Whole Foods Market's (WFM) shares have been down in the dumps lately, and the negativity has reached a fever pitch as the stock's been trashed. The psychology is clear, and the time is ripe to buy more shares -- and I'm buying more for the Prosocial Portfolio I manage for Fool.com.
In all kinds of ways, sometimes we throw away things that are still good, forgetting common-sense value and wasting money. In 2010, Americans trashed 31% of our food supply, or 133 billion pounds. Granted, if something really is bad, we can't keep it. However, items that are still perfectly edible frequently end up in the trash bin. That wasted food represents $161.6 billion -- that's money that came out of a heck of a lot of bank accounts with nothing to show for it.
In other words, our perceptions and fears of negative outcomes can get the best of us. It happens in investing, too.
Whole Foods hasn't "gone bad," although financial headlines have been beating the "rotten" metaphor to death. The stock is still perfectly good. Those who have panicked have sold a good, and high-quality, stock at a loss, throwing future returns in the trash. Some others don't want to buy, afraid of the supposedly rotten reason the stock's this cheap.
Whether we're cleaning out the fridge or pantry or investing in stocks, it's a good idea to count to 10 first and contemplate what's good or not.
Are these stocks shopworn?
We've had some time to breathe after Whole Foods' most recent quarter upset so many investors. Still, hysterical financial news headlines and expert opinions have continued to play up the idea that Whole Foods is on the verge of death.
Expand our lens, though, and we can see that other organic and specialty grocer stocks have been getting trounced too. The Fresh Market, Sprouts Farmers Market, and Natural Grocers by Vitamin Cottage have all experienced intense pressure lately, but their situations are seldom called out with such breathless drama. Natural Grocers by Vitamin Cottage's stock has had the most dramatic fall from grace, losing about half of its value in the last year.
It's not great if the whole industry is fighting for advantage, but it also tells us that Whole Foods isn't in a company-specific rut. Furthermore, Whole Foods has some strong weapons for long-term-thinking investors.
Whole Foods has plenty of resources with which it can adjust its business and strategy. It's still a highly profitable company that generates hearty sales and comps growth, and it still has a great brand and unblemished balance sheet. As much as investors are unhappy about Whole Foods' investing on price, it can afford to do it.
For the long-haul future, lowering prices on some items, especially staples, will be a boon, not a bust, for Whole Foods. Drawing in more customers from all demographics with increasingly accessible pricing will expand its reach as well as consumer understanding of its lofty mission.
The real specials in the aisles
Whole Foods has been able to offer more competitive pricing on many of the center-aisle items and basic staples. That's been the major headline, along with margin concerns. One thing investors seem to forget, though, is that it still has many products on the other side of the spectrum that it can charge higher prices for -- because they're special and they're worth it.
In Whole Foods' latest conference call -- in which analysts became combative, demanding details of the grocer's plan of attack -- management revealed something that may be a secret weapon. Not surprisingly, analysts didn't seem to be keyed into that particular part of the exposition:
As we raise the bar on differentiation, our customers have responded with sales of mission- and attribute-based products such as organic, non-GMO, whole-trade guarantee, responsibly farmed seafood and grass-fed beef, along with sales of our exclusive brand products, continuing to grow faster than the store average [emphasis mine].
Many customers realize one pays more for certain items, and "mission- and attribute-based" products are a great example. We're willing to pay more because these products provide more than monetary value -- they support real value.
Whole Foods also sometimes enjoys exclusive arrangements with some suppliers, so that it carries products that shoppers won't find in rivals' stores. It also has a history of having been first to market with some products that have gone on to wider distribution in U.S. retail stores.
Going against the grain
It's been worthwhile to own a great, disruptive company like Whole Foods all along, even if the pinch currently feels painful. Short-term problems -- or even events that are hysterically drummed up beyond reason -- lend perfect times to add to our positions. Skittish, overreacting investors will realize their mistake sooner than later.
Chipotle delivered a similarly perfect opportunity two years ago, when a pervasive perception floated around that its growth had spoiled. Over the longer term, we now know it has continued to clock amazing sales, profits, and comps; its most recent quarter is just one dramatic case in point. Chipotle hit a home run that went against the grain of general retail and restaurant weakness.
People who invested on that negativity have done quite well since. I bought shares of Chipotle for the Prosocial Portfolio during that psychologically negative phase myself, and that purchase has resulted in a 55% gain thus far.
Investors should, and many do, long for such opportunities. Most know this adage: "Buy when blood is running in the streets." Still, when push comes to shove, and when the herd charges for the exits, it can be very hard to resist the urge to follow along.
I feel confident in Whole Foods' business; it's actually already a three-time Prosocial Portfolio pick. It's one of the greatest, most stakeholder-friendly companies out there. Right now, the price is far more tantalizing than it has been in years. Let's not waste the opportunity: Whole Foods is still perfectly good -- even great -- for long-term investors.
