A Contrarian View of Whole Foods Market (WFMI)

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Nick Perry writes a regular column for Schaeffer's Investment Research in which he monitors media sentiment on a stock as a contrarian indicator. When the media is positive, it's time to sell; when the media is negative, it's time to buy. Here's his analysis of a recent Business Week article about Whole Foods Market (ticker: WFMI):

Publication: BusinessWeek
Publication title: "Eating Too Fast At Whole Foods"
Publication date: 10/24/2005

Brief Summary:

"The high-end grocer has the Big Mo, but its growth strategy may prove perishable." This article takes a skeptical look at Whole Foods Market Inc (WFMI). While the company "has cultivated its mystique with shoppers -- and investors -- by being anything but a regular supermarket chain" it is said that in certain cases, " Whole Foods' image is better than reality." An analyst notes WFMI is "hitting on all cylinders " but predicts " that it will underperform the broad market." The article ends by offering that WFMI "is more profitable than peers" but that it could come under pressure if supermarkets would offer some of the same products.

Contrarian Takeaway:

Here are three numbers to keep in mind when considering Whole Foods Market, -2, 35, and 21. The first is the return of the broad market this year, as measured by the S&P 500 Index, and gives us a reference point for evaluating the second number, which is WMFI's return over this same time. In other words, the shares have soundly outpaced the broad market this year. This is important to understand because it drives home just how interesting the third number is. According to Zacks, just three of 14 analysts (21 percent) rank the stock with a "buy" rating, despite its strong performance. While trends don't last forever, the skepticism from the Street may signal that the shares have not yet hit their peak.

Nick Perry (nperry@sir-inc.com)


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