“NEXT American Superbrand” again … Motley Fool’s latest “Core” and “Best Buy Now”

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The Foolies are out in force with another ad for their flagship Stock Advisor newsletter, we’re on vacation this week so I’m not putting together brand new articles but I reminded you about their “#1 Stock Across the Motley Fool Universe” yesterday … and today we’ll remind you about the other pick they’re pitching in this ad campaign.

Here’s how it’s described and teased for us in the letter from A.D. Edwards — for whatever reason, Dave and Tom Gardner have had a bunch of different Fool employees making the case in different ads lately, from their CTO to other analysts to their HR guy — this one’s an “investment writer”:

“And now I’d like to tell you about another… One that David and Tom are calling “The NEXT American Super Brand” with an even more unusual distinction…

“Namely that it was the first company to EVER be recommended in Motley Fool Stock Advisor by BOTH David and Tom Gardner (it’s also worth noting they BOTH personally own shares).

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“A couple of years ago, you could’ve gotten into this company for about half what it costs today…

“Yet, as impressive as this stock has been recently, David and Tom believe it will continue growing by leaps and bounds over the next decade…

“Which is why Tom recently invested a large sum of The Motley Fool’s own money into this company for the ‘Everlasting Portfolio’ he runs inside of our crown-jewel Motley Fool ONE service…

“And why David just doubled down on it for his real-money Motley Fool Supernova service — not to mention, he named this stock both a ‘Core’ holding (meaning this a stock he believes investors should be building their entire portfolio around) and a ‘Best Buy Now’ for June 2013 in the most recent issue of Stock Advisor.

“It’s also why I personally plan to double down on this stock in the coming days!

“And why I’d like you to consider joining me once I tell you a little more about this revolutionary, ‘purpose driven’ retailer…

“Of course, old-school analysts love the fact that this company has seen…

  • Comparable-store sales grow more than 8% for 11 consecutive quarters…
  • Revenue per square foot of store space rise from $833 in 2008 to $950 in 2012… a jump of almost 15% in an extremely tough economic climate…
  • Return on invested capital (ROIC) nearly DOUBLE over the past four years..

“But the epic growth this company is experiencing isn’t just the kind that shows up while digging through balance sheets or filling out tedious tax forms…

“Instead, it’s the kind you can actually see in your day-to-day life… and the kind that can make a fortune for early investors…

“Like the way you could actually see the exploding popularity of Apple’s iPhones… Nike’s sneakers… or Chipotle’s burritos (all of which David and Tom have recommended in Stock Advisor, by the way).”

So whozit? This is, once again, Whole Foods Market (WFM)

And yes, they even mentioned my old stomping grounds in DC, pointing out the huge impact WFM has made in revitalizing some urban areas:

“… back when I lived in D.C., this “top dog” and “first mover” opened a store right down the street… and within a few months, not only was there a line out the door, but the entire neighborhood was suddenly exploding with economic activity.

“Designer boutiques, chichi wine bars, and high-end furniture stores started sprouting up left and right. Before long, tourists were milling about and rents were going right through the roof.

“Meanwhile, practically everyone you saw walking around was carrying one of the trademark shopping bags from this company’s store. But this isn’t just some sort of high-brow, East Coast phenomenon. It’s actually happening all over the place.

“In fact, this company is about to open a new store just a few miles from where I now live in New Orleans (its third in the area) that will anchor an entire “economic redevelopment district” spanning several blocks that have been vacant since Hurricane Katrina.”

He’s talking about the Whole Foods on P Street in Logan Circle in Washington, DC, which is indeed a phenomenon — they have to have line wranglers to help the people wrapping around the store for the express checkout lines, and it’s almost inconceivable what kind of sales they’re wracking up there, and they have indeed sped up the neighborhood revitalization. Over in the neighborhood where I lived we had a tiny Whole Foods, we frequently had to elbow the members of the liberal media elite just to get to our organic quinoa, and our gigantic stroller was NOT welcome.

But I digress.

