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VIDEOTicker Shock: Four Reasons Why Whole Foods Isn't Looking Appetizing
Thursday's top stories and stocks with potential to move.
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Asian stocks sank overnight. The Hang Seng was down more than 3%, and the Nikkei was down more than 2%. Meanwhile, European stocks were a bit of a mixed bag earlier this morning. And here in the US, we're currently trading lower.
Here’s what I’m seeing this morning:
Whole Foods (WFMI):
I’m not sure the Texas-based company’s second-quarter results were all that appetizing, but they did come in north of expectations. In the period ended April 12, the healthy-food supermarket turned in a profit of $0.24 a share, excluding items. That was well north of the $0.18 a share analysts had been forecasting.
But I don’t see a reason to party like it's 1999. Here are the problems I have with dabbling in the stock:
1. Although the company did beat expectations, its sales were a flat line compared with last year, and its comp-store sales were off 4.8%. Not terribly healthy, if you ask me.
2. Per Reuters: “The company repeated its forecast for full-year earnings of $0.71 to $0.76 per share, including $0.06 to $0.08 from FTC-related legal costs and about $0.17 in dilution from Series A preferred stock.” This is a $20 stock we're talking about here, so that’s not some super bargain on a price-to-expected earnings basis.
3. It’s already had a heck of a run. In early March, the shares were trading around the $12 range. I’m thinking it may give a little back. 4. Keep in mind that lots of other companies offer healthy foods, and the competition is stiff.
Although the shares could get a goose in today’s session on the heels of the announcement, I’m punting.
MGM Mirage (MGM):
The shares have gotten a good smackdown, as you can see from this chart. This drop-off, perhaps not surprisingly, has led some to ask me whether or not I planned on dipping my toes in the water. In a word: no.
The reasons:
1. The public (understandably) doesn't seem to have a very big appetite for gambling right now. I know that's a simple argument, but it's true.
2. As I pointed out earlier this month, in Three Reasons Why MGM's Gains May Be a Mirage, MGM is expected to serve up a plethora of red ink this year and in 2010.
3. Although the stock has pulled back, it's still up sharply from the sub-$2 level it traded at in the earlier part of March. And frankly, I don’t feel comfortable hopping aboard right now because I still think there could be some profit-taking by those that did bottom-fish in the low single digits. I’m not saying I won’t place my bet at some point down the road. But for right now, I’m sitting tight on the sidelines.
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