4 healthy food stocks with staying power
These companies have built customer loyalty, so they can pass along rising food costs without losing business.
Wall Street, which was blindsided by the performance of all four, seems not to understand that these are not traditional supermarkets like Safeway(SWY), not traditional food purveyors like ConAgra(CAG) or Kraft(KFT), and not regular restaurant chains like Brinker International (EAT) or Darden Restaurants(DRI) or McDonald's(MCD) or Wendy's(WEN). They defy easy characterizations and simple price-to-earnings-multiple analyses.
Jack Hartung, the CFO of Chipotle, came out and said it on my show Friday. The company's healthful-eating Food With Integrity program allows it more than enough leeway to keep sales strong without raising prices. These companies aren't nearly as levered to commodity pricing -- though bearish investors endlessly try to force those concerns onto them -- as they are to loyalty.
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In fact, I would say that Chipotle's roll-out of the Food With Integrity program, which is about teaching people how to eat healthful foods, will actually add to same-store sales, something that seems almost too "touchy-feely" for folks who model the company.
How significant can this kind of program be? Consider that there are two major Mexican food chains in this country: Chipotle and Taco Bell. The latter is a subsidiary of Yum Brands(YUM). This quarter, Taco Bell got hit with serious accusations that it uses much less actual beef in its food than it advertises. The plaintiffs are arguing that only 35% of Taco Bell's seasoned beef recipe is actual beef. Yum took the bull by the horns and decided to be vocal, attacking the critics and pointing out that its seasoned meat filling is 88% beef. Eighty-eight percent?
Chipotle uses 100% beef and makes a point of saying that it is organic. Quibbling? I don't know anymore. I think it is much more than that. I think Chipotle's best advertisement is that it is organic. That's what people want. They and their doctors have gotten wise to what bad beef can do to you. And they really suspect that the remaining 12% is simply awful for you.
Whole Foods and Hain? Total seal-of-approval outfits where you know that you are going to get "real deal" products. Hain Celestial sells 400 to 500 units in the red-hot Whole Foods chain.
All four of these companies are getting premium multiples because of their healthful implications, not just because they are in control of their costs. The fact that they are able to maintain higher price points and not lose business or lose any noticeable margin on their offerings is a testament to their purity.
Until "purity" is factored into the valuation equation, I believe we'll continue to see short squeezes in these stocks in which investors who have bet against them have to buy shares to cover their positions before the stock price advances further.
Even at these levels.
At the time of publication, Cramer had no positions in stocks mentioned.
Follow Cramer's trades for his charitable trust.
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