A Healthy Addition to Any Portfolio

By Ryan Guenette - July 11, 2012 | Tickers: BKW, MCD, WFM | 0 Comments

• Email
• Print

When investing, one may look for any number of things in a company. One might be in search of a long term trend that will grow over the years. One of these trends includes a long term change that will continue to show growth and considerable sustainability over the decades. Healthy eating is this trend, and has and will continue to spread like an epidemic. The healthy eating trend should be considered as a long-term investment, as it is a multi-year trend that is leading to the eventual shift away from fast and greasy food that presently consumes the world in overwhelming fat. According to the Center for Disease Control and Prevention, 35.7% of adults living in the United States are obese.

When an adult is obese they are told by their doctors to exercise regularly and eat healthy to control their weight.  Whole Foods Market Inc. (NASDAQ: WFM) offers a wide variety of natural and organic food products that are put through a strenuous quality test. This quality test weeds out products that are of a lower quality. If you go hunting through a Whole Foods Market you will be searching all day for a box of Oreos, because there are none. Whole Foods Market provides "foods and nutritional products that support health and well-being," and is a clear cut leader in the sector. So why is Whole Foods Market a healthy addition to any portfolio?

A Growing Market

Let’s face the cold hard facts, the world’s waistline is growing, and growing fast. The percentage of the world’s population that is overweight or obese has grown, and according to forecasts released by the Organization for Economic Cooperation and Development, will continue to grow. Just take a look at the chart below. 

With more people in the world that are overweight and obese, there will be more demand for healthier, natural, and organic products. This will play right into Whole Foods Market’s court. On the other hand, fast food restaurants such as The Wendy’s Company and Burger King Worldwide (NYSE: BKW) will not benefit from this trend. For instance, Burger King offers a Triple Whopper® Sandwich, which contains 1140 calories. The heightened awareness of healthy eating has caused several fast food chains to make healthier alternatives available. For instance, McDonald’s Corporation (NYSE: MCD) has added several variations of salads and sized down its HappyMeal®, making it mandatory to include apple slices. The more overweight people in the world, the more customers Whole Foods Market may potetnially acquire.   

There Are No Whole Foods Markets in China

Whole Foods is just in the first stages of spreading its roots. Whole Foods Market is a mainly domestic company, drawing 96.9% of its sales from the United States in 2011. The other percentage came from the United Kingdom and Canada. This can be viewed as a positive and negative. Positively, less exposure to Europe means they will not directly feel the pain brought upon by the recession in Europe. Negatively, if the United States economy does not crawl out of the ditch it is currently in, people will have less money to spend on the expensive food presented at a Whole Foods Market store. Whole Foods Market’s absence in economies around the world presents a company that still has a considerable opportunity to continue to grow and expand throughout the world.

Explosive Growth

In 2010, Whole Foods' earnings per diluted share were $1.43. In 2011, Whole Foods Market’s earnings per diluted share were $1.93. That is an increase of 34.96% year over year. It is not too often that you see such explosive growth from a grocery store chain. Based on the average consensus, earnings per diluted share in 2012 should total $2.46. That shows year over year growth of 27.46%. In 2013, earnings per diluted share is expected to reach $2.83. Again that shows considerable growth with the year over year growth totaling 15.04%. I believe the consensus to be vastly underrated, as Whole Foods Market has a long history record of beating the estimates, by a marginable rate. Whole Foods Market is a long term growth stock that will continue to show explosive growth in the coming years. Just take a look at the chart below that displays Whole Foods Market’s sales, operating profit, net income, net margin, and operating margin over the coming years.        

The Foolish Bottom Line

Whole Foods Market may have some concerns surrounding it. It is considered expensive by many having a price to earnings ratio of 43.13, and a price to earnings to growth ratio of 1.82. Additionally, having its majority of business being derived from the United States, a continued lackluster recovery could dig into Whole Foods Market’s growth, as people will not be able to foot the bill it costs to shop at a Whole Foods. Despite these fears, Whole Foods Market is a play on a larger trend. Healthy eating is here to stay, and at the forefront of this trend is an accelerated growth stock ready to take advantage of the huge opportunity in the sector. 

• Email
• Print
• Feedback