Until recently, the natural sweetener stevia was found only on the shelves of health stores but has recently moved into the limelight. Beverage giants Coca-Cola (NYSE:KO ) and PepsiCo (NYSE:PEP ), in their quest for a healthier, non-artificial sweetener for their beverage lines, have started to use stevia. This plant is part of the sunflower family, and originally native to Paraguay. It has been used as a sweetener there for centuries. The sweetener, which has been approved by the FDA, is a refined preparation of steviol glycosides extracted from the plant’s leaves. One of these extracts, Rebaudioside A (Reb A), is 100-300 (number varies by source) times sweeter than sugar. The global sweetener market is estimated at around $56 billion, of which 80% is caloric sweeteners such as sugar and high fructose corn syrup, while the other 20% is comprised of non-caloric sweeteners, dominated by artificial sweeteners such as aspartame and Splenda (sucralose). The World Health Organization believes that natural sweeteners could capture up to 20% of this market.

Coca-Cola and Cargill have filed 24 U.S. patents relating to stevia, and the FDA has approved Truvia, a Reb A sweetener developed jointly by the two companies. Coca-Cola has added Truvia to over 30 products globally, including Diet Coke in Japan where stevia has roughly 40% of the sweetener market. Cargill has marketed Truvia to consumers in individual packets, and is now the number two sweetener behind Splenda. Not to be left behind, PepsiCo has developed a competing stevia-based product, PureVia, jointly with Chicago based Merisant’s subsidiary, The Whole Earth Sweetener Company. PureVia can now be found in such beverages as zero calorie beverage Sobe Lifewater, and Trop50, Tropicana’s fruit juice beverage with 50% less sugar and calories than regular orange juice. PureVia is also available in grocery stores, competing with Truvia for the sugar substitute market.

Clearly there is an enormous market potential for stevia-based sweeteners, and any food that uses a sweetener should be considered to have growth potential for the product. However, neither Coca-Cola nor Pepsi or their partners actually grow stevia themselves. For the stevia market to develop in an organized fashion, reliable suppliers are required who can produce quality plants with high Reb A content consistently. At this time, most of the available stevia has been grown in places like South America, China and Vietnam. The diversification of growth conditions and differing cultivars of stevia plants grown has led to problems with costs, consistency in taste, and reliable supply, particularly in a broad market such as the U.S.

Stevia First Corporation (OTCQB:STVF ) is a micro-cap first stage company based in the rich agricultural Central Valley of California that aims to be the first vertically integrated stevia production company in the U.S. The company’s objectives include the development of high quality stevia seeds and tissue propagation high in Reb A content. It’s research and development program is in place, and it has leased 1000 acres in the Central Valley. The company will be using an agri-business model that involves win-win partnerships with the University of California Davis, local farmers, agronomists and equipment suppliers.

In its business plan, the company has addressed all the problem areas outlined above, such as consistency of taste, quality, costs, and the reliability of supply. The company says that it is crossbreeding high-grade stevia seeds and seedlings to produce disease resistant plants with high Reb A content that would allow the production of high-grade stevia extract at a lower cost. The high content also means that less money has to be spent downstream in improving the purity and more efficiency per acre. Delaying the flowering of the stevia plant is important to achieve high Reb A content, and it allows the plant to grow more leaves, so this will likely be a part of the research effort.

One major concern for many investors has been the availability of technology to allow all of these elements to come together. On August 29th, 2012, the company announced that it had entered into an exclusive and worldwide intellectual property agreement with the Vineland Research and Innovation Centre of Ontario, Canada. The license covers compositions and methods for producing steviol and steviol glycosides through fermentation-based production methods. In addition, a consulting agreement has been solidified with Vineland for assistance in further development of the intellectual property. Production of stevia extract has a complex agricultural supply chain, and it is estimated that 70% or more of the cost of stevia extract can be attributed to the cost of leaf production. Because the leaf only contains small quantities of the best sweet components, complex extraction and processing is required, which adds to the cost.

Researchers at Agriculture and Agri-Food Canada (AAFC) were among the first to discover the characteristics of the natural biochemical processes involved in producing the sweet component of the stevia leaf. With this knowledge, it is possible to use fermentation-based technology in the extraction process, and this method is capable of converting low-cost leaves to sweet steviol glycosides. Vineland, which controls intellectual property relating to this process, is a world-class research center dedicated to horticultural science and innovation. It is an independent non-profit organization, which is partly funded by Growing Forward, a federal-provincial-territorial initiative. Stevia First’s licensing agreement with Vineland could be a game-changer not only for the company, but also for the industry as a whole if the process is successfully implemented.

Investment in first stage bio agricultural companies, like Stevia First, is always high risk, and there is a long way to go to achieve commercial success. There is no doubt about the market potential of stevia extracts, and this company has, so far, made all the right moves. If you believe in the future potential of the stevia market, you should consider Stevia First Corporation as a possible investment.

