europe.

There is still plenty of room for growth as PBB beverages only accounted for the 7.9% of the milk related sales in sales 2013 but are expected to reach 15% by 2016.

WWAV Market Share

Growth From Inside and Outside

Thanks to originally being owned by Dean Foods (DF), from which it was spun out 2012, it has a wide and established distribution network including Wal-Mart (WM), which accounts for 18% of total sales, and high end stores such as Whole Foods (WFM) giving it an embedded customer base and dominant shelf space.

Within the PBB sector there are numerous growth opportunities.   The company has recently ramped up its almond and coconut milk products which while only representing 25% and 2% of the PBB market have been growing 37% and 9% over the past two years.

Deals with other industries will also help expand product lines and improve its already healthy (pun intended) 8.9% operating margin and 5.1% profit margin.    WhiteWave recently announced a partnership with Green Mountain Coffee Roasters (GMCR) to market iced latte products using creamers made from WhiteWave PBB products. Coffee creamers themselves were an overall are $3.9 billion business in the U.S. in 2013 and growing 10% annually.

The company gets around 84% of sales from North America and 16% from Europe suggesting that their ample room for overseas growth.  The recent acquisitions of So Delicious and Earthbound Farms will let WhiteWave expand into new categories such as a zero calorie or “diet” brand of milk that still offers nutritional benefits.

The Trade

I think the stock should continue trending higher.  I’m buying call options that could deliver over a 250% profit on just a 10% move in the stock.

Buy April $35 calls for $1.80 a contract

I have a price target of $40 a share at which point the calls would be worth a minimum of $5.00 a contract.  That would be a 250% return over the four months to the April expiration.

To limit the loss I’m setting a stop of a close below October low  of $32 a share for exiting the position.

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.