Saturday, February 24, 2007

Stock Pick: Whole Foods Market Inc (WFMI)

I have a new stock recommendation. I am now recommending Whole Foods Market Inc (Nasdaq: WFMI) for purchase. This company is a retailer that operates the largest U.S. based chain of natural and organic food supermarkets. WFMI recently announced its agreement to acquire a competitor, Wild Oats Markets Inc (Nasdaq: OATS). The truth be told, I've been following WFMI for a while. The recent price history of WFMI is a bit rocky. In November, there was a sharp price decline in WFMI after they reported below-expected earnings. It was after this price drop that I started looking into the company. The stock proceeded to drop as low as 42.13.

WFMI stock price had begun to turn around even before they announced the merger with OATS. Immediately after this merger announcement, Whole Foods stock rose $6.41 (14.03%) in one day to close Thursday at 52.11. On Friday, WFMI gave back some of its gain and closed at 50.47. However, the company is still well below its 52-week high of 74.00 for WFMI.

Whole Foods is a member of the Standard and Poors 500 index. Some of the reasons that I have picked WFMI are because of the following:
  • WFMI has been consistently profitable for several years according to the S&P Stock Report. I do not generally recommend investing in unprofitable companies.
  • WFMI has a current dividend yield of 1.6%. I like to know that if the stock price stagnates, that I will still receive some income for having my money tied up.
  • Whole Foods acquisition of Wild Oats expands the chain's market share in several regions.
  • I consider the Wild Oats acquisition to be a long-term positive as the stock price has moved up for both WFMI and OATS. Typically when a larger company acquires a smaller rival, the acquiring company goes down in price and the takeover target goes up.
I firmly believe that WFMI has reversed its downward direction since November, and that the worst is over for its stock price. So Whole Foods Market Inc (WFMI) is now my latest stock pick.

PF Stock

3 comments:

Smarty said...

Great pick!!
I went to Whole Foods and I have to tell you that chain is always packed.

moneymonk said...

Yeah, I read in Barron's and they say that is a good stock because of the Baby Boomers

Smarty said...

I posted up some reports for you.
http://www.growingmoneyblog.com/archives/465