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Betting on Apple and Whole Foods

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January 10, 2012 – Comments (0) | RELATED TICKERS: AAPL , WFM

Board: Macro Economics

Author: ANDROCLES

Every year around this time board members pony up some mythical cash and bet it on a favorite stock, one that's sure to polish the bettor's image as a knowledgeable investor. Results for the year just ended prove that beating the Dow isn't as easy as it looks. For example, last year only 7 out of 46 (15%) contestants made money. And the average loss was 25%. Ironically, the guy who finished first in 2010 finished last in 2011. Sic transit gloria.

How do you explain such embarrassing results when the average METARite comes off as an informed, prudent investor? My guess: METARites are too influenced by the handful of posters who dominate board thinking. These naysayers would find a fly in a barrel of ointment. But that’s nothing new. Board sentiment has always been bearish despite the denials of those with the loudest voices. I don’t know what it will take to change the tone of the board but perhaps a less global perspective would be helpful. Heck, it’s hard enough to get one’s head around what’s happening statewide or regionally without attempting to understand the implications of a softening Euro economy, the national debate on the evils of overspending, or the political gridlock in Washington. Plus, it seems pretentious to try. If 85% of the board can’t make money in a rising market how much faith can a reader have in the macro thinking of those who post here regularly, especially the 10 or so who can’t resist commenting on just about everything?

But I digress. My pick for 2012 is AAPL. My reasoning is simple. The company continues to grow at an amazing rate (30+%) despite the maturity of its products. It took IBM more than 100 years to break $100 billion in sales. AAPL did it in 33, with 2011 sales of $108B. In 2012 AAPL will become the largest computer/consumer electronics company in the world with estimated revenues of $138B and earnings of $35 a share. With a current P/E of 15 the stock could be worth $525 in 2012, a 28% increase over today’s price of $410. Time will tell.

On a macro level I expect an acceleration of interest in healthy eating. The leader in this segment is Whole Foods Market (WFM) which enjoyed a 40% run up last year. With a P/E of 35 the company’s stock may have gotten ahead of itself but it continues to add stores to increase sales and profits. I like WFM for another reason; it is building a brand image in the likeness of AAPL and SBUX. WFM is one of those businesses that consumers are drawn to for reasons they don’t fully understand.

I spent some time in Palo Alto over the Christmas holiday. I had lunch in a “lifestyle” restaurant known as LYFE Kitchen started by the former CEO of McDonald’s, Mike Roberts. "It's going to be great-tasting, satiating, familiar foods with no [genetically modified foods], no additives, nothing processed and everything under 600 calories. There will be no butter, cream, high fructose corn syrup or fried food, and very little salt and as many ingredients as possible from local suppliers," Roberts said. The Palo Alto location is the first of an expected 250 scheduled for opening over the next 3-5 years. Watch for one in your neighborhood.

Happy New Year to all.

Andy

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