Could These 2 Stocks Fatten Your Portfolio?

WFM and HLF could rally as consumers make healthier choices in the New Year

by Kirra Fedyszyn

Published on Dec 23, 2015 at 3:40 PM
Updated on Jun 24, 2020 at 10:16 AM

As 2015 draws to a close, many may be thinking ahead to the New Year, and we all know what that means -- resolutions! According to a Nielsen survey, 37% of Americans said they made a resolution to stay "fit and healthy" in 2015. How many keep those resolutions? One survey says about 8% -- pretty dismal odds. Still, that means an unusually high load of consumers will soon be flocking to new diet and exercise solutions, and two stocks that stand to benefit from the increased traffic are Whole Foods Market, Inc. (NASDAQ:WFM) and Herbalife Ltd. (NYSE:HLF).

Natural food seller Whole Foods Market, Inc. has had a tough year, shedding 31.7% in 2015, and hitting a four-year low of $28.73 in November. Since then, though -- and with the help of some buyout hopes -- the shares have been on the mend, and are poised to end a third straight week atop their 20-week trendline -- a feat not accomplished since April. In fact, WFM has outperformed the S&P 500 Index (SPX) by more than 20 percentage points over the last month.

Today the stock is down 1% at $34.43. However, considering WFM has added nearly 18% in December, the equity's 14-day Relative Strength Index (RSI) sits at 68 -- on the cusp of overbought territory, suggesting a breather may have been in the cards.

Option traders have been buying WFM calls at a rapid-fire rate in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio is 4.16 -- meaning more than four calls have been bought for every put in the last 10 days of trading. Moreover, this ratio is higher than 94% of comparable readings from the past year. 

But, considering that short interest rose 14.4% during the past two reporting periods -- now representing nearly six days' of pent-up buying demand, at WFM's average pace of trading -- it's possible some of that call buying is attributable to shorts looking for a hedge against more upside.

Still, 18 of the 22 analysts following Whole Foods Market, Inc. (NASDAQ:WFM) maintain a tepid "hold" rating, and the average 12-month price target of $30.31 is at a discount to the equity's current price. Should the stock find favor with analysts, or short sellers abandon their bearish positions, the shares' rebound could have legs.

Meanwhile, nutritional supplement company Herbalife Ltd. has done well in 2015, climbing 46.8% to sit at $55.30. The security has been bouncing along support in the $54-$55 region since its early August high, and could find a launching pad in its ascending 32-week moving average. Yet, half of analysts providing coverage on the stock rate it only a "hold."

Traders haven't been impressed, either, as 34.9% of HLF's available float is sold short. At the stock's average pace of trading, it would take more than 17 days to buy back all of those shares. However, even notorious activist Bill Ackman is hitting the exits.

And the story looks the same in the options pits, where the equity's 10-day put/call volume ratio of 2.04 on the ISE, CBOE, and PHLX indicates long puts have outpaced calls 2-to-1 over the last two weeks -- a ratio higher than three-fourths of comparable readings. But those bears are scooping up short-term options at a relative discount. HLF's Schaeffer's Volatility Index (SVI) of 37% stands higher than just 5% of all other readings from the past year.

That sentiment may be changing, though. Today's put/call ratio sits at 0.66 -- higher than only 9% of readings from the past year. If HLF bounces off familiar support, a mass exodus of bears could translate into additional gains. 

A Schaeffer's 39th Anniversary Exclusive!

8 Top Stock Picks for 2020

Access your FREE insider report before it's too late!


  
 
 

Partnercenter