I'm going to make some soy milk-slurping enemies today.

Every week, I recommend a stock that investors should consider dumping from their portfolios. Every week I also nominate three stocks to take its place.

This one won't be easy, because I'm a fan of the company's spunky CEO. The value-hunter in me is gun-shy about coming down hard on a company that's already trading at less than a third of its all-time high. However, the more I look, the more obvious this call becomes. 

Who gets tossed out this week? Come on down, Whole Foods Market (NASDAQ:WFMI).

Panic if it's organic
I live about a mile from a relatively new Whole Foods store. I'm a fan, within reason. I typically balk at paying outlandish ransoms for groceries, but the premium is well-earned on the market's prepared foods.

Unfortunately for Whole Foods, this is a lousy time to be selling marked-up organics. I see the downturn locally. My neighborhood store isn't as hopping as it used to be. The patrons who do show up aren't loading up their shopping carts the way they used to.

Naturally (pun intended), I couldn't base a bearish argument on something anecdotal. As it turns out, the numbers confirm my assumptions.

  • Comps  held up during the chain's latest quarter, but net income fell by a steep 31%. This forced the company to kill its dividend, which had naively trickled all the way up to $0.80 a share on an annual basis. That won't fly when earnings have been talked down to just $0.94 a share for the fiscal year that ended earlier this week.
  • Whole Foods isn't just coming up short relative to analyst expectations -- it's missing badly. Quarterly earnings have come in lower than Wall Street guesstimates in four consecutive quarters. They've missed by at least 20% in three of those periods.
  • Despite the stock's belly-flop, it is still trading at more than 20 times this year's projected profitability. How can this be? Analysts keep revising their targets lower. Over the past three months alone, sober pros have gone from looking for $1.58 a share in net income next year to just $1.08 a share. It sounds dire, but the sad streak of sharp misses shows that they are still erring on the side of being overly optimistic.
  • Recent happenings like this summer's ground-beef recall won't make it easy to woo customers into overpaying at a chain that's been proved mortal.
  • I like the grit of CEO John Mackey, but isn't it a coincidence that the company's streak of blown quarters began when the Rahodeb fiasco came to light? The rocky Wild Oats merger hasn't helped, either. A company is typically immune from mainstream consumers acting on financial headlines, but Whole Foods' sophisticated and conscientious clientele may see it differently.

So what's the deal? With earnings expected to fall in fiscal 2008 -- and fiscal 2009's targets remain lower than the $1.29 a share it earned in 2007 -- Whole Foods is clearly no longer a growth stock. Value-sniffing investors may also clench their nostrils at the lofty multiples and lack of near-term turnaround catalysts.  

Good news
As I have every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting the heave-ho. Let's go over the three fill-ins.

  • Chipotle Mexican Grill (NYSE:CMG) (NYSE:CMG-B): The "food with integrity" mantra at Chipotle jibes with what Whole Foods shoppers expect. Unlike Whole Foods, Chipotle's earnings are still growing. The quick-service burrito rollers saw second-quarter profits climb 23% higher, with comps ringing in 7% higher. This is short of what Chipotle investors have grown to expect out of the company, but it's commendable growth in this iffy environment.
  • Wal-Mart (NYSE:WMT): Grocery stores -- like Safeway (NYSE:SWY) with its O Organics line -- have nibbled at Whole Foods by widening their earthy offerings. Why stop there? Stay one step ahead of the trend by buying the company that's nibbling at the grocers. Wal-Mart, through its growing empire of grocery-stocking superstores and Sam's Club, has the economies of scale to deliver rock-bottom prices, even on once-overpriced organics.
  • Hain Celestial (NASDAQ:HAIN): If grocers are loading up on organics, who benefits? Naturally, it will be food makers like noble corporate citizen Green Mountain Coffee (NASDAQ:GMCR) on the java end and Hain Celestial on just about everything else. Hain makes products such as Earth's Best baby foods, Garden of Eatin' snacks, and Celestial Seasonings teas. Net sales growth accelerated in its latest quarter, up 25% over last year's showing. Adjusted earnings climbed from $0.25 a share to $0.34 a share. Hain used to be a great way to ride Whole Foods Market's coattails. Now that the emperor has no clothes, Hain is a great play to ride the organic niche's widening coattails instead.

Other headlines out of the weekly dumpster:

Do you like my substitutions? Would you rather stick it out with the tossed company? Are there other stocks I should look at in future editions of this column? Let me have it in the comment box below.

Chipotle Mexican Grill is a Motley Fool Hidden Gems recommendation. Wal-Mart Stores is a Motley Fool Inside Value selection. Chipotle Mexican Grill is a Motley Fool Rule Breakers pick. Whole Foods Market is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz wasn't upset that Mackey posted under an anagram of his wife's name, but he does want to know whether Mackey will hit the boards again as SkyLimo, an anagram for "soy milk". He owns none of the stocks mentioned in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.