Both these companies offer reliably good, fresh guacamole. And while it may be difficult to say exactly how much money each makes directly off guacamole -- there's not a line for that on an income statement, unfortunately -- it's pretty difficult to imagine Chipotle or Whole Foods without the excellent guac, isn't it? Fast casual chains Panera (NAS: PNRA) and Cosi (NAS: COSI) also serve avocado on sandwiches and as an alternative to mayonnaise or oil.
Sounds like a ridiculous investment idea, but look at the returns
Suddenly, avocado is everywhere. You can add guacamole to your sandwich at Subway, or to your "California Whopper" at Burger King. On the companies' side, avocado is a premium offering which presents upselling opportunities, whereas for consumers, avocados offer great taste without the junk-food guilt.
"Avocado consumption in the U.S. went from 550 million pounds in 2006 to 1.35 billion pounds in 2010," according to industry mag Produce Retailer, which reports that, "Avocados' nutritional value and taste -- as well as retail and foodservice promotions touting avocados in everything from guacamole to sandwiches, soups and salads -- are driving demand."
It should come as no surprise then that the market's only pure play on avocadoes and guac, Calavo Growers (NAS: CVGW) , has returned over 210% since 2006. Sure, past performance is no indication of future returns. But with avocado demand still growing by 10% a year according to industry experts, and a market cap south of $400 million, Calavo Growers may still have a long runway ahead.
The future is now -- and it's guacamole
Calavo Growers buys up avocado harvests from California to Chile, New Zealand to the Dominican Republic, and then sells the avocadoes to third parties such as restaurants, wholesalers, food service companies, and grocery store chains. This fresh products segment accounts for about 80% of net sales. The company has a Foods division, as well, which oversees the manufacture of guacamole and fresh salsa and the distribution of these products to stores, and it accounts for the remaining 20% of net sales.
Customers can also buy Calavo's avocado products online, Harry-and-David style. A gift pack of Hass Avocados retails for $26.95, for instance (and if any of my family and friends are reading this, yes, I'd love one for my birthday).
What may seem a ridiculously niche investment idea has caught the attention of giants like Fidelity Investments, which owns 11% of Calavo Growers' shares, and BlackRock, which owns 7%. That's not necessarily confirmation of an investment thesis -- these are some of the world's largest asset managers, of course -- even if it is suggestive.
A uniquely qualified CEO, plus a growing dividend
Calavo Growers enjoys seasoned leadership: namely Lecil Cole, who may be the only chief executive officer-slash-avocado farmer and cattle rancher around. Cole has previously worked for Safeway and Hawaiian Sweet and owns about 10% of Calavo Growers' shares.
Why else might this investment idea be one worth looking into? Well, the company has also recently upped its dividend, raising the yield to 2%. That's pretty tasty.
Time to take a bite?
Certainly, plenty of individual investors are reluctant to invest in agricultural commodities. Not only are there risks such as changes in weather patterns, natural disasters, and pests (including avocado rustlers, or those who steal from avocado orchards), it's difficult to predict the seesaw of supply and demand without knowing the avocado market intimately.
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At the time thisarticle was published Catherine Baab-Muguira has no financial interest in any of the companies mentioned here.The Motley Fool owns shares of Panera Bread, Whole Foods Market, and Chipotle Mexican Grill.Motley Fool newsletter serviceshave recommended buying shares of Whole Foods Market, Chipotle Mexican Grill, and Panera Bread.Motley Fool newsletter serviceshave recommended creating a bear put spread position in Chipotle Mexican Grill. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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