Did You Lose Money on Whole Foods Last Week? You Didn't Have To.

Not everyone was surprised by Whole Foods' earnings miss last week. One analyst actually warned investors to sell before the news. Here's your chance to meet him.

May 15, 2014 at 6:02PM

Last week was not a lot of fun for Whole Foods Market (NASDAQ:WFM) shareholders.

On Wednesday, Whole Foods reported fiscal second-quarter earnings that missed analyst estimates on both sales and earnings. Whole Foods then added insult to injury by cutting its earnings guidance for the rest of the year -- its third such guidance cut in the past six months. 

Investors responded to the news by dumping the stock, sending Whole Foods shares down 19% in a day. Just like that, Whole Foods lost $3.3 billion worth of market cap -- and investors found each of their shares worth $9 less than before the earnings news broke.

Meet the analyst who warned you about Whole Foods
That is to say, most investors lost $9 a share on Whole Foods last week. A few lucky investors managed to sidestep the panicked rush for the exits, avoid the huge losses, and get out before the bad news broke. How did they do it?

They got an early warning to dump Whole Foods stock, that's how. And it was an analyst at independent stock research firm Wolfe Research who warned them.

Source: TipRanks.

According to stock analyst tracking and ratings site TipRanks, the top-ranked (bearish) analyst currently following Whole Foods is a gent by the name of Scott Mushkin, who works for Wolfe. On May 5, a day before Whole Foods' earnings came out, Mushkin told Bloomberg Businessweek that although "Whole Foods is probably one of the finest retailers out there ... a lot of products that were once available at Whole Foods and hard to get at other places are now more widely available."

According to Mushkin, rivals such as Kroger (NYSE:KR) and H-E-B have been stealing market share from Whole Foods by catering to middle-class shoppers who want to buy the occasional organic or high-end grocery product -- but don't want to have to visit a separate store to get it. This, says Mushkin, has led to a slow decline in store performance (same-store sales) at Whole Foods that's been going on since about Q4 2012.

The crystal ball worked
Bearing this in mind, and fearing what this trend might mean for Whole Foods' fiscal Q2 earnings results, Mushkin blew the whistle on Whole Foods Tuesday, a full day before Whole Foods' earnings came out, and told investors to sell the stock before earnings. Turns out, he was right about that -- and not for the first time.

According to TipRanks, which keeps tabs on well over 3,000 individual analysts working for some of Wall Street's best-known firms, Mushkin is near the top of the heap. Of the 22 stock recommendations that the analyst has made over the past four years,  64% have generated positive profits for investors, and Mushkin's average recommendation returned a whopping 15.3% profit over the succeeding year -- beating the S&P 500 by 4.5 percentage points. This kind of performance is good enough to win Mushkin a rank of No. 228  out of the 3,075 analysts  that TipRanks tracks. (Note: These numbers will vary slightly from day to day, as stock prices fluctuate.)

Any more bright ideas, stock genius?
That's all well and good for investors who listened to Mushkin last week, of course. But how does it help you today? Well, as it turns out, Mushkin also has low expectations for another pretty famous grocer -- Wal-Mart Stores (NYSE:WMT) -- a stock that, according to TipRanks, he is rating a sell. Wal-Mart is set to report earnings today.

Looking only just a bit farther out, Mushkin also has an idea for a stock you might buy in order to make back some of your losses from not selling Whole Foods last week. And it's the very same grocery store chain that Mushkin blames for stealing Whole Foods' thunder last week: Kroger. According to Mushkin, Kroger shares are very much a buy at today's share price of less than 16 times earnings (Whole Foods, by the way, still costs 26 times earnings even after its sell-off, while Wal-Mart sells for a bit more than 16 times earnings).

Will he be proven right again? We won't have to wait too long to find out; Kroger reports its earnings next month. 

Source: TipRanks.

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John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Rich Smith has no position in any stocks mentioned. The Motley Fool recommends and 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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