Whole Foods Market (NASDAQ:WFMI ) fell 13% today on news of lackluster earnings and it seems that the ‘dust hasn’t settled’ yet.
The problem I see is the reaction to the macroeconomics circumstances were in right now: Americans are worried about inflation therefore spending less money on premium food.
Investors and consumers alike still think were in hard economic times, even if were in a recession…they can’t see long term.
Whole Foods vs. Starbucks
Whole Food has said to have the ‘Starbucks syndrome’ where ‘same-store sales slowly erode as it tapped out its core market of upwardly mobile customers.’ I disagree. To compare Starbucks with Whole Foods is comparing apples to oranges.
Whole Food Market not only caters to a different audience, but their store growth is steady. With the acquisition of Wild Oats still hurting their bottom line, they seem to still make a profit. The majority of their customers still go to Whole Food Market even in poor economic times and they will continue to go whatever markets will do. Their customers are growing as the top-end food business is being taken back with the rise in food costs.
Starbucks revenue equation is a slowly growing customer base matched with newly opened stores, the problem Starbucks has had is the growth in customers has not get inline with the growth of stores. Think of a customer base of 100 people going to 10 stores when one more store opens and the customer base only grows by 5 people the average decreases from 10 customers per store to 9.5 per store. Analysts see the decrease in same store sales and discount growth of customer base altogether. Starbucks has already slowed US store growth in order to have the customer base ‘catch up’. This isn’t a growth in customer base issue, as much as a growth in stores.
Is Whole Foods a Bargain?
Long term, long term, long term.
Whole Foods Market is a perfect long term play, as we slowly creep out of current economic downturn it is important to find the perfect bottom for this stock.
They continue to market and provide premium food even with competitors trying to take their market share; though in years to come it will be easy to see there will be no contest in providing an excellent experience in stores which is be shown in their books. This stock will bounce back, but it has to go lower before it goes higher.
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Carl Icahn and Motorola: Increased Stake Means Increased Pressure
May 8th, 2008 · No Comments · Motorola
Whenever Motorola is mentioned Carl Icahn involvement is soon to follow. Maybe it’s his increasing stake in the company, in which yesterday it was reported that he upped his holding of Motorola to 7.6% from 6.4%, or is it the belief that Carl Icahn being can still help turnaround Motorola?
Even though Icahn dropped a proxy battle with Motorola in mid-April in lieu of two board seats, shareholders are still hoping this corporate raider can turn into a shareholder activist. His increasing stake is a surefire indicator that he sees value in Motorola, and willing to continue to pressure Motorola to make changes this time within the boardroom.
The reasoning I see behind the increasing stake in Motorola is that when the company plans to split, shareholders will likely be able to own stock in both of the new companies’ tax free. Since Icahn is one of the largest shareholders in Motorola he can benefit the greatest from the split.
Carl Icahn has a long road ahead of him with this turn around and I still consider Motorola the worst investment I have ever made. However, since I’m fully invested and not willing to sell resulting in a loss I can only trust Icahn to take this failing cellular phone company and produce two profitable companies in the coming years.
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Surprise, Berkshire Hathaway Isn’t a Growth Stock
May 5th, 2008 · No Comments · Stock Market
During last weekend’s annual shareholder meeting Warren Buffett, CEO of Berkshire Hathaway Inc, made a comment many missed saying “Anyone that expects us to come close to replicating the past should sell their stock. It isn’t going to happen.”
Wait, a CEO telling his shareholders that the company he runs isn’t going to meet the expectations of years past? Even citing that ‘returns will decline‘?
Exactly.
Berkshire Hathaway Inc. (NYSE: BRK.A - BRK.B) has done phenomenally well with growth of 21.1 percent a year up until 2007. Such growth for a company with a market value over two hundred billion can not last forever as leaders are aging and talk of succession plans are coming to the forefront.
Berkshire Hathaway is one of many companies being thrown in the value/long-term stock pile, where holding it over several years is the most reasonable way to make an intelligent investment. Many of the investment plays inside of Berkshire are only going to be profitable in the long term such as junk bonds and stock market indexes. This will require a patient and steadfast investor willing to weather some bump roads ahead.
