Investors can prime their portfolio for success by building on a collection of core growth stocks. Remarkable businesses with the potential to deliver a decade or more of great returns. But to be considered a core holding, a company requires 1
) a sustainable competitive advantage and 2) a visible growth trajectory. In this series, I’ll present seven companies that can perform that role.
Imagine the Whole Foods Market, Inc. (NASDAQ:WFM) experience. When you walk into a store you see bright produce arranged by color, old crates and hand painted signs while greeted by helpful employees. It’s a formula that has worked for Whole Foods and resulted in handsome profits for shareholders.
Why it’s a core stock
Consumers are increasingly engaged when they shop. Today, shoppers make decisions based on their values and awareness of health and environmental concerns. This has created a boom for the organic food industry. Last year, organic grocery sales exceeded $30 billion and that figure is projected to double over the next decade.
As a pioneer in organic food, Whole Foods Market, Inc. (NASDAQ:WFM) is best positioned to exploit this trend. Management sees room to triple its current store count and open over 1,000 locations in the United States. Plus, the company is ramping up its international expansion with a foothold in Canada and the U.K.
But, new data suggests that this target may be too low. On the company’s last conference call, management hinted that they’re seeing minimal sales cannibalization in markets that were once thought to be saturated markets, such as Boston. In addition, Whole Foods is moving to smaller stores under 40,000 square feet rather than the 50,000 square foot behemoths they built previously. This new strategy will allow the company to move into smaller markets.
Of course, great growth projections are worthless if the company can’t fend off rivals. Whole Foods Market, Inc. (NASDAQ:WFM)’ reputation for its quality product and shopping experience represents a competitive advantage that competitors can’t match. Today, customers want assurance that their food is organic, natural, and sustainable and this is why they’re turning to a trusted grocer like Whole Foods.
But even if you don’t believe the hype, the numbers speak for themselves. Over the past two decades, Whole Foods has increased revenue at a 25% compounded annual growth rate. Same-store sales have increased 7% annually over the past ten years. And looking at the bottom line of the company’s financial statements, Whole Foods’ net margins are two to three times those of traditional grocers.
Risks to out watch for
Of course, even a great growth story like Whole Foods Market, Inc. (NASDAQ:WFM) comes with risks. Investors have to keep a close eye on the business to ensure the safety of their investment. And in this industry, everything comes down to competition.