Two Votes for Whole Foods

03/04/2005 12:00 am EST

Focus:

Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

I'm always intrigued when two leading analysts with different investment perspectives highlight the same opportunity. In this case, both Gregory Spear and Bernie Schaeffer, see upside potential in natural foods retailer, Whole Foods Market. Here are their reviews.

"Gee whiz, a buy recommendation on a grocer with a p/e of a tech stock! What's going on here?" asks Gregory Spear, editor of The Spear Report. "Whole Foods Market (WFMI NASDAQ) is the world's largest retailer of natural and organic foods, with sales of $3.9 billion in fiscal year 2004 and 166 stores in the US, Canada, and the United Kingdom. The company is a corporate icon for a lifestyle trend among boomers we have referred to as ‘Healthy Living’. Whole Foods is an operational perfectionist and it has developed a family-like team spirit. For example, anyone who works at the store can send an e-mail to the president and get a personal response.

"For the most recent quarter, sales increased 22% to $1.3 billion. Net income rose 27% to $49 million, while quarterly earnings per share rose 21%. WFMI has been one of our favorite consumer names for several years. While the recent earnings results propelled the shares above $100, any dip below triple digits would be an attractive buying opportunity. While the stock is considered ‘fully valued’ by many analysts, we believe the company exemplifies the type of corporate culture that produces companies with sustainable long-term growth and increasing shareholder value."

Adds Bernie Schaeffer, in the latest issue of his The Option Advisor, "Pessimists have flocked to the number-one natural foods retailer, pushing the equity's open interest ratio to a lofty reading of 1.29. While short interest edged roughly 3% lower in January, the 5.3 million shares currently sold short account for almost 9% of the stock's total float. This accumulation of bearish bets could fuel a sharp rally higher in the shares as these positions are unwound. In addition, Wall Street is giving the equity the cold shoulder, as Zacks reports that 12 of the 15 analysts following WFMI rate it a ‘hold’ or worse. This leaves ample room for additional upgrades that could buoy the stock higher. Turning to the security's technical performance, the stock has nicely rebounded off support at its 20-week moving average. Further, the equity has rallied higher along its ascending ten-month and 20-month trendlines since April 2001. For options trades, we suggest buying the Whole Foods August 90 calls."

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