Charles Sizemore recently gave his thoughts on Whole Foods (NYSE: $WFM) t0 MarketWatch writer Matt Andrejczak (see “Whole Foods Shareholders Big Payday“)
Whole Foods, bolstered by stronger cash flows, is again paying a dividend, hiking it last month 40% to 56 cents a share on an annual basis. That’s less than a 1% yield but something nonetheless.
Some investors say they like Whole Foods market position but think the stock is getting too pricy. Charles Sizemore, who runs Sizemore Capital Management, said Whole Foods is benefiting from Baby Boomer shoppers seeking healthier foods as well as stable incomes of wealthier Americans.
“I like the company, but I’m not crazy about the stock,” Sizemore commented.
Whole Foods trades at roughly 30 times its 2012 estimated profit of $2.27 a share, according to FactSet’s latest analyst survey. Kroger (NYSE: $KR) and Safeway (NYSE: $SWY) trade around 11 times next year’s earnings.
Whole Foods has a lot going for it and benefits from several macro themes followed by the Sizemore Investment Letter. The first is the aging of America. As the Baby Boomers age, they are taking their health a lot more seriously, and part of this is having a healthier diet, including more natural, organic food. This is a theme that will likely have some staying power.
The other theme is the divergence of the “Two Americas.” Working class and younger Americans have taken the brunt of the recession and slow growth. But highly-educated and wealthier Americans are doing just fine for the most part. The luxury goods sector is highly attractive, and Whole Foods can be considered “luxury food.” Tying into this theme is a growing appreciation of environmentalism and all things “green,” and Whole Foods appeals to these sentiments.
The grocery business is a tough, low margin business to be in, but Whole Foods is making it work by going high end, which in groceries means organic.
But a great business does not necessarily make a good stock. And as explained in the MarketWatch article, Whole Foods is simply too expensive at current prices.
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