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Whole Foods' Stock Tasty But Too Expensive


Plus, company faces competition from discount chains, traditional food outlets that now offer organic fare.

Hey, the good news is that it's already hump day.

Asian stocks rose sharply overnight. The Hang Seng and the Nikkei were up 1.31% and 2.72%, respectively. European stocks were in positive territory early this morning, too. And here in the US, we're currently trading higher.

Here's what I'm seeing this fine Wednesday morning:

Whole Foods
The organic supermarket chain was out with its first-quarter numbers after the bell last night. It managed to put up $0.32 a share in the period, which thumped the Street estimate of $0.26. Also, it indicated that for the year, it's looking to put $1.20 to $1.25 on the scoreboard, which is markedly ahead of the $1.05 to $1.10 per share outlook it had previously served up.

Some thoughts:

1. First, allow me to give credit where credit is due: The chain has held up very well in the economic downturn. Actually, far better than I thought it would, given the cautious and ever-fickle consumer. This was a good quarter, and I think the shares show some life early in the trading session on the heels of this news.

2. However, my belief that the stock is too expensive on a price-to-expected earnings basis still stands. I also continue to wring my hands about the number of discount chains and traditional food outlets that offer organic and healthy food, and the way that may impact foot traffic in the future.

In sum: Good company, good results, but I just think the upside is limited at these levels, and I'm glad I didn't belly up when I last opined on the company back in October.

You have to dig the farm-equipment giant's first-quarter numbers.

In case you missed it this morning, it put up a hefty $0.57, which was a country mile north of the $0.19 analysts were looking for. It pummeled expectations on the top line, too.

Some thoughts:

1. This blowout quarter is bound to draw a lot of eyeballs in early trading, and I expect the shares to shoot higher on the news. I'd also suspect that this week we could see the sell side give their full-year estimates a little goose too, which could also have a positive impact.

2. But unless I had a long-term horizon -- meaning I was willing to hold this stock for at least three to five years -- I'd probably use this opportunity to bail or bag some profits.

3. As I mentioned back in November, I think the road on the equipment business will be a bumpy one, and I'm wary of the short-term. I believe once the excitement of this news wears off, the stock will end up in the low- to mid-$50s.

Home Depot
Justin Sharon points out this morning in his article that Oppenheimer upped the home-improvement giant to Outperform.

1. In the depths of the recession, I wasn't the company's biggest fan by any stretch of the imagination. But with some light now at the end of the tunnel, I'm starting to warm to this story in a huge way. I believe folks will be spending money in the near future, making upgrades to their homes that they put off over the last year thanks to the financial crisis this country experienced.

2. Incidentally, I'm equally as excited about Lowe's (LOW), and I feel Walmart (WMT) remains a great play as many folks looking to jazz up the house will likely be walking through its doors, too.

Microsoft (MSFT):
Citi slapped a Buy rating on the company that needs no introduction.

1. With Microsoft likely to have a say in how we compute for many years to come, I can't help but be excited about its prospects for growth.

Additionally, it's pummeled estimates the last two quarters, which is nice to see, and it's flirting with its 52-week high. I think the momentum continues and we're looking at a stock that will be trading in the low $30s in short order. The Citi nod should have a nice impact in early trading, too.

One last thought: Keep an eye out for Hewlett Packard's (HPQ) first-quarter earnings after the closing bell. The Street is at $1.06, and I think it beats by at least a penny. See Why Hewlett-Packard's Dip Is Opportunity to read the reasons I love this company.

Have a great day!
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No positions in stocks mentioned.

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