Whole Foods Gets the “Barron’s Bounce”

Whole Foods (NASDAQ: WFMI), a stock I recommended 2 weeks ago, got a favorable write up in this weekend’s Barron’s (subscription required).  Barron’s is widely read among professional investors who frequently buy up large quantities of the stocks recommended by the magazine first thing Monday morning when the market opens, which is exactly what happened with Whole Foods. 

Whole Foods closed Friday at $47.37 a share and opened Monday morning at $50.27 on some very large orders – 915,000 shares, about $46 million worth of stock, traded hands in the first 10 minutes of trading on Monday morning. 

Barron’s recommended the stock for the same reasons I did: the stock is a fast grower in a growing market whose stock has probably been beaten down more than it deserved so far this year. 

Barron’s pointed out that Whole Foods is the “category killer in a dynamic niche”:

As people have grown more concerned about health, and more affluent, sales of natural and organic foods have surged.  At $22.9 billion in 2005, they accounted for only 4.1% of total US retail food sales of $560 billion, but the segment advanced at a crisp 13%, far ahead of the 2.3% sales pace of the broader market, says Grant Ferrier, editor of the Nutrition Business Journal.  He figures growth will moderate only slightly in the next four or five years, to about 8% to 12%.

It is also worth putting Whole Foods business in the context of my two previous posts on the Fed pause and avoiding discretionary consumer stocks.  As I pointed out in the latter post, in a slowdown people cut back on vacations and fancy new clothes but they don’t cut back on groceries, which is bullish for Whole Foods. 

You might think that because Whole Foods is expensive people would shop at cheaper grocery stores like Safeway, Ralph’s and Albertson’s.  But, as I wrote, high income/net worth people are less affected by economic slowdowns and that is primarily Whole Foods customer base.  The people who shop at Whole Foods aren’t likely to start shopping at Safeway when the economy slows down.  They will barely even notice the slowdown and if they do they might cut back on an expensive vacation or new wardrobe but probably not on the high quality, fresh food they get at Whole Foods. 

So there are alot of macro economic tailwinds benefitting Whole Foods: groceries are a consumer staple, high end consumers aren’t as affected by economic slowdowns and the natural and organic food markets are growing rapidly.  On top of that, Whole Foods is a fabulous company that produces a tremendous product, growing very quickly, with very little debt and the most visionary CEO in the world, John Mackey, at it’s head. 

Of the four stocks I’ve gotten behind so far on this blog (PG&E, Netflix, Whole Foods and Cisco), I am by far the most bullish on Whole Foods. 

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