Whole Foods Market (WFMI)
By Paul Goodwin, Chief Analyst, Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 11/29/14 Sign up for Cabot Wealth Advisory—it’s free!
Whole Foods Markets (WFM) is the dominant player in the specialty grocery business. Whole Foods is easy to lampoon for its high prices (Whole Paycheck Markets) and for its patrons’ sometimes excessive obsession with organic, fresh, local, sustainable, no-cruelty, no chemicals, no GMEs food and drink.
But the company’s five straight years of double-digit percentage revenue growth, with earnings growth to more than match, are no joke. And the company’s continuing build-out of new stores in Canada is keeping revenue growth on track. The most obvious feature of the chart for WFM is its more than 20% dive last May, when the company’s quarterly earnings report showed the effects of increased competition, price pressure and inclement weather. After that May plunge from 48 to 37, WFM traded sideways, finding support at 36/37 and resistance at 40 (despite a short-lived June rally).
But six months to the day after its free-fall, WFM blasted off on more than six times average volume, hitting 45 in one day and following through on its breakout to 48, which was its price before the May washout.
I think Whole Foods is a great operation, offering high quality produce, beer and wine, cosmetics, baked goods, clothing and restaurant services to consumers who care deeply about what they consume.
WFM looks like a good buy right here, as it has a long way to go to reach the high of 65 that it hit in October 2013. A small dividend (forward annual yield of 1.1%) ties up a nice package.
From Cabot Wealth Advisory 7/12/10 Sign up for free Cabot Wealth Advisory e-newsletter
I’m optimistic that the bottom of the May-June correction has passed, and that the market is now gathering strength in preparation for a new leg up. I’m optimistic in part because so many people are pessimistic! I think the unrelenting media focus on the BP oil leak has really skewed people’s perceptions of reality. But I can’t call it a bull market until I actually see major market trends advancing again.
Still, I’ve been busy building a Watch List. Mine currently has 21 stocks on it, and today I’m going to tell you about the stock that’s been on my Watch List the longest.
The graybeard is Whole Foods Market (WFMI), the leading retailer of organically grown food in the world. Whole Foods is prospering by using the Peter Lynch "cookie cutter" system; find a retailing concept that works, and then build more of them, while continually experimenting with tweaks to the formula.
It’s a formula that was perfected by McDonalds (MCD), which is still a decent investment for conservative money. And Whole Foods, which has grown revenues every year of the past decade and now has more than 295 stores in 38 states, the U.K. and Canada, is following the recipe perfectly.
Its profit margins in the last quarter were 3.1%, obscene for a grocery store. Its revenues grew 14% from the quarter before. Its earnings grew 52%. And after slowing store development in the recession, management is now expanding once again. Founder John Mackey, in fact, is one of the smartest, most forward-thinking, most human-focused retailers in the business today.
Fiscal third-quarter earnings will be reported August 3 and I have no doubt they’ll be terrific.
Technically, WFMI is attractive here because it’s pulled back to nearly touch its 200-day moving average in recent weeks. Also, 34, where the stock bottomed last week, is where it bottomed after gapping up after its earnings announcement in mid-February.
Long-term, I think it’s a winner.
President, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.
|Whole Foods Market (WFMI)
550 Bowie Street
Austin, Texas 78703-4644
|Index Membership: S&P 500 , S&P 1500 Super Comp |
Industry: Grocery Stores
Full Time Employees: 43,000
7/12/10 Whole Foods Market (WFMI): Following the "cookie cutter" system perfectly