An Organic Opportunity for Campbell's Stock

While Campbell Soup's (NYSE: CPB  ) stock has jumped 44% over the past year and is 30% higher so far in 2013, profit growth has been a much more tepid 6% over the last five years, like a bowl of soup left too long on a windowsill to cool off. That's why its purchase of organic baby foods and snacks maker Plum Organics holds the promise of getting sales and earnings back to a rolling boil.

The niche is hot, growing at 43% annually and already having become a $2 billion industry. Plum itself has followed that trajectory from its founding in 2007 to quickly become the No. 2 organic baby food in the U.S. and the No. 4 overall baby food brand, with $93 million in sales last year. The acquisition will push Campbell over $1 billion in revenue for its kid-centric food and drink menu, though not all of it is organic, or even mostly.

Whereas organic foods generally account for only about 4% of total U.S. food sales, organic baby food represents more than one-fifth of the segment, according to Hain Celestial (NASDAQ: HAIN  ) , which took a dive into the market itself with its acquisition of Ella's Kitchen earlier this month, adding it to its growing portfolio of organic businesses. That was followed by yogurt maker Danone, which also made a big splash, buying 92% of Happy Family, another leading U.S. maker of organic baby food.

Nestle's Gerber Foods is still the industry giant with more than 50% of the market share in baby food, and is the leader as well in the snack pouch space, where organics tend to thrive, but its focus is much broader, and that gives smaller players like Plum an opportunity to keep growing. And to that extent it's been very successful, with 86% of its product launches getting into the top third of the categories it enters.

It's clear that Campbell is not the only company that's noticed this trend, and its rivals have equally large marketing muscle, but as a purveyor of foods already seen as generally healthy and wholesome, its branding potential ought to allow investors to realize substantial gains for their own portfolios that are "mmm-mmm good."

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