Why I Like This Food Company the Best Right Now
The market for natural foods is getting tighter as major supermarket and big-box chains, such as Wal-Mart Stores Inc. (NYSE/WMT), The Kroger Co. (NYSE/KR), and Costco Wholesale Corporation (NASDAQ/COST) invade the territory that had been dominated for years by market leader Whole Foods Market, Inc. (NASDAQ/WFM).
While you cannot ignore the moves by Wal-Mart and Costco, let me be clear: shoppers who generally buy their goods at Whole Foods or some of the smaller chains will not necessarily shift their shopping preference and suddenly go to Wal-Mart. What will happen is that pricing will likely become more competitive with the added rivals entering into the mix.
On the small-cap end, you may want to take a look at a company like The Fresh Market, Inc. (NASDAQ/TFM, $31.74, Market Cap: $1.54 billion), which is looking attractive after declining to a 52-week low of $28.60 on May 22. The stock could decline further, but I like the risk-to-reward investment opportunity in the stock market.
The Fresh Market isn’t new; it’s been around since 1982. The specialty food grocery chain operates a network of approximately 157 stores in 26 states as of May 22, 2014. There are also plans to open another 23 to 24 new stores.
As I said, the stock is an investment opportunity following the recent selling, down 41.65% over the past 52 weeks versus a 17.95% advance by the S&P 500.
The company is growing its sales. Estimates are calling for sales to expand 15.2% year-over-year to $1.7 billion in FY15, followed by 14.8% to $2.0 billion in FY16, according to Thomson Financial. Earnings are predicted to come in at $1.58 per diluted share in FY15, and $1.84 per diluted share in FY16, according to Thomson Financial.
If The Fresh Market can deliver on these estimates, we could expect to see a corresponding rise in the stock price, which would make a good investment opportunity.
On the charts, the stock needs to sort out its current situation. The technical picture shows weak relative strength. We are seeing some oversold buying support and a potential investment opportunity.
Chart courtesy of www.StockCharts.com
There’s a bearish death cross formation on the chart, with the 50-day moving average (MA) of $32.64 sitting below the 200-day MA of $38.37. We need support to hold, so the stock can bounce back as an investment opportunity.
If The Fresh Market can attract buying, we could see some short-sellers run to cover positions, which could create an investment opportunity due to the massive 10.85 million shorted shares, or 25.2% of the float, as of May 30.
So if you are intrigued by a contrarian investment opportunity that could return some nice gains for patient investors, take a look at a small-cap stock like The Fresh Market.