Since Amazon.com, Inc. (NASDAQ:AMZN) made its move to acquire Whole Foods Market Inc. (NASDAQ:WFM) for $13.7 billion in mid-June, the shares are down 5% but writers at InvestorPlace have generally become more positive about it.
It is easy to see why. Based on its 2016 performance, Whole Foods adds $15.7 billion in revenue and $507 million in net income to Amazon, if the company does nothing else with it. This guarantees Amazon revenue of over $40 billion for the September quarter, and would give a big boost to its net income.
It’s true that AMZN stock dramatically overpaid for the grocery chain, paying about 80 cents on every dollar of sales while Kroger Co (NYSE:KR) sells for a little more than 10 cents per dollar of sales. But the deal has dramatically tilted the retail playing field in Amazon’s favor, and competitors have been forced to respond in ways that will take them time to digest.
Why We Like AMZN Stock
Louis Navellier of Blue Chip Growth has been among the most optimistic of our writers, predicting the Amazon stock price, which opened below $950 per share today, will return above $1,000 within weeks rather than months.
There are ways to make money within the current trading range, as Tim Biggam has pointed out. Selling calls at the top of its trading range and puts at the bottom is the way to go, he writes — the old Iron Condor strategy. Nicolas Chahine says you can make easy money betting the stock doesn’t continue to drop.
On a more fundamental level, Richard Saintvilus has a $1,200 price target on the stock and Neil George sees Amazon as a job creator, becoming a new retail anchor and turning malls into warehouses.
My own view is that Amazon has shifted with this deal from being either a trade or a speculation to a core long-term holding. I don’t expect huge gains from here. I expect stability and regular gains, growth in profits and, within a few years, even a dividend.
AMZN stock is now too big for me to see it any other way. I lightened up on the stock a few months ago but still have half my shares from last year, even while my view on the general economy has grown more negative.
Competition Is Coming for Amazon
The most important point about Amazon is it can continue growing without attracting the attention of regulators, because competitors are responding to its moves.
It will take months for Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Wal-Mart Stores Inc (NYSE:WMT) to get their collective act together, but they will become stronger competitors. Walmart, in particular, has retail margins of 25%, against 35% for Amazon, and if it can bring those to the online world they can easily take share in the lower end of the e-commerce market.
Amazon faces growing competition across the board, in India and other developing markets, in technology from Alphabet and Apple Inc. (NASDAQ:AAPL), in Asia, entertainment and cloud from Alibaba Group Holding Ltd (NASDAQ:BABA).
The world is waking up to the Amazon threat, in other words, and the worlds of trade and technology are transforming to meet it. But the world, the whole business world, continues to move in Amazon’s direction, and I pity the fool who doesn’t have at least a few chips on the first mover.
Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in BABA and AMZN.
