It’s one of the most powerful lessons in investing. If you want to get rich, own things with demand that far outstrips supply.
It’s what made steel barons rich. It’s why the Mideast is filled with wealthy sheikhs. It’s why a beer costs seven bucks at a baseball game. And it’s why one of the hottest trends in America could make the next 12 months quite lucrative for you.[ad#Google Adsense 336×280-IA]I recently spent a few days in Belize to conduct research for my side project Manward Press (more on that here).
I was invited to the country’s farming region to meet with a group of investors.
Their mission was to explore the many possibilities in the realm of organic farming.
Belize is a dirt-poor nation.
Its government ticks less than a billion dollars in revenues each year.
But the tourism industry is growing… fast.
And as it does, demand for organic food is growing with it.
We spent a morning touring a farm that was built entirely to supply organic fruits and vegetables to a local resort. With demand for these goods outpacing local supply, taking on the expense and hassle of buying land and building gardens, greenhouses and barns was its best economic option.
There are few industries where the supply-demand imbalance is large enough to demand that radical of a move.
When investors see it… it gets our attention.
The truth is, whether you believe it’s a worthy endeavor or not (I often have doubts of my own), the organic industry is booming. It boasts one record year after another.
Last year, for instance, revenue surged by another 11%, taking total sales to a healthy $43 billion. For the first time ever, some 5% of food sold in America sported an organic label.
Even with the growth in production, demand was still stronger than supply. Traditional farms simply can’t convert their operations fast enough. It takes a minimum of three years to qualify for the coveted organic stamp.
Perhaps what’s most fascinating about this trend, though, is the vast economic impact it’s having on the country.
We’re finding the areas with large organic farm operations are economically stronger than their neighbors.
They’re called “organic hot spots.”
Once again, it proves the immense wealth-building potential of investing in products with weak supply and strong demand. The money being made is trickling throughout the economy.
In a study led by Penn State Agricultural Economist Dr. Edward Jaenicke, researchers found 225 counties throughout America that stood above the rest. Thanks to their high organic agricultural production, these regions boasted…
- A median household income of $2,000 more than their neighbors
- A decline in poverty rates by as much as 1.35%.
Even more invigorating (at least for economic geeks like myself) is the fact that organic farming tends to show a larger net financial benefit than government-led anti-poverty programs.
Again, when demand is booming, crazy things happen in an economy.
And have no doubt that we’re not the only ones noticing and taking advantage of this trend. As I’ve noted before, many big-name publicly traded companies are gobbling up market share.
For investors looking to take advantage of the trend, your best bet is to aim at companies with as large of an exposure to organic products as possible. Many big-name food companies are diving head first into organics, but the revenue generated is a mere fragment of their overall sales.
One company with a growing exposure is Hain Celestial (Nasdaq: HAIN). Some 40% of the food it sells has an organic label.
Another is Sprouts Farmers Market (Nasdaq: SFM). While it’s on the retail side of things, there’s no doubt it gets a margin boost thanks to the sector’s wonky supply-demand equation.
Finally, I can’t get on the highway without seeing a truck sporting the big, bold United Natural Foods (Nasdaq: UNFI) label. Again, it’s not a pure play on organics, but there is no doubt this distribution company is a leading beneficiary of “organic hot spots” across the company.
No doubt, time will run out on this opportunity. There’s a gold rush of sorts in the organic sector that many folks are working to take advantage of in a big way. I saw it firsthand in Belize.
For now, though, there are some fast-moving opportunities.
When demand is this strong and supply this weak, folks will get rich.
Source: Investment U