Amazon's Foray Into Grocery To Hurt/Help These Stocks & ETFs
Zacks Investment Research | Jun 18, 2017 11:14PM ET
E-commerce biggie Amazon (NASDAQ:AMZN) announced a hot all-cash $13.7 billion deal to acquire the WFM on June 16. The deal is expected to be sealed in the second half of this year. Reacting to this announcement, Whole Foods surged over 29% and Amazon shares nudged up over 2.4% on June 19.
Whole Foods’ decision to mingle with Amazon was not surprising altogether given its ongoing struggles. In second-quarter fiscal 2017, Whole Foods’ comps dropped for the seventh quarter in a row. Whole Foods also lowered its sales and earnings forecast for fiscal 2017, and guided comps decline of about 2.5% for the fiscal year.
Still, the company has a strong brand image and coverage of over Bloomberg .
Once the acquisition ends, Amazon plans to lower prices at the premium grocer by automation, headcount reduction and inventory changes, as per Amazonization " of Whole Foods boosted the concerned stocks and the related ETFs, there are some other corners of the investing world which were hurt by the announcement. Below we highlight the details.
Winners
Whole Foods Market stock has a Zacks Rank #3 (Hold) at the time of writing. Its Zacks Industry Rank is in the top 27% and has a VGM score of ‘B.’ So, investors can definitely play the stock at this moment. The stock has considerable exposure to the following ETFs, making those funds sloid plays at the current level (read: 4 Sector ETFs to Profit from if Geopolitics Rule ).
The Organics ETF (AX:ORG)
The fund looks to track companies globally that focus on naturally derived food and personal care items. Whole Foods Market takes the spot of the fund with about 22.2% share. The fund chares 50 bps in fees. It gained about 3.4% on June 16.
Deep Value ETF (HM:DVP)
The underlying index of the fund – TWM Deep Value Index – is built on an objective, rules-based methodology that starts with an initial universe that reflects the companies listed on the S&P 500 Index. Here also, Whole Foods Market takes the first spot with 10.05% exposure. The fund charges 80 bps in fees. It gained about 1.5% on June 16.
Health & Wellness Thematic ETF (AS:BFIT)
The index – the Indxx Global Health & Wellness Thematic Index – tracks the performance of companies in developed markets that offer products and services to promote physical wellness. Again, WFM takes the first position with about 3.6% share. BFIT was up about 0.4% on June 16.
Losers
Consumer Staples
Since the possibility of lower grocery prices is rife with this Amazon-Whole Foods deal, other grocery stores and supermarkets may 5 ETFs & Stocks: Silver Lining in Soft May Retail Sales ).
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As a result, big grocery and supermarket chains had a bloodbath on June 16 with Kroger (NYSE:KR) COST falling about 7.2%, Sprouts Farmers Market Inc. (NASDAQ:SFM) retreating 6.3%, United Natural Foods Inc. (NASDAQ:UNFI) plunging about 11% and Wal-Mart Stores Inc. (NYSE:WMT) losing about 4.7% on June 16. Discount retailer Target Corporation (NYSE:TGT) also declined over 5% on the day, as per the source.
This can hurt ETFs like First Trust Nasdaq Retail ETF XLP .
Payments Companies
Though it is still unclear how the joint model will work, it may be something similar to the store, called Amazon Go, which is different from a typical Walmart or supermarket. Rather, it requires consumers to use an app called Amazon Go, to automatically include the products needed to be added to a digital shopping cart; and then simply exit without waiting long to check out, as per the source .
As per How to Invest in PayPal's Strong Q1 Results Via ETFs ).
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