Is the stock of this popular company a buy?
Thursday, February 21, 2008 | Jason Jovine
GOOD MORNING EVERYBODY!!! I hope that you are all doing well. Before I go any further, I want you all to know that I take great pride in my track record. Every single stock that I have recommended has subsequently gone higher.
I know that this will not always be the case, but I believe that I will be right more than I will be wrong. When I write an article and discuss a company, this doesn’t necessarily mean that I am recommending that you buy the stock that I am discussing.
I am not shy or bashful. If I think that you should buy what I am speaking about, I will tell you as clear as day to BUY IT. Sometimes I will discuss a company just to give you some insight into the company or an industry so that you can keep it on your radar screen because it is on mine.
When the time is right to recommend it, I will certainly do so.
Today, want to do just that…
I want to discuss a company, and its industry, so that you can understand the way that it works. The name of the company that I think that you should keep on your radar screen (because I have it on mine) is Whole Foods Market Inc. The symbol is WFMI, and the price as I write this is just over $38 per share. The 52 week high is just under $54, and the 52 week low is just above $34.
This stock is trading just a few points off of its low. Take a look at its chart:
As you can see from the chart, the stock is off about 30% from its 52 week high. What happened to make it drop 30%? There are always numerous reasons, some on a Macro level (the overall market went down) and some on the Micro level. On the Micro level, Whole Foods acquired one of its chief rivals, Wild Oats, and let’s just say that Wall Street has very little patience if a merger or acquisition is not done flawlessly.
Of course, when a company makes an acquisition, the stock for the company that is doing the acquiring usually goes down, and the stock for the company that is getting acquired usually goes up.
The numbers…
On Tuesday, Whole Foods announced their earnings for the 16 weeks ending on 1/20/08. They earned $.28 per share as opposed to $.38 per share for the same period a year ago. Why the decline in EPS? The primary reason is trying to absorb their acquisition of Wild Oats. They also are facing some increased competition, as well as increased expenses.
The company…
This is an excerpt taken directly from the company’s website (http://www.wholefoodsmarket.com/)
"Welcome to Whole Foods Market
Founded in 1980 as one small store in Austin, Texas, Whole Foods Market® is now the world's leading retailer of natural and organic foods, with more than 265 stores in North America and the United Kingdom. To date Whole Foods Market remains uniquely mission driven: We're highly selective about what we sell, dedicated to stringent Quality Standards, and committed to sustainable agriculture.
We believe in a virtuous circle entwining the food chain, human beings and Mother Earth: each is reliant upon the others through a beautiful and delicate symbiosis."
In layman’s terms…
I could write about this topic all day, but to make a long story short. Whole Foods distributes healthy foods and healthy products to people. You can buy vitamins, herbs, and other supplements at their stores.
Why have they done so well?
The bottom line is that people are sick and tired of being sick and tired. 75% of all diseases are not curable, and conventional medicine has utterly failed us. Conventional medicine treats the symptoms of your condition rather than the actual condition itself.
Whole Foods is just part of a cultural phenomenon in which people want to be healthier. They want to eat healthier. They want to take supplements to aid in their well being. In a nutshell, Whole Foods is the supermarket for health conscience people.
The prices at a Whole Foods are generally more expensive than a regular supermarket, but if you can afford it then you certainly want to shop there. If you only knew how many antibiotics and steroids were pumped into the meat that you ate, you probably wouldn’t eat it. If you only knew how many pesticides were put onto the fruit and vegetables that you ate, you probably wouldn’t eat them either.
You can buy these products without the antibiotics, steroids, and pesticides at Whole Foods. Now, besides what I have just mentioned, there is something else, something intangible, in play here as well. Take Starbucks for example. Starbucks charges outrageous prices for coffee, but people consider it hip to be at a Starbucks, or to have a Starbucks cup of coffee in their hand. It’s considered “cool”.
That same intangible feeling of hipness and togetherness is going on at Whole foods. The more people become aware of their options with respect to their health, the more they will want to shop at stores like Whole Foods.
Competition…
At the moment, Whole Foods has the ability to charge high prices in exchange for this “hipness” and these quality products. However, supermarkets have been entering the fray, and this will no doubt affect their profits.
It kind of reminds me of when Dunkin Donuts started competing hard with Starbucks. This is simple economics folks. A company can make abnormal profits in an industry until other players jump and as competition intensifies. This results in lower prices, which ultimately benefit the consumer.
Whole Foods may face increased competition, but I am convinced that they will be left standing. They just need to focus on growing at the right pace, keeping expenses in check, and making sure that they stay on top of their Wild Oats acquisition.
Keep this baby on your radar screen and when the time is right we will turn cabbage into Greenbacks.
Until next time folks. You should know the rest by now…
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Jason Jovine
Chief Investment Officer
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