Amazon.com, Inc.’s (NASDAQ:AMZN) purchase of Whole Foods Market, Inc. (NASDAQ:WFM) last week sent shockwaves through the market, and several sectors in particular felt pressure. The obvious losers were the grocery stores that now have to deal with the invading retail giant. But another group that weakened was the pharmacy companies such as Walgreens Boots Alliance (NASDAQ:WBA).
Rumors swirled that Amazon would use its new brick-and-mortar locations to get into that business as well. WBA stock was one of the hardest hit, falling 5% the day of the WFM buyout announcement. In fact, Walgreens has had only one up day since, and closed Thursday just 0.5% from its 52-week low.
At this point in time, there have been no indications that Amazon is actually planning on moving into the pharmacy business — it would be far in the future if it did — so I believe any concerns of Walgreens losing business to the retail giant are unwarranted.
However, I do understand why people are dumping their holdings. WBA stock has lagged the market for the last two years, and the Amazon news was merely another reason to head for the hills.
The fact of the matter is that purchasing Whole Foods was the easiest way for Amazon to break into the grocery space, which is something the company had been hinting at for years. Management realized that buying their way into the segment was the best course of action, and I suspect they would do something similar if they decided to move into pharmacy as well.
Unlike in grocery, the pharmacy business involves regulations and relationships with pharmacy benefit management companies. Deciding one day to sell pharmaceuticals isn’t exactly realistic.
I don’t believe Walgreens has anything to fear from the Amazon/Whole Foods merger, but the chart does tell a different story as it has been underperforming both recently and for years.
In a market that has sectors regularly hitting new highs, I would avoid the pharmacy space altogether. However, the decision is based on a whole lot more than just Amazon.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.