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Whole Foods Is the Place to Shop for Growth Investors

CHARLOTTE, North Carolina (TheStreet) -- If there is a boring industry it's got to be grocery stores.

They try and try to get our money but unless you're a real foodie, grocery shopping is a chore. The only bright spot seems to be Whole Foods Market (WFM - Get Report)

The Whole Foods store brands are bringing in the cost conscious shoppers that thought healthy cooking always came with a huge price tag. Here in Charlotte, they have chosen a location across the street from a very high end mall in the exclusive South Park neighborhood.

This graph provided by Barchart shows a very nice upward price momentum over the past six months:

Most of the food industry stocks have bad looking charts (see below) but over the past year, while the market as measured by the Value Line Index was down 10%, WFM has soared for a 46% gain:

Whole Foods is the largest purveyor of natural foods in the world. They own and operate the country's largest chain of natural food supermarkets. They are like an old-fashioned neighborhood grocery store, an organic farmer's market, a European bakery, a New York deli, and a modern supermarket all rolled into one! The Company also offers a wide variety of non-perishable natural products on its Web site. (Source: Company profile on Yahoo! Finance).

Factors to consider:

Barchart technical indicators

  • 96% Barchart technical buy signal
  • Trend Spotter buy signal
  • Above its 20, 50 and 100 day moving averages
  • 3 new highs and up 7.75% in the last month
  • Relative Strength Index 61.46%
  • Barchart computes a technical support level at 87.13
  • Recently traded at 89.51 with a 50 day moving average of 85.24

Fundamental factors

  • Popular with Wall Street where 17 brokerage forms have assigned 20 analysts to follow the company
  • Revenue is predicted to increase by 15.60% this year and another 12.00% next year
  • Earnings estimates are very robust with an increase of 28.00% expected this year followed by an additional 14.60% next year and an annual rate of increase of 18.07% for 5 years out
  • These consensus numbers resulted in analysts issuing 13 strong buy, 1 buy, 6 hold and no under perform or sell recommendations to clients
  • The P/E ratio of 40.73 is high in a 18.13 P/E world for most grocery stores
  • If all the numbers are met and the P/E returns to norms, analysts still look for investors to receive a 6% - 8% total return over the next 5 years
  • Same store sales have increased 8% year over year
  • Management wants to grow to over 1,000 stores from the present 300 store level
  • Financial strength rating of A
  • Introducing store brands to lure in the budget conscious shoppers

Investor interest

  • Popular with the individual and professional investors with positive comments from columnists
  • TheSreet readers give the stock an A+ ranking
  • JPMorgan, Deutsche Securities, Goldman Sachs and Zacks have buy recommendations
  • Both Jim Cramer and Wayne Rogers have also given a thumbs up

Competition

While the price of WFM is up 46% over the past year the prices of Sysco (SYY - Get Report)

Sysco
  • TheStreet Ratings grade is "A-"
  • Revenue projected to increase 7.60% this year and 4.80% next year
  • Earnings expected to be down 2.50% this year but up 4.10% next year

Kroger
  • TheStreet Ratings grade is "C+"
  • Revenue projected to increase 7.10% this year and 3.90% next year
  • Earnings expected to be up 16.50% this year and 7.30% next year
  • Safeway
    • TheStreet Ratings grade is "C+"
    • Revenue projected to increase by 2.00% this year and 2.30% next year
    • Earnings expected to increase by 12.40% this year and 8.00% next year

    Summary: If you need a growth consumer stock to diversify your portfolio Whole Foods meets my four criteria:
    • Revenue growth projections are double digit
    • Earnings estimated to also grow double digit
    • Financial strength A
    • Recent and consistent upward price momentum

    Caution: The high P/E of over 40 gives me concern. If you buy in at this price monitor the 50-day moving averages or the lower 14-day turtle channel to signal weakens in momentum:

    Disclosure: At the time of publication, Jim van Meerten did not own WFM but the stock is in his Growth Stock watch list.

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