Stock Picks With Chicks: The Only Supermarket Stock That's Not Spoiled

Thanksgiving is here, and across the country people are taking stock of their pantries deciding how best to trim their turkeys, tofurkeys, turduckens, cowporkens, or whatever the day's main dish will be.

But it's not the menu that's got our attention -- we're more interested in where people choose to shop for all the trimmings.

So who's excited to go to Safeway? Anyone? Anyone? Exactly.

The main dish in the supermarket sector
Supermarket stocks have been about as appetizing as that mystery dish hiding at the back of the fridge. The grocery sector is in tough times because of skittish consumers and tons of competition. But there is one standout -- a store that makes shopping an experience, not a chore.

Whole Foods Market (Nasdaq: WFMI  ) is one of the very few truly appetizing stocks among the grocers. It boasts impressive revenue growth, high margins, and manageable debt. It's also got a few of the intangible positives that female investors like us appreciate -- and male investors shouldn't just brush off as "soft metrics" when they do their analysis.

Whole Foods Market makes every trip a pleasant experience. Its produce aisle is to die for, and it offers gourmet fare, unusual natural and organic toiletries, gourmet cheeses, and excellent prepared meals for families on the go. They've got incense, vegetarian cookbooks, and yoga gear. Admit it; you get excited when you're in Whole Foods, too.

Doing good is good for the bottom line
Beyond its core focus on organic and natural goods, the company has lofty missions up its sleeve.

Co-CEO John Mackey's a huge proponent of conscious capitalism, which contends that the best way to do successful and long-term profitable business is by taking all stakeholders (employees, customers, suppliers, and shareholders) into account. The company puts money behind what it stands for: healthy eating education; labeling initiatives on foods involving animal welfare, place of origin, and sustainability; and locally grown goods.

It is differentiating factors like those that make Whole Foods a tastier investment than the crowded landscape of archrivals that include Safeway (NYSE: SWY  ) , Kroger (NYSE: KR  ) , and SUPERVALU (NYSE: SVU  ) .

In fact, it's making mincemeat out of the competition. Check out this mouth-watering chart.

Company Name

Earnings/Loss Per Share (TTM)

Revenue Increase/Decrease (TTM)

Gross Profit Margin

Total Debt-to-equity Ratio

Whole Foods $1.43 12.1% 34.8% 21.4%
Safeway ($3.25) (2.5%) 29.7% 108.6%
Kroger $0.02 5.8% 23.2% 151.4%
SUPERVALU ($5.64) (10.5%) 22.6% 513.5%

Source: Capital IQ, a division of Standard & Poor's.

This side-by-side comparison shows why some of us don't fret about the premium price on Whole Foods' stock. The company is trouncing its conventional rivals on all the metrics above, and that's no mean feat in an industry sector that for the most part can't impress anybody with growth.

Guess who's selling groceries now?
Although it's beatings its more conventional competitors, Whole Foods does have to contend with the likes of Wal-Mart (NYSE: WMT  ) and Target (NYSE: TGT  ) , both of which have been increasingly using groceries to lure traffic into their stores.

Still, the organic grocer's most serious rival is privately held Trader Joe's. Trader Joe's has a similar number of stores (350 compared to Whole Foods' 270 or so) and allegedly racks in a comparable amount of annual sales. Possibly the most vicious of Trader Joe's competitive strengths is that it offers up a lot of natural and organic goods cheaper than Whole Foods does.

Still, even in this kind of competitive environment, Whole Foods has been standing strong against its rivals. Its management seems to understand that running a good business isn't just about beating lame competitors, but learning how to innovate to beat the best ones.

Chick wisdom: Sometimes you pay up for quality
Whole Foods trades at about 32 times earnings, and so you couldn't accuse it of being the cheapest stock in the retail space. Both Wal-Mart and Target trade at far cheaper multiples, for example. Still, Whole Foods has plenty of good ideas up its sleeve and solid indications that there's ample innovative growth ahead. Given the promise of continued success, we may look back one day and realize Whole Foods was dirt cheap at these levels.  

