The glory days of rapid build-out may be slowing down, making today’s sell recommendation a bit too lofty at current prices.
Whole Foods Market (WFM)
from The Investment Letter
Just like today, stocks were not particularly overvalued before the 1987 crash.
While events of today are not a mirror image of those days back in 1987, it is important to remember that the Fed’s actions can have serious consequences for the stock market. I believe that the Fed very much wants to slow, and then end, its bond buying program in 2014.
I think that the Board’s minutes reveal a belief that they can finesse the timing and the manner
in which they taper these purchases so that long-term rates won’t jump too much. Recent history suggests that this might be a tall order. Should long-term rates begin to rocket higher on the anticipation that the Fed will indeed end the current round of quantitative easing sometime in 2014, it could prove catastrophic for the stock market. It is something to keep in mind as you watch this market make new high after new high.
In the meantime, we must also live in the here and now. A couple of companies in our portfolio have had news which makes me think that the time has come to make some changes. I start with Whole Foods Market. Management recently lowered their guidance for 2014, despite pretty good third quarter results. What management seems to be saying is that the go-go days of rapid expansion are over for Whole Foods, which suggests that the high P/E ratio the company has been sporting needs to be adjusted downward. Though the stock has dropped 15% recently, we still show a 16% profit on our investment. of WFM and put the money to work elsewhere.
David C. Jennett, The Investment Letter, P.O. Box 6170, Holliston, MA 01746, 800-542-5018, November 25, 2013