December 16, 2012 in Business

Motley Fool: Whole Foods looks promising over long term

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Associated Press photo

Bell peppers, squash and eggplants await produce buyers at a Whole Foods Market in New York City’s Union Square district.
(Full-size photo)

Looking for long-term performance and corporate social responsibility? Consider Whole Foods Market (Nasdaq: WFM).

Since the first Whole Foods opened in Austin, Texas, in 1978, the company has sought a balance between profit and social responsibility. It focuses on natural and organic offerings and supports sustainable agriculture, while investing in alleviating poverty via micro-credit loans in developing economies.

That hasn’t hurt its financial performance, either. The company’s revenue has grown by an annual average of more than 10 percent over the past five years and 24 percent in its last quarter. Its earnings have averaged 20 percent growth over the past five years, and its net profit margin of about 4 percent is very strong for the supermarket business. While some of its peers are saddled with much debt, Whole Foods has very little.

With organic foods still in their infancy, popularity-wise, there’s a lot of growth opportunity for Whole Foods.

The company’s stock price doesn’t suggest that it’s a screaming buy right now, but it could still be rewarding over the long term. Fast growers often command premium prices. At the very least, perhaps keep an eye on it and take advantage of a price drop. It offers investors a 0.9 percent dividend yield, too, which will likely keep rising. (The Motley Fool owns shares of Whole Foods and we’ve recommended it in our newsletters.)

Ask the Fool

Q: How many mutual funds exist? – E.L., Lima, Ohio

A: According to the Investment Company Institute, in late 2011 there were more than 8,000 mutual funds in existence, more than half of which were stock funds. In recent years, the number of exchange-traded funds (ETFs), which are funds that trade like stocks, has exploded, rising from 80 in 2000 to more than 1,100 in 2011. For help finding outstanding funds, visit fool.com/ mutualfunds/mutualfunds.htm or morningstar.com.

My dumbest Investment

I’m embarrassed just thinking about it. I’ve owned Netflix since it was $19 a share. When it hit $277, I sold. The next day it went up to $283, and I thought, “What was I thinking?” and bought it back. The rest is very sad history as it’s now around $80 per share.

My original gut instinct was accurate, but greed got in the way and I’m paying for it now. I’ve lost a lot, but at least I did milk the stock over the years, taking profits numerous times to expand my portfolio in other directions. I’m hoping one day it will come back again, as I’m not selling now.

I continue to use Netflix out here in the country, looking for my discs in the mailbox and happy to get them. – A.M.G., Coquille, Ore.

The Fool responds: Hang on to the shares only if you’re confident they will grow. Otherwise, move what’s left into stocks you’re more sure of. You may have a better chance of making your money back elsewhere. (The Motley Fool owns shares of Netflix and we’ve recommended it in our newsletters.)


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