Safeway enticing as Whole Foods sours

If you think first-quarter momentum is set to build in both of these names, this trade is for you.

By Jim Cramer Apr 1, 2013 8:48AM

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Full Shopping Cart in Grocery Store Fuse Getty ImagesGo long Safeway (SWY) and short Whole Foods (WFM)? Believe me, when I look at how the two are doing, it is tempting -- and I like Whole Foods, the company, very much.


If you think the first quarter's momentum is set to build in these names, though, this is the trade for you. Consider that Safeway, up 45% so far this year, is one of the quarter's top 10 performers. Whole Foods, on the other hand, can't get out if its own way, having fallen almost 5% for 2013.


Is this the revenge of the plain-vanilla supermarket against the higher-priced organic entry? Not really. It is true that people disliked that last Whole Foods quarter for the lack of a guide-up, although the tantalizing prospect of a tripled store count is never far away when the stock drops into the low $80s.


What really got the disparity going was Safeway's decision to sell $200 million worth of stock from its Blackhawk Network subsidiary -- a private maker of private-brand gift cards, with prepaid cash machines that have been buried within Safeway for years. The business is now growing like a weed, at a 20% a clip of late, and Goldman Sachs (GS) is set to bring it public sometime this spring. I think this will immediately highlight lots of hidden value in the supermarket chain.

Safeway itself is only selling at 11 times earnings -- typical for a slow-growing supermarket -- but the company itself has been a fiend at returning cash to shareholders. It's got a 2.67% dividend yield, and has bought back 57 million shares for $1.24 billion, or 20% of the market capitalization.


Whole Foods, by contrast, is anything but cheap, even after the big languishing. It's selling at 30 times 2013 figures, and with what looks to be a decelerating growth rate, according to the last conference call. Plus, when you read analysts' reports nowadays -- like last week's downgrade to Neutral by Piper Jaffray -- you now read about competition from the likes of Safeway's organic entry; Kroger's (KR) emphasis on organics; and Costco's (COST) initiatives. Perhaps most important, you hear about the influence of Trader Joe's, the private German company that's making a name for itself all over the country and doesn't have to worry about quarterly reports.


I never want to bet against Whole Foods' ability to surprise to the upside, though I see many others disagreeing with me. But one thing that I think is easy to agree with: Safeway, despite the humongous run in the first quarter, is still undervalued.

 

Cramer

 

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long GS.

 

 

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42Comments
Apr 1, 2013 10:27AM
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This trade is for you !  Great line Cramer ! The whole thing is about to collapse the signs are all around us ! Only a Idiot or a Blind Man does not see the obvious ! TAKE YOUR MONEY AND RUN ! IF your money is not in your physical possession then it is not yours !
Apr 1, 2013 11:28AM
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I would imagine Bobo would highly recommend your company if you named it "Can't Lose" too.

 

"buy" "buy" "buy" "buy"..........

Apr 1, 2013 12:10PM
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The reason Safeway is going up is because they are charging a whole lot more for their products then everyone else.  Here in the Houston area we have Randell's which is owned by Safeway.  The prices are almost twice, that of HEB which is across the street.  The people that go to Randell's I feel are going there because of the Startbucks that is inside.   Also when the HEB parking lot fills then you see more people going to the Randell's just to pick up one or two items.   You don't see to many people filling up the whole basket as they do at HEB or Kroger in my area.    I have cut back on Starbucks about 95% over the last six months.  The last time I went into Randell's I got such a sticker shock I will never return again.   1 lbs of grapes $5.99 with card, $3.99.   12 pack of coke $5.99

 

HEB - same brand and package of grapes with no card $2.99     The cokes where $3.99 

Apr 1, 2013 10:02AM
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A mostly flat day for the markets.

Anyone read that Russian depositors on Cyprus could lose up to 60%!!!!

If you were an Italian or Greek or any nation seeking EU funds would you not be taking your money and burying it in your back yard?

Hmmm, could the Caymans be next?  Doubtful.

Apr 1, 2013 9:33AM
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Safeway is an easy target for strong regional grocery stores........ JMHO
Apr 1, 2013 12:26PM
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What people don't understand is that Creamer and Buffet go in and purchase a lot of stock in one company or in Buffets case he purchases the company out right.  Then they go on TV and other media out lets and talk the stock up.  After about three or four months of the price climbing they start to dump shares so they can do it all over again.   Don't you be the fool that give his money away!  The markets are being played not only by these guys but also by Uncle Sam.   I feel like the banks are in on it too.  When I use to call my stock broker he was always pushing just one or two stocks for a couple of months.  Then you would see the price raise.  After about a year the price would start going back down.  If you are going to follow these guys then just purchase at the start of the raise and sell before the stock tanks.   You need to be looking at every angle of the stock to be safe on a daily bases.  

 

Be safe and good luck in playing the game.

Apr 1, 2013 12:44PM
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Cramer SAFEWAY SUCKS.

The majority of produce like elseware is now ripened with a new chemical, most of thier produce comes  from CHILE and goes bad rapidly due to the long haul and Safeway products use too many chemcials----Such as thier version of REAL Lemon Juice is filled with lemon oil and artifical flavorings.

 

I have to shop there but would prefer not too. Especially since their offering for Organic Products is severely low in produce!

