There've been several quiet, worthwhile developments recently in two major areas of the stock market: organic foods and video games.
What, you don't think these are major sectors? Think again, my friends.
According to the Organic Trade Association, U.S. organic food and nonfood-product sales had another record in 2014, totaling $39.1 billion -- up 11.3% from the previous year. Organic foods are hovering around a record 5% share of the total food market, and sales growth will likely quicken as organic food better penetrates the aisles of Wal-Mart (WMT), Target (TGT), Costco (COST) and Sam's Club.
I think a recent flurry of deals in the organic space underscores why it continues to make sense to own Hain Celestial (HAIN) and Whitewave Foods (WWAV).
These two players are demonstrating that for now, they have no interest following the route of Annie's Homegrown Inc., which sold out to General Mills (GIS) a couple of years back. Rather, these firms want to consolidate their position and perhaps become America's next major packaged-goods companies.
The market will reward that yawning dominance. Obviously, that makes putting money into the likes of Kellogg (K) and Campbell Soup (CPB) less attractive -- even considering their dividends.
Recent deals in the organic space include:
- Vega. Whitewave purchased nutritional-food company Vega for about $550 million in cash. Vega sells plant-based powdered shakes and snack bars, with roughly $100 million in sales over the last 12 months.
- Garden Fresh Gourmet. Campbell purchased Garden Fresh Gourmet for $231 million. The better-for-you salsa, hummus and chip company had about $100 million in 2014 sales.
- Applegate Farms. Hormel Foods (HRL) agreed to buy Applegate Farms for $775 million. Applegate produces organic bacon, sausage, hot dogs and other meat products. It's expected to have $340 million in sales this year.
I think all of the deals in the organic sector could lead PepsiCo (PEP), which remains very focused on its snacks division, to make a move before the year is out. I'd like to see them make a play for Greek-yogurt maker Chobani or purchase the half of hummus maker Sabra that Pepsi doesn't already own. Both brands are category leaders.
As for video games, the software business is enjoying a comeback year in 2015.
U.S. retail sales of game software and hardware rose 3% year-over year to $595.7 million in April (data reported in mid-May).
That increase didn't stem from hearty sales of hardware, which declined 4%. Instead, consumers invested in new software, where sales rose a strong 13%.
That surprises me, as video games are a splurge that competes with digital downloads, from iTunes music from Apple (AAPL) to videos from Amazon (AMZN) to playlist subscriptions from Pandora (P). I think midyear gains in software bode well for the upcoming holiday season.
In the near term, next week could open some trading opportunities in Take-Two Interactive Software Inc. (TTWO), Activision Blizzard (ATVI) and GameStop (GME) as the big E3 Convention kicks off.
Here's a list of things I'll be looking to come out of that event:
Microsoft. Microsoft (MSFT) presents on Monday at 12:30 p.m. ET. It's Microsoft, so you have to watch this because the games division has grown in importance as a percentage of the company's overall business.
Electronic Arts. Electronic Arts (EA) presents on Monday at 4 p.m. ET. I'm very eager to hear details about the company's new Star Wars game that will coincide with the Star Wars: Episode VII movie's release later this year. The title has the potential to be a good seller simply because of the film.
Activision Blizzard. Look for Activision's Guitar Hero Live! to mark the return of plastic instruments. I'm not sure the latest version of Guitar Hero will be a must-have as the game's original version was when it first hit the scene. But from reading up on the latest edition's development, Activision has taken care to move the brand forward. The company will also take the wraps off its latest "Toys to Life" initiatives within Skylanders. That product competes with the Infinity line from Walt Disney Co. (DIS)