Note: The following was written in September 2005 and is offered here as a sample of what you can expect in our stock recommendations. The numbers and advice have not been updated and does not reflect our current position on this company.

September 2005

Whole Foods Market

As you know, my brother, Tom, and I have quite a competition going good-natured as it may be hinged on beating each other's returns to deliver great stock picks to you. Last time I checked (and I tend to check less often when this is the case), Tom was beating me. So I decided for the first time to crib off his picks sheet. If you can't beat 'em, join 'em, right?

My selection this month is a best-in-class retailer. It has achieved stunning success where so many others in its industry have staggered, lagged, and become downright outdated. This is a retailer that values its employees because it believes that happy employees make for happy customers and, presumably, happy shareholders. This company keeps delivering amazing growth, quarter after quarter, year after year.

I'm speaking of Whole Foods Market (Nasdaq: WFMI). Over the years, this company has grown in so many ways. At first, it appeared to be little more than a haven for hippie types. It grew some more. Then some argued that organic food was just a fad. Whole Foods kept growing. Well, then the naysayers said it was just a haven for bohemian suburbanites and downtown hipsters with comfortable paychecks. Oh, yeah? These days, I'm wondering if its next step is to take over the world as it shakes up traditional grocers such as Safeway (NYSE: SWY), Kroger (NYSE: KR), and even Wal-Mart (NYSE: WMT).

And the strangest part of the story, as longtime Stock Advisor members may remember, is that Tom sold this stock for some reason that I really should go back and read some time. But if you've read this month's introduction, you already know all that. I'm recommending this stock now, before he has time to get back in!

Putting the 'Super' in 'Supernatural'

This company satisfies many of my favorite criteria for investment, including having visionary founders with revolutionary concepts at the helm. Whole Foods Market is still run by its founder, John Mackey, who started the business in 1980 with a lone store in Austin, Texas, that was temporarily put out of business for a year in the worst flood to hit the area in a century. That hint from nature was Mackey's first inkling that he should consider expanding his business to other areas preferably those not in a flood plain!

Mackey is a brilliant chief executive. He built his business from the ground up and defied many stale grocery conventions while doing so. Take Whole Foods' "shared fate" initiative. Instead of doling out stock-related incentives only to its executive team, 93% of Whole Foods' stock options are granted to employees ("team members," as Whole Foods calls them) who are not executive officers of the company. Transparency is a big deal at Whole Foods too any team member can see what any other team member makes and company policy limits the CEO's pay to no more than 14 times what the average team member brings home.

Shall we talk about another of my favorite attributes in a brand? Whole Foods and its other brands, Fresh Fields and Bread & Circus, are nationally recognized for their high quality and attractive retail environment. And as evidence of the power of great branding, strong management, and a solid-yet-somewhat-revolutionary plan, Whole Foods has historically beat competition like Wild Oats (Nasdaq: OATS) into, well, oatmeal.

Premium Quality

Whole Foods the stock tends to get people's tongues wagging that it's overvalued. Don't get me wrong, it is a pricey stock, but look at its long-term returns. What separates me from many investors is that I take a very long view of my companies. I don't make "20% guesses" as to whether a stock's next 20% move is up or down. I simply look for the best companies in America and plan to hold them for the long term. I don't mind paying up now for a stock that I believe will continue to deliver big gains over the coming years and analysts are predicting sustained 20% growth.

Whole Foods' latest quarter gave a nice snapshot of a company that is firing on all cylinders. Sales rocketed 24% while net profit increased 31%. Margins all increased, and cash and short-term investments grew a whopping 63% to $361 million. Long-term debt decreased by 92%, virtually wiping it out altogether. And one of my personal favorites, free cash flow, shot up 85% for the first three quarters year over year to $99 million. By 2010, the company expects to have 400 stores and report $10 billion in sales.

Food for Thought

When I interviewed John Mackey for The Motley Fool Radio Show, he shared an anecdote about being turned down for financing by a venture capitalist who said his business was merely a fad, and that the old-school retail giants would simply run Whole Foods out of business when they started offering organic fare. What Mackey believes has happened instead is that the small organic offerings from supermarkets have only fueled greater consumer interest in the holistic experience offered at Whole Foods.

Going forward, I believe Whole Foods operates with the wind at its back as the leader in a growing industry, both domestically and worldwide. Organic, healthy food is a serious macro trend, as is "gourmet" food, and Whole Foods is the perfect climate for customers looking for either. In addition, Tom pointed out back in 2002 that people who shop at Whole Foods tend to be less price-conscious than other customers, and I second that assessment today.

Going Shopping

To close, this is and probably always will be (at least during its growth years) a pricey stock. Oh yes, now I remember that's why Tom sold back in 2003. But I'm willing to pay up for a great company in the golden age of its growth cycle because I know I'm going to hang in there for the long, long term and almost always beat the market.

However, for those Fools who like to take a more cautious approach to expensive-looking stocks of world-class businesses, here's my standard advice: Split your investment amount into three pieces and buy the stock in thirds. By picking a few different entry points, you'll alleviate much of your anxiety. You may even beat the price I get on our scorecard.

Making multiple investments in these shares over time is a good habit to get into. You hear me, bro?

To see all of David and Tom Gardner's current and past stock recommendations -- and to find out which brother has the best returns -- try out Stock Advisor free for 30 days.