I'm Hitching My Growth Portfolio to This Stock

At the beginning of 2012, I set out to form The World's Greatest Growth Portfolio. Though I can't promise it will always live up to its moniker, the portfolio has returned 22% in just 10 months, besting the S&P 500 by about 9 percentage points.

A few weeks ago, I outlined exactly how I would go about building my portfolio for next year: Invest first and foremost in companies that demonstrate exceptional levels of innovation, with special emphasis given to those that I believe will be around decades from now.

Today, I'm going to take a deep dive into one of my core stocks -- Whole Foods (Nasdaq: WFM  ) . Read all the way to the end, and I'll offer up access to a special premium report that dives much deeper into Whole Foods than I can in just one article.

Some positive trends
The most important part of my investment in Whole Foods is the mission that it is carrying out. Helping to educate people about where their food comes from, and doing their level best to provide options that are organic and local, gives customers the feeling that Whole Foods has a real purpose beyond solely profits.

From my own experience, that's just not the same feeling I get when I walk into a Safeway (NYSE: SWY  ) or Kroger  (NYSE: KR  ) -- and for those who thought that Whole Foods would be too expensive, one only need compare Whole Foods' performance against low-end peers like Roundy's (NYSE: RNDY  ) and SUPERVAlU  (NYSE: SVU  ) -- both of which have had significant struggles lately.

It probably doesn't hurt that the message Whole Foods stands for is resonating with more and more people. Take a look at how sales of organic foods have fared since 2000.

Year

Total Food Sales

Organic Food Sales

Organic Penetration

2000

 $498,380

 $6,100

1.2%

2002

 $530,612

 $8,635

1.6%

2004

 $544,141

 $12,002

2.2%

2006

 $598,136

 $17,221

2.9%

2008

 $659,012

 $23,607

3.6%

2010

 $673,324

 $26,708

4%

       

Annual Growth Avg.

3.05%

15.9%

 

Source: Organic Trade Association. All numbers in millions. 

As you can see, with just 4% of all purchased food being organic, there is enormous potential for healthy eating to get a bigger slice of the pie.

The most recent quarter was reflective of these patterns. Whole Foods saw sales grow by 29% and earnings per share increase 44% for the third quarter of 2012. Those are both heady figures, but since the company is continuing to build new stores across the country, the more important statistic comes from the fact that same-store sales increased by 8.5%. 

On many occasions, co-CEO John Mackey has said that he sees the company eventually building out 1,000 stores across the country. As it is, there are 342 stores currently, with plans to open about 33 new stores in 2013.  

For those who think that Whole Foods might be a pricey stock, that's a fair evaluation. However, looking at where the company stood before and after earnings shows that it's not too bad of a deal right now. It also doesn't hurt that the company bumped it's dividend by 43% from its previous payout.

 

Price

Price-to-Earnings

Price-to-Free Cash Flow

Dividend Yield

Pre-Earnings

$95.93

41

45

0.6% 

Current

$90.80

36

35

0.9% 

Source: SEC Filings.

Though there are certainly investors out there who will claim that the company is still too expensive, most of them have been saying that all the way up Whole Foods' 900% appreciation since the start of 2009. Most quality companies simply trade for high valuations; intuitively, that just makes sense.

All things considered, I see absolutely no reason not to keep my Growth Portfolio latched on to Whole Foods as a Core holding, earning an 11% allocation for 2013.

Now that you've got my view of Whole Foods from 10,000 feet, it's time to take a deeper dive into the company's potential. It may not be too late to participate in the long-term growth of this organic foods powerhouse. In this brand-new premium report on the company, we walk through the key must-know items for every Whole Foods investor, including the main opportunities and threats facing the company. We're also providing a full year of regular analyst updates to go with it, so make sure to claim your copy today by clicking here.


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Comments from our Foolish Readers

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 13, 2012, at 12:33 PM, Borisbmx wrote:

    2013 square footage expansion +7%.

  • Report this Comment On December 22, 2012, at 7:09 AM, gailceleste wrote:

    About Whole Foods mission, I was extremely disappointed when they rolled over on the GMO issue! A huge life or death issue.

    I still shop there. My store has little or no locally grown produce, unlike the food co-op (grown two counties away mainly).

    I am delighted to find your portfolio and will be looking at it.

    I can't afford many shares of WFM. Since Motley Fool owns SVU, I might look at that,

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