Join us next week for our next installment of Stock Picks With Chicks, and in the meantime, enjoy your Thanksgiving dinner! And be thankful we're not cooking it.

Whole Foods Market is a Motley Fool Stock Advisor pick. Wal-Mart is a Motley Fool Inside Value selection and a Motley Fool Global Gains recommendation. The Fool owns shares of Wal-Mart. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Whole Foods Market; Dayana Yochim does not. 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.

Read/Post Comments (6) | Recommend This Article (21)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 24, 2010, at 3:39 PM, prginww wrote:

    Recommend taking a look at Ruddick's (RDK) - Harris Teeter parent - fundamentals. A little lower projected growth rate than WFMI, but much cheaper on both a trailing and forward PE basis.

    Haven't done a lot of research in the group, but if I was going to buy a supermarket stock or add one as a CAPS pick, RDK would be the leading contender.

  • Report this Comment On November 25, 2010, at 6:18 AM, prginww wrote:

    I will say the last time I was in a walmart I was aghast at the quality of the produce, which was sort of pallid and industrial looking but absolutely affordable. My parents laugh at me (out loud and often) for dissing this poster child of the most abhorrent kind of labor-neglect*, which is where they do most of their shopping, including for their non-organic and considerable appetite for fruits and vegetables. They're no worse for it, it seems, as at 67 they're both in perfect health.

    I do love whole foods, from what I can remember of it, and would be thrilled if I could shop at one. I'd add that if I didn't spend so much of my money on eating properly--and paying up the wazoo for it--I'd have more money to invest more in wfmi than I have so far. I wonder if they'll reinstate the dividend one day. I also wonder if people's NEED to be thrifty won't prevent it from growing like it could. The fool's enthusiastic endorsement makes me think it can, but for me it remains a "but what if" stock.

    *By neglect I mean squeezing as much out of workers as they can while paying them as little as possible when they could pay them MUCH more. Much like one squeezes a lemon into a pot of gold--er, I mean, a cup of tea.

  • Report this Comment On November 28, 2010, at 1:01 AM, prginww wrote:

    There is another stock that is NOT Publicly Traded that beats the pants off all of the supermarket players, that is if you are an employee of PUBLIX. They have over 1100 stores and growing, completely debt free with generous stock options for all their full time employees There are people who have been working for them for over 30 years in such positions as a cake decorator, who have approximately a million or so in stock. The daily pay is competitive for the type of work that retail employees do, but it is in the stock and retirement where the company takes care of their own. No corporations do what they do for their employees today. Whole Foods doesn't stack up so well now does it?

  • Report this Comment On November 29, 2010, at 1:15 PM, prginww wrote:

    I guess everyone's forgotten about the stock price manipulation by WFMI a few years ago, hm?

    I wouldn't trust their CEO with my pocket change!

  • Report this Comment On November 30, 2010, at 8:44 PM, prginww wrote:

    I'm pretty sure that WFMI shouldn't be bought until it's under 30 time earnings. In the long term, it's a GREAT investment. The push for organic food is going to take off like a forrest fire. NObody ever said, "I want more pesticides and horomones with my food." Once the economy gets better, people will turn to organics. Also, environmentalism will eventually demand that the external costs of pesticides be internalized and the premium price of organic food will decrease or vanish.

  • Report this Comment On December 01, 2010, at 3:19 PM, prginww wrote:

    Thanks for the feedback and thoughts on this one, everybody!

    And rd80, thanks for the info on Ruddick. I have to admit, I just thought Harris Teeter was a private grocery company (and an awesome one at that, granted, a formidable rival in the space), I didn't realize it had a publicly traded parent, so I'm looking forward to digging into RDK and seeing what's what there. (I'm embarrassed to admit I have never heard of Ruddick.)

    Best, Alyce

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