Now let us take a look at two large users of sweeteners. Coca-Cola is the largest beverage company in the world and has been an iconic brand for many years. Investors are concerned about the company’s future growth prospects for several reasons. In the U.S. and other countries, obesity has become a problem that can only be controlled with strong intervention. Every country is trying to prevent health care costs from rising by targeting diabetes and other illnesses arising from poor dietary habits with prevention measures. Sugar-based soft drinks are an easy target, though all beverage companies are trying to diversify away from the use of sugar and high fructose corn syrup. This is a major reason why stevia-based sweeteners are an excellent solution, not only because of the obesity implications, but they are also safe for people with high blood sugar or diabetes. This is the driving force for the development of Truvia with Cargill. The company’s flagship Coca Cola soft drink is far and away the biggest contributor to revenue growth, despite the remarkable success of Diet Coke, which uses artificial sweeteners instead of sugar. However, the success of the later is an indication of sales potential of stevia-based products as it has overtaken Pepsi as the number two soft drink in terms of annual sales

It is likely that increased awareness of health concerns and obesity may already be affecting sales of sugar-based beverages. For instance, Coca-Cola sales rose by just over 1% in the first three weeks of August, compared to the same period last year. Sales are solid and growing in developing countries like China and India, but Coca-Cola will have to push really hard to achieve even reasonable rates of growth. This is going to be difficult when you consider that Coca-Cola already has a market share of over 40% in the U.S. and growth under highly competitive conditions is not going to be easy.

Coca-Cola recently announced a stock split, but has this 2-to-1 split made the stock more attractive for investors? Generally speaking, a company will split its stock if it believes that the stock has become too expensive in dollar terms and would like to increase both affordability and liquidity. The split may also be induced if a company believes that its stock price is far higher than that of its peers and competitors. In the case of Coca-Cola, the total number of shares doubled from 5.6 billion to 11.2 billion, while the stock price came down from about $78.00 per share to $39.00 per share to adjust for the split. This is the first split in 16 years, and the 10th overall, since the inception of trading. Naturally, the split did not affect existing investors because, though the price halved, their holdings doubled. Investors will certainly be able to trade more effectively because of the increased liquidity, and may be more willing to pay $39.00 per share rather than $78.00 per share.

Goldman Sachs (NYSE:GS ) is of the opinion that the entire beverage sector is overextended and, consequently, it has revised its rating of both the beverage sector and Coca-Cola from attractive to neutral. I believe that the stock is fairly valued and, when you factor in the negative impact of exchange rates on the revenues from its large overseas business, the company is going to struggle to show growth. I do not believe that you should buy Coca-Cola until there are signs, such as a large value-added acquisition, that revenue growth is accelerating, but I feel you should certainly continue to hold any existing investment.

PepsiCo. Coca-Cola’s giant competitor, has much of the same health concerns, with the difference being that Coca-Cola is a pure beverage company, while PepsiCo has a substantial food business in addition to its beverage business. As mentioned before, PepsiCo has made the same move in sweeteners by developing a competing stevia-based product, PureVia, jointly with Chicago based Merisant’s subsidiary, The Whole Earth Sweetener Company, and using it for some of its products. However, Pepsi seems to have a better focus on health foods and made a number of smart strategic moves in this direction. It has made a serious effort to produce healthier products for consumers more aware of their consumption habits. Over the years, PepsiCo has acquired companies such as Quaker brand and Sabra. It has also introduced healthier options to its lineup, such as Frito-Lay with more whole grain, low sodium options, and a variety of Pepsi products containing lower amounts of sugar.

Recently, PepsiCo announced a new initiative that represents a major move and diversification from its traditional beverage business. It is setting up a joint venture, called Quaker Diary, with the Theo Muller Group, a large German dairy company, to sell yogurt and dairy products in the U.S. This will be an important addition to its health food product lines. While the soft drink market in the U.S. has been shrinking, yogurt sales have grown from $4.7 billion in 2006, to $6.4 billion in 2011, and experts say that the market could touch $9.5 billion by 2015. Pepsi will be competing with General Mills (NYSE:GIS ), which produces Yoplait as well as Dannon, and together sell about 60% of the yogurt sold in the U.S. Pepsi is aiming to generate $30 billion in sales annually (compared to $13 billion presently) in its health portfolio driven by sales of dairy products and yogurt. But, this move will take some time to have a substantial impact on the revenues of the company. Recently, the company acquired Wimm-Bill-Dann from Russia and formed a strong partnership with Saudi Arabia’s Almarai; and both companies are the biggest dairy producers in their respective countries.

PepsiCo has been far more proactive than Coke in its approach to growing its food and beverage business, and it is instructive to look at the way it operates in two of the major emerging markets, India and Brazil. It has shown considerable ingenuity in diversifying its product offerings and to adapt them to the local markets. Revenues of more than $2 billion in India have grown by 30% in the last year on the back of products that catered not only to local taste, but also to local pockets. Products were aimed specifically at price sensitive rural markets, such as the snack ‘Lehar Iron Chusti’, in the state of Andhra Pradhesh, at a price of Rs 2 (<4). Selling at these prices is only made possible because of the large scale of operations and an efficient distribution network. PepsiCo is now planning a national launch of the snack. It is also planning to launch Quaker Oats in cheap packets to target the breakfast market. In the energy market, PepsiCo has introduced Gluco Plus, priced at Rs 6 (12). In Brazil, it has acquired the country’s second-biggest cookie maker, Mabel, in a $520 million deal. It is now targeting Marilan, the country’s fourth largest maker of cookies. Incidentally, Brazil is the second largest producer of crackers and cookies in the world.

I believe there is considerable upside to the stock, and the company is presently undervalued when you look at its growth potential. The dividend yield is attractive at around 3%, and I would have no hesitation in recommending this stock to investors. Investors should take a look at each of the three presented companies, as each has its own unique attributes that make it attractive to specific investor personalities and risk tolerances. Stevia’s current and future role in controlling obesity, diabetes and general overall health should continue to develop and take market share away from not only sugar but artificial sweeteners as well. These three companies seem uniquely poised to benefit from its potential growth.

Disclosure: I am long KO. PEP. OTCQB:STVF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.