Warren Buffet isn’t going to sit idle either; he plans to continue to look for more businesses to acquire and keep accumulating cash to drive a company that is bigger and more wealthier then it was yesterday.
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Don’t Worry Starbucks, I Won’t Sell You
May 2nd, 2008 · No Comments · Starbucks
While Starbucks (NASDAQ: SBUX) profits fall, plans for store openings are cut and fiscal year outlook looks dim I’m proud to be a shareholder.
Saturation and overbuilding of stores in the U.S. has not only caused profits to fall, but has made investors nervous. Analysts feel the brand is diluted and the company has hit a plateau, dismissing it only as neutral. Growth has been deemed as public enemy number one and competition is supposedly challenging Starbucks market share.
Why do I still want Starbucks?
Starbucks has the influence, the cash and the brand power to cross into international markets far faster then any other company when it comes to consumer goods.
The direction for Starbucks is no longer about domestic growth, and Starbucks has the potential of making a higher profit (and winning over investors and analysts alike) by going global. The cost of going into a new market has a much higher return on investment then opening more stores in an already saturated market which ‘cannibalizes’ same store growth.
I have always been a major supporter of Starbucks and I think all the signs point for a turnaround, even if it won’t come in this fiscal year. Starbucks has a long road ahead of them, it will take years to regain ground and drastically change the direction of the company. Even with all the Transformational Initiatives and New Promises it’ll take a little bit more effort to convince Wall Street they’re serious about change.
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Is Visa an Obvious Buy?
April 29th, 2008 · No Comments · Visa
Visa Inc. (NYSE:V ) has been public for almost six weeks now and has surged nearly double its value; I bought in.
In response to a posting I made more then a month ago; I finally made the decision to jump in. I investigated and found true growth potential for international markets. I decided this is a company I wanted to stick with even in hardships. While listening to investment pundits who were both for and against Visa I formed my own opinion of the future sustainable the company. I feel Visa’s operations are solid even in a slowing economy and its earnings blew me away.
I consider Visa a great investment only after researching this company thoroughly and I only have a small percentage of my portfolio in Visa stock which I purchased weeks ago. I will continue to weigh my investment strategy with the option of buying more and I continue to have a cautious (but optimistic) outlook for investing in other companies. Visa is an obvious choice in any long term investor’s portfolio.
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Apple Debunks the Myth of Current Weak Consumer Spending
April 24th, 2008 · No Comments · Apple
Whether or not a recession is looming, Apple Inc. (NASDAQ: AAPL) shows no sign of slowing down and still outperforms when it comes to selling Macs, iPods and iPhones.
Apple released earnings yesterday, while beating analyst’s expectations by posting a 36 percent rise in quarterly profit, and their sales really shined through. Apple sold 2.29 million Macs, 10.6 million iPods, and 1.7 million iPhones beating analyst’s estimates of 2 million Macs, 10 million iPods and 1.7 million iPhones.
Even with such growth Apple isn’t immune to outside forces, some companies (such as Starbucks) use the excuse of a weak economic environment to explain horrible sales, while Apple has a certain way of outperforming or at least maintaining their sales. How can Apple, who sells products that are more sensitive to consumer spending and our economy, perform better then a Starbucks? That’s another story.
Apple isn’t bulletproof, just quick to react to consumer needs. They slashed the price of the 1-gigabyte shuffle from $79 to $49 to create demand for its lagging product. Apple also reiterates new technologies such as their Mac Book Air and iPhones to stir continually demand for updates and speculation for upgrades such as the 3G iPhones. Even if the economy is seen as shaking, consumer spending hasn’t dropped off a cliff for Apple. Many analysts can’t put their finger on this “halo effect” that Apple has and I agree with others that Apple is a long term stock to hold on to
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Shultz to Shareholders: Next Quarter Will Sink, Think Long Term
April 23rd, 2008 · 2 Comments · Starbucks
Starbucks Corporation (NASDAQ:SBUX) is lowering its earnings outlook and year long outlook due to ‘lower home values, and rising costs for energy, food and other products that are directly impacting [Starbucks] customers’
Howard Shultz, CEO of Starbucks Corporation, cited “…we are rigorously managing our expenses and seeking additional opportunities to reduce costs. To this end, we are committed to making the necessary fundamental changes, both structurally and operationally, to optimize our resources, while also investing prudently in the business to strengthen and position Starbucks for the long term.”
