2 Big Stocks That Might Prove Big Busts

Includes: AMZN, BBY, MCD, WFM
by: Adam Alvarez

They are two companies that are garnering a fair share of attention these days. In both cases, their share prices have considerably outperformed, leaving investors to believe the good times have only just begun. One of them is being credited with destroying perhaps the biggest electronics retailer in Best Buy (NYSE:BBY), while the other has benefited from a cultural shift that favors natural and organic products. However, reality is soon to strike even Amazon (NASDAQ:AMZN) and Whole Foods (NASDAQ:WFM).

In Amazon's case, the online retailer's evolution has been impressive. Unfortunately, its earnings have not quite matched the 550% jump in share price over the past four years. In fact, the company's first quarter earnings of $0.28 came in at six cents less than the reported $0.34 the company earned in the first quarter of 2008.

If that isn't enough to unnerve those considering taking up a position in the stock, realize the company is projected to report mediocre earnings of only $0.02 in the second quarter and $0.13 in the third quarter. Even more disturbing for shares is the fact bottom line estimates have the company also posting potential losses for each quarter.

On the bright side for the shares, the company is expected to enjoy earnings growth of 106% next year. However, with shares already up $50 this year, it might be best to wait for the solid earnings to come forth before taking up a position. Especially since if such growth doesn't materialize, shares will inevitably fall hard and fast.

As for Whole Foods, the company's earnings picture is by far more impressive. With earnings on tap to grow another 27% this year, it's safe to say the company's business model has attracted a fair share of customers. However, will the craving for healthier foods outweigh the hefty price tags attached to their products?

In a time mired by cutbacks and careful spending, the thought at throwing even more money towards already ballooning food prices is sure to meet with hesitation from a number of people. Even the promise of organic food items and healthier lives won't make such expenditures sensible.

The chart pattern itself also should provide a forewarning to investors. Flirting with the $100 level, one in which even McDonald's (NYSE:MCD) failed to break earlier this year, significant resistance is sure to lie ahead. Meanwhile, with a PE ratio over 40, expect any profit taking to be overdue and significant.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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