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Sell Whole Foods, Hold Starbucks, Buy Coke and Pepsi

NEW YORK ( TheStreet) -- Is it me or does it seem as if a lot of air has suddenly been let out of the market following the disappointing quarter by one of its darlings, Chipotle (CMG)?

While it came as a surprise to most, it should not have been the bombshell many are making it out to be. If one took time to carefully study the stock, it could have been seen a mile away -- or at least a couple of days ahead of the report.

Investors want to know what it means for other food and beverage stocks.

In this article we are going to discuss the investment-worthiness of four stocks within the sector that have been affected by the Chipotle disappointment and see if they deserve cautious market activity or if it's just a slight overreaction. I happen to think that it just might be a bit of both.

While there are some good buying opportunities in the traditional food/beverage powers in Coca-Cola (KO - Get Report) and Pepsi (PEP - Get Report), I think it would be wise to hold tight on coffee giant Starbucks (SBUX - Get Report) while reducing exposure to Whole Foods (WFM - Get Report).

Let's take a look at my arguments and see if you agree.

Sell Whole Foods

First and foremost, I have to be completely honest and admit that this continues to be one of the toughest calls for me to make -- placing a sell recommendation on a company that not only has a fundamentally sound business but, equally important, a pleasant fundamental mission in healthy living. So what exactly is the problem?

When it comes to Whole Foods, the challenge for me has been its stock price, too expensive for my taste. The market, however, has had different ideas for quite some time now. Investors can't seem to get enough, and in many respects the stock had developed the same appeal as Chipotle where valuation metrics have become unimportant.

With that in mind, in light of Chipotle's recent earnings, it seems prudent to take a serious look at where things have been and where they may be heading for Whole Foods. Aside from Apple (AAPL), not many stocks have performed as well as Whole Foods over the past five years to the extent of a 90% increase including gains that at one point reached as high as 30% on the year.

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KO $40.07 -0.69%
PEP $95.97 0.36%
SBUX $95.06 -0.02%
WFM $51.91 -0.46%
AAPL $123.22 -0.82%


DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

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