Buying Green Is All About Saving Money, Not the Earth
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Is anyone really surprised the results of a Yale University survey showed most "green" behavior is more about saving money than the environment?
What does it mean to go "green" ?
The survey showed half of Americans deliberately bought an energy efficient kitchen appliance with 75% intending to do so with their next purchase.
Of respondents surveyed 42% said they have bought organic food and 80% intend to do so (sure, if Whole Foods Market (NASDAQ: WFM) happens to have a sale).
I have some qualms about the "intend to do so" category. I've been intending to clean out the garage for years and would tell a survey taker that with great conviction.
The survey found only one in ten actually did something like contacting an elected representative about global warming or climate change. Frankly, it's surprising the number was that high.
Energy efficient and undervalued
It certainly looks good for Whirlpool (NYSE: WHR) and their energy-efficient appliances. The stock is up on good new home sales news. Its appliances are often featured in new homes and flippers like the brand to raise selling prices.
The stock has more than doubled from its 52 week low and trades at a 16.21 trailing P/E with a 2.20% yield. The payout ratio is a reasonable 28%. Despite its run the PEG is only .44.
The stock is closely tied to housing as is its main competitor Electrolux as one can easily see from the chart.
For the time being, Whirlpool looks good as long as interest rates hold steady or rise very slowly. In the Chairman's Letter to Shareholders CEO Jeff Fettig wrote that 2103 looked promising with improved consumer discretionary spending, increasing housing starts, and best of all, an accelerating appliance replacement cycle. In other words all those people that kept their appliances going with duct tape and a wish and a prayer will be buying new.
The 115 year old company Michigan based company has an expanding international focus, especially in Latin America with record sales and operating profit (ex-Brazil due to currency devaluation). Fettig expects that penetrating underserved emerging markets will help bring operating margin up to 8% by 2014.
Note that even with Brazilian currency problems their Brastemp brand is the number one home appliance brand in Brazil. The leading market share is partly due to customization options which allow buyers to customize their appliance design by color and electrostatic stickers.
Speaking of cleaning out the garage, besides appliances Whirlpool also owns Garageworks, a sleek garage organization system for... people like me who intend to clean it out. And the company's KitchenAid division of tabletop appliances and cookware has recently teamed up with SodaStream. I must admit my 20 year old KitchenAid mixer still works great.
Analysts are bullish with 1 Strong Buy, 3 Buys, and 1 Hold and have a median price target of $130 for over 10% upside.
The fair trade
Then there's the second part of the survey about organic and local food. There are two companies that benefit from this established trend. The big player is the aforementioned Whole Foods Market, largest grocer of healthy and organic foods in the US. It is beginning to expand internationally in Canada and the UK giving it a total of 340 stores.
It is one of the most environmentally and socially responsible businesses around with fair trade and local sourcing, GMO labeling, and above average employee pay and benefits.
Whole Foods is trying out a small-box concept itself in more exurban areas and also lower prices but analysts have been dismissive of that initiative.I think it will drive traffic to these cozier stores and Half Paycheck prices will bring organic and local buyers but balk at the price.
Whole Foods' stock could be called Whole Paycheck stock as its forward P/E is now at 30.19 and its PEG at 1.95. A yield of 0.80% isn't as enticing as their dark chocolate covered espresso beans, my personal downfall.
The stock has underperformed the S&P 500 with gains of 9.32%. The short interest at 2.10% has been rapidly rising from 4.86 million shares short in April to 7.65 million at the end of May. Whole Foods is also trading at more than five time book value.
Small and nimble and growing
Specialty retailer The Fresh Market (NASDAQ: TFM) was originally concentrated in the South. However, it is making a concerted move into California and New York signing two leases each with three more stores opening soon in California, just part of the 19-22 total openings this year. It is also expanding into the mid-Atlantic and Northeast for a current total of 132 stores in 25 states with an estimated 500 total in time.
The company presented at the William Blair Growth Stock Conference in June a picture of five year 5% CAGR in sales and a rise in full year EPS from $0.86 in 2010 to $1.33 in 2012. The company guided for $1.55-$1.58 EPS for FY2013.
Q1 results reported on May 29 showed sales growth of 12.9% and an improvement of 60 basis points on gross margin at 35.33%. The company beat analysts' expectation on EPS but not on revenue.
Its competitive advantage to conventional supermarkets is its limited product overlap with them because of its differentiated private label brands and local offerings. (Survey says locally grown was another intended buy of respondents.)
One advantage over Whole Foods is its small-box format with average square footage between 17,000-22,000. A new store can be built for $3 million and turn around $8-10 million in sales the first year.
The Fresh Market trades at a forward P/E of 26.49 with a 1.55 PEG. The stock is down 4.49% in the last year mostly due to several quarters of in line or slightly disappointing quarters before this last Q1 report. It has a high short interest of 15.40% and trades at 10.80 times book.
It isn't easy being green
Whirlpool is a solid stock in the "green" and should do well as long as interest rates don't rise sharply. Between Whole Foods and The Fresh Market, The Fresh Market's small but nimble growth is becoming more attractive but one should consider it slightly speculative.
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AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!