Wednesday, January 18, 2006

Toss That Tofu: Whole Foods

Last summer, we would've told you to load up on Whole Foods (WFMI) like a bat out of hell.

But now, it's a whole new story. Whole Foods is a sell.

For a while, Whole Foods was en fuego -- it wasn't competing on price, but on quality. It's name became synonomous with the health craze boom -- yep, that one -- the one that sent Krispy Kreme (KKD) to the morgue.

But we think you'd agree with us that supermarketing is a low margin business.

Ever wonder why Albertsons (ABS) tanked and had to wait for a private equity savior? Down the road from our offices, Winn Dixie struggles to emerge out of its coma. You get the picture.

So even with Whole Food's largest competitior Wild Oats (OATS) losing money hand over fist, we think investors would be better off passing on WFMI.

Whole Foods went from 0 to 60 mph and now it's about to hit a lightpole; WFMI's lofty valuation cannot and will not hold up.

To add to our valuation concerns, both Safeway (SWY) and Kroger (KR) recently announced the worst of worst possible news -- they're going organic.

Lastly, let's not forget Walmart (WMT), whose nauseating ubiquity and cost advantage will most certainly throw some competitive speedbumps in Whole Foods' path.

We're downgrading Whole Foods to an underweight rating.

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