Apr 1, 2013 2:54PM
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Investors don't sell they hold.  Traders buy and sell.  I know a man worth 600 million who brags he never sold a stock in his life.  He said he started buying stocks in the mid 50's when he was selling insurance.  He is now on the boards of twelve Companies and makes a million a year on just the one that pays the least.  But I think we are now in for a very very unexpected sea change.  Discounting this Cyprus event is totally stupid I think.  Personal freedom and private property are two of the cornerstones of Capitalism.  And these are under heavy attack.  Folks don't understand the politics that is occurring in the world right now.  The U.S. Constitution in many parts of the world is now viewed as a document written by white slave owners.  The renunciation of our constitution is now seen by progressives as a civil duty.  Try maintaining an investment base without stability in politics, economics, and banking. This Cyprus thing is a contagion that can and will  most probably spread throughout Europe.  Socialism is a brand of government I don't believe many Americans fear any longer.  You just can't have a successful culture and prosper without capitalism.  Anyone who tells you otherwise is a false profit or probably  just looking to better their own quest for money and power. 
Apr 1, 2013 12:20PM
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I do not see that much real health value in organic foods. It is a nice those into that fad. Nutrition reports does not indicate much to swing to it. Fiber, protein, complex carbs, good fat I am able to understand and so is eating wide variety of food.

 

When I go to Whole food, their display of produce is not more enticing than many up to date normal stores. Their rest of the stuff may be great for design aficionados. Sure they have some stuff that are hard to find some  place and I do subscribe to them.

 

I bought sea food from them that I could not see or smell up close due to high level of closed display. When I went home it smell fishy that at that price it should not.

 

But for quality foods I have seen better store. One is in Lake Forest, Illinois by the tracks. It is pleasure to shop. The clean, well organized everything, helpful sales person are great.

Apr 1, 2013 9:27AM
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No one want's to be first on Jimmy's blog....?

 

My skin turned Blue overnight....Had too many Easter Eggs.

We bought them at Safeway and Costco....

 

See, that is how I relate to his Article.....Just Sayin'.

Apr 1, 2013 3:23PM
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Manipulators have been taking over slowly but surely, a bit after 1500 hrs they called to accelerate the selling...The question now is how low will they bring this market....We knew we would have days like these, especially after last quarter...Scumbags will never stay quiet.
Apr 1, 2013 10:09AM
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"Go long Safeway () and short Whole Foods ()?"

 

Stop eating GMO-distorted food sold at cheap discounters, buy what you need to grow a garden and put some effort into it. Better food clears your mind, honest labor helps your soul. End psychopathy.  

Apr 1, 2013 2:43PM
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Here we are calling people names already....That's what Cramer and Antman are for...?

 

They have big shoulders, can take it; And always look for ways to better themselves and their Articles,

I think..??

 

I don't think DLH is gay....Nor his Boyfriend, But who are we to judge?...Just sayin'

"Not that there is anything wrong with that...." from the Seinfeld, TV Series, yuk,yuk.har,har.

Where is ABS, Next Up, Classic Lady, Active RIA, Mirage Guy, Dharma, 2-Sick, and others...???

I miss a lot of them and many that use to post a year ago like Deklen..Freddd and a couple more.

I kinda wanted to say "good-bye" to them...But I'll still be around, watching and lurking.

 

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What??? the P/E ratio of Whole Pay Check is almost 33 gee this is a stock that is doomed to fall by about 2/3 putting it back to about 29 dollars a share.

 

This is a very very good target for short selling. How did it's P/E ratio get so high.

Apr 1, 2013 4:06PM
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Despite the little rally before the close we ended down big, many more decliners than advancers, especially technology stocks...Oh well, lets start thinking about tomorrow.
Apr 1, 2013 2:04PM
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Tex, if you really had a broker that pushed a couple of stocks for a month or two that consistantly went for a year before rolling over, you had a gift horse but didn't realize it. Should have stayed with him. Just follow Cramers rules, don't be a buy and hold invester. Don't be greedy and try to get the last dollar out of the trade. Bail out before the stock turns. Broker normally don't tell you to sell before a stock falls. Good luck!
Apr 1, 2013 2:14PM
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Most all WISER Investors hardly take the ramblings of a couple of Pundits, Analysts or a big boy like Warren Buffet.....As their only guide in making choices..

 

That's what research and due diligence are for....To make informed selections..

Anything less is a fool's choice...And you may not do very well....IMO.

 

To some of you older posters.....About a hundred to go, maybe about done this week...??

 

Apr 1, 2013 10:48AM
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After such a good quarter we didn't expect anything less this morning; granted, economic news were not great this morning so, the boys are doing what they have long to do all first quarter, bring this market down...They started at about 1020 hrs or so...Oh well, we knew this would happen sooner or later, still early though, we will see what can be done this afternoon...More later.
Apr 1, 2013 10:46AM
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I don't think it is "prudent" to go long on any equity that is up 45% in 3 months time..??

Maybe so..?? uh,huh.

 

Grocery shopping alone has been so transformed over the years, it's hard to imagine what we can't buy at anytime day or night and on any given day..

Pretty much can be said about retail in General..

Specialty big box stores.....Appliances, electronics and clothes. Some discount, some not.

Regional Grocerys...That stay in a 3-4 County area.

Successfull Regional stores that have expanded into nearby States.

Discount stores....Food and then Dollar Store types

And then Mega, Super stores,from Lobsters to Paint supplies and fresh fruit/meats, deli's and baked goods daily.

ONLY IN AMERICA....Do we or anyone have these CHOICES.

Apr 1, 2013 10:25AM
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Chris if the Caymans were next.??  Romney would send in the Mormon Army to clean them up..

There may be a joke in this....??

 

Can you just picture young men 2X2 in white shirts and dark ties...

Marching into Georgetown, with a Book and small Satchels or Briefcases.

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