NEW YORK (Real Money) -- If it weren't for Twitter's (TWTR) initial public offering, this day would be so different. The entire focus would have been on two growth stocks that everyone had loved coming in -- Whole Foods (WFM) and Qualcomm (QCOM) -- even as I think only one of them deserves that adoration.
We focus on these two because Whole Foods is among the fastest-growing of the senior growth stocks in retailing, and Qualcomm is pretty much the same for semiconductors.
Both have spoiled us in the last few years: Qualcomm has put in pretty consistent 30% revenue growth, and Whole Foods has been delivering same-store sales growth of 5.9% to 7%. Both are at top of game for their respective groups, and both stocks are true core holdings in the business.
That's why it was so jarring to hear both of them lower their growth rates.Now, that said, I have not been a fan of Qualcomm. That's because, while it has given you high growth as phone companies have transitioned from 3G to 4G and as China has rolled out better coverage, I actually find the firm maddeningly inconsistent. When Qualcomm meets with analysts two weeks from now, it would be perfectly within the company's ways to raise the growth rate back because of new orders, or because of lessened concentration at the top tier of customers vs. what management had previously thought -- which was the principal reason for the guide-down. There is a reason a company with 30% revenue growth has only seen its shares rise 12% this year: I am obviously not alone in thinking that Qualcomm just produces too many surprises in its quarter-to-quarter roadmap. While it has returned capital to shareholders in the form of share buybacks and dividends to the tune of $6.7 billion, the actual share count has been pretty much consistent these last three years, and the 2% yield does us no favors. It won't be a floor. So I'm left here thinking, "Great company -- but why can't these guys guide better?" Someone is always looking to start a position in this name, and I am sure today will be no different, because management did hold out hope for a second-half turn. But at some point this one may turn into a company such as Broadcom (BRCM), the benchmark of weak semis, and I simply don't trust it. Whole Foods, on the other hand, has consistently earned our trust. That is why the stock has risen 41% coming into Thursday's session. Now, I had feared the reaction to this quarter, and I had told people not to buy it, but I was disappointed -- as we are all meant to be -- by the guidance of a slowdown, even if it seems puny by most companies' standards. But Whole Foods is not just another company. It is, as co-CEO Walter Robb said on the call, "a no-excuse company." So there was just a sense that the bar was too high for the quarter, given the firm's aggressive expansion. Whole Foods gave out a huge amount of fodder to the bears as co-CEO John Mackey cited the new three Cs of growth stock oblivion: "cannibalization, competition and currency." Nonetheless, the latter one seems a bit hallow, given that the store distribution. Out of $11.6 billion in total sales in fiscal year 2012, only $374 million came from the U.K. and Canada, the overseas markets of Whole Foods. Now, I suspect some of this is temporary. Mackey explained, for example, that the cannibalization in Boston, where the company is expanding aggressively, should be muted a year from now. He also said the stores will be producing gangbuster numbers. But the competition line sent visions of bears dancing in the aisles, as the big rap against Whole Foods is the well-financed litany of Sprouts (SFM), Fairway (FWM), Fresh Market (TFM) and the implacably private Trader Joe's. I think this plethora of me-toos that have come into the market, as well as the sophistication that a firm like Kroger (KR) now brings to the party, is going to put Whole Foods in the penalty box for some time. That's a shame. These guys are the best of the best, and the theme of the chain -- healthy eating -- is only accelerating. But when the bar is too high, the lowering process is about time and price, meaning the stock's got to go lower and stay lower for a couple of quarters. All that said, when half of the gain from the last quarter is repealed, Whole Foods will be de-risked once again and the opportunity will beckon. So there you are -- two terrific growth companies, one worth keeping and the other worth exiting. But, at least today, the exit-ers will dominate the shares of both companies. Editor's Note: This article was originally published at 7:35 a.m.EST on Real Money on Nov. 7.
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