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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) (WFM). This Wall Street darling excites not only investors but the foodies looking for high quality at almost regular prices.

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) was down 13%, Kroger (KR) was down 10% and Safeway (SWY) was down 22%:

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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