Whole Foods started to be pitched by the Motley Fool brothers as their “New American Superbrand” years ago, and in fact one of my very first articles as I was launching this website was about that very pitch in March of 2007. So they’ve sure been consistent, even as it took several years for those buys on the early WFM peak in the mid-2000s to get back into the black (it was drifting down well before the financial crisis, thanks to their own internal problems and a high valuation), they kept recommending and re-recommending it and it’s within a dollar or two of the all-time highs now.

And Whole Foods is, of course, a spectacular company. Not everyone likes ‘em, but they’ve been an incredible business for decades and have grown mightily. So much so that even calling a stock the “next Whole Foods” is enough to get investors attention, as Keith Fitz-Gerald did when he was teasing one of their competitors (Natural Grocers) a few months ago (NGVC has done twice as well as WFM in those few months, FYI, though it’s obviously a far, far smaller company).

WFM has a very powerful brand, excellent growth in both revenue and profits, and it’s priced to match — it’s at 52-week highs again, or nearly, in the low $50s after popping about 25% in the last few weeks, so investors today are paying almost 30X estimated 2014 earnings (or if you prefer real numbers 37X trailing earnings).

This has been a great growth story for many years, but they do go through weaker periods and they are pretty volatile and news-driven even as a $20 billion company. I wish I owned the stock at a lower price — this is one, like Starbucks (SBUX), which is also an excellent core growth stock that today makes you pay up to buy that growth, that I wish I had had the timing or cash on hand to buy when bad news brought the occasional deep dips. Maybe I’ll be ready next time.

That’s about all I can handle writing for you on vacation — let us know what you think about Whole Foods with a comment below — or you can catch up on that Natural Grocers article here, we had a bit of a chat about WFM in that article as well.

And those of you who haven't retired yet, check this out as we get to the "planning and forecasting" part of the year...

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10 Responses to “NEXT American Superbrand” again … Motley Fool’s latest “Core” and “Best Buy Now”


  1. I would have loved to buy this stock in 08 at $4-5 per share, but at 4.5 times book, it is way overpriced. WF margins will be squeezed, by Natural foods, Trader Joes, Costco, every regular grocery store that is expanding its organic offerings, and most importantly, the traditional foods movement ( see realmilk.com). There will be a pull back in the market in the next 24 months. When that happens, this stock will get hammered.

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  2. Whole Foods Market opened about a year ago in my neighborhood, east Midtown Manhattan, which is pretty posh, being the old “silk stocking” electoral district. But, but, but as a seriously disadvantaged grocery shopper, because I run a stock newsletter business which while producing nifty gains for our readers is also priced at the upper limit of their tolerance. So I have to watch the grocery bill. And for my household, Whole Foods Market comes in as the old saying goes, Whole Paycheck Market. WFM is seriously expensive, hence the nickname.
    It has sales but the terms and conditions are niggling. They will sell grapes cheaply one day a week with a big sign on the outside with small print for the timing. I tend to prefer our local ethnic supermarket, d’Agostino’s, or the Bridge Market Food Emporium. They aren’t cheap either because bringing trucks into Midtown is costly, but at least they offer regular discounts to wrinklies on Tuesday (Food Emporium, which belongs to Great A&P) or serious discounts (d’Ags).
    Both are less glamorous with crowded aisles and slower checkout. They don’t have large pictures of local suppliers in the windows. They don’t place baskets of apples and bunches of flowers around the place to scream “fresh, fresh” at shoppers. Sometimes the produce is old but that is why we have eyes and hands, to pick through the bins. WFM is for lazy mindless shoppers with too much trust.

    Like(1)

    • Middle class disappearing, lower classes getting lower, 1%ers not reproducing, from WHERE are the WFM new customers going to come!!???

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  3. Agreed. Whole Foods is too expensive. Usually I can come out of Trader Joes with the same stuff at half the cost. Wife has stopped going to whole foods altogether and she is a big organic buff. Costco and Trader Joe’s got her business. Might be a good idea to actually short this over a 2yr period. 17Jan15 Puts look like a good way to bet along those lines.

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