The outlook for fiscal 2008 is lower due to decreasing traffic over the past year and ‘The current economic environment is the weakest in our company’s history’. On Wednesday, April 30, 2008 Starbucks will announce key financial metrics for the next three years and Howard Shultz says ‘we are aggressively implementing a series of customer-focused initiatives. These are in the early stages of their execution and the benefits are therefore not yet reflected in our financial results.’
Starbucks share price has dropped 11% in after hours.
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Google, IBM, Citigroup: Earnings That Drove the Market Up
April 18th, 2008 · No Comments · Recession, Stock Market
Investors this week breathed a sigh of relief due to better then expected earnings from several companies who released their numbers.
Google proved that a looming recession had no effect on their numbers as they increased profit by 30% sending its stock price up $90 in one day while skeptics bought back into the company. These first quarter results are only the tip of the iceberg and a strong indicator a better year long outlook.
IBM reported a 26% rise in its first-quarter earnings and raised its profit forecast for the rest of the year. This shows that there is no weakness is the software and service sector and that our current economic downturn is not affecting IBM.
Citigroup was not so immune to our looming recession and posted a $5.11 billion quarterly loss, also stating they are going to cut 9,000 jobs. The remarkable thing is the stock price soared nearly five percent, because the loss was foreseeable and was better then excepted. Some even suggest ‘that even if the worst of the credit market volatility is over’.
Many individuals say these earnings results ‘helped ease investor anxiety about the health of corporate profits’ and I agree. The Dow and Nasdaq had their best week in months and with earnings season just beginning we could be some bright spots in the weak economy. I’m personally looking forward to Apple Inc. earnings call next week. I feel they will blow earnings out the water and the speculated 3G iPhone will finally have a launch date.
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Coca-Cola Reports Earnings: Are They “Recession-Proof”?
April 16th, 2008 · No Comments · Coca-Cola, Recession, Stock Market
Coca-Cola proved to be “recession-proof” in our unstable economic times by reporting a nineteen percent gain in first-quarter profit. Their strong international sales carried them through and caused the stock to remain stable.
The Coca-Cola Company is a pillar in the consumer goods sector. Their heritage and legacy along with their defensive approach to this market has not only driven the demand for the product, but also the demand for the company. This diversified conglomerate of the beverage business has not only spread their products across the entire non-alcoholic beverage market, but also outside domestic turf.
I have long supported and thought highly of The Coca-Cola Company and it does not surprise me that analysts are reiterating a ‘Strong Buy’ rating on Coca-Cola and uphold a $72 target price target on this stock. For now the stock price has remained steady, while Wall Street remains optimistic for a rise in price.
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GE’s Surprise Drop is a Good Thing
April 11th, 2008 · No Comments · Recession, Stock Market
When a well known, well run conglomerate such as General Electric misses earnings exceptions causing the stock price to tumble thirteen percent I can not help but get excited.
We are no longer in the age of buying high and selling higher, rather we have to look at our current economic state and become bargain hunters. When pundits say the sky is falling, that were in a recession and everything is being affected by the credit crunch; they’re right. The rules have changed. This doesn’t mean we have to pull money out of the market, but instead do the opposite and look at what’s undervalued.
It gets harder and harder to find companies that are ‘recession-proof’, ‘has no exposure to the sub-prime mortgage crisis’ and/or have ‘international focus’. Stock prices will slide for awhile and with a handful of financial companies reporting earnings next week the market is going to drop. Instead of being shocked like many were with General Electric, its time to realize exactly what the market is going to do and what you should about it.
Buy more!
General Electric’s drop gets me excited because I have a chance to buy at a bottom. I have been looking at GE for almost a year now and so far it has looked overvalued. I know that during the next coming weeks this stock will go lower, though this is horrible news for stockholders being a prospective buyer I can not wait. General Electric isn’t going bankrupt and with GE being a well diversified conglomerate they will have to make sacrifices such as the speculated sale of NBC and will bounce back. Many say that GE is the gauge on how the market is doing overall, and even though the entire market will fall that is when you buy.
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