Over the next several years, transformational innovations will prove many bears wrong. Just think back to the early 1990s when they were busy calling tops. Boy, were they wrong. That was the best time to buy equities, and this next decade, the roaring 2020s, is shaping up to be similar. But not all stocks will get a boost. Those companies that don’t embrace change will sink, and Rite Aid (NYSE:RAD) stock is one headed to the bottom.
Let’s turn to football for a moment, for a quick illustration of just what I mean. With the Super Bowl putting a wrap on the 2019 NFL season, many hardcore fans will set their eyes on late April when the draft is scheduled. As you may know, this is an opportunity for teams to acquire the missing pieces they need for future success. Obviously, some teams need more help than others. It’s a fascinating time, watching teams wheeling and dealing, wagering on a young player’s potential impact.
With so many variables, it’s hard to know what they’re thinking before they pull the trigger. But one thing is certain. Very few teams will draft a fullback.
As any fan knows, the fullback is a yesteryear position, a hefty, clunky typewriter competing in the tablet era. It’s not that the fullback position is obsolete — there will always be a need for blockers in the running game. But using a limited (and therefore coveted) spot on the active roster for such a role? That thinking is becoming untenable.
The game has transitioned from specialization to multi-functionality. Why draft a fullback when you have tight ends that can perform both functions? It’s also the reason why mobile quarterbacks today are more highly valued than ever.
Still don’t get it? Moving into 2020, RAD stock is a fullback trying to make the cut. Don’t hold your breath.
Don’t Draft RAD Stock
But what I’m saying now doesn’t jive with the present momentum in Rite Aid shares. Following a strong fourth-quarter earnings beat against Wall Street’s expectations — and a decidedly positive print compared to the year-ago comparison — RAD stock went vertical (in the right direction).
For all the talk that we heard from the organization, especially with new CEO Heyward Donigan taking over the reins, Q4 delivered something far more valuable than a per-share profitability beat: credibility.
Shares have come back down from earth since peaking in late December due to profit taking. However, the growing consensus is that Rite Aid is finally turning the ship. If that’s the case, then this is an opportunity for contrarians to ride the rally before it sparks.
I think the consensus is wrong. RAD stock remains a specialized blocker, a one-trick pony in a market that has less need for such services.
Again, it’s not that Rite Aid is necessarily irrelevant. As the coronavirus has demonstrated, people get sick. When that happens, they turn to their doctors, who in turn provide them prescriptions. And the pharmacy receives those orders, providing the end product to the patients.
So no, the pharmacy business isn’t going anywhere. But it’s certainly changing. Tech will disrupt the traditional means by which people obtain medication.
I’m speaking of course about Amazon (NASDAQ:AMZN). The ultimate disruptor, Amazon is the unicorn player that can run, catch, throw, maybe even kick a field goal in a pinch. After forever changing the retail landscape, the e-commerce firm has impacted several other sectors, from groceries to courier services.
And now the giant disruptor has its eyes set on the pharmacy business. This is what should worry anyone considering Rite Aid.
Demographic Pressure Threatens Recovery Effort
In addition to football, I’m a big fan of history. While it may not always repeat, it usually rhymes. And because of this dynamic, you can glean useful information about future events.
Why am I so confident about the roaring 2020s? History teaches us that periods of transformative innovations result in massive opportunities. In the coming years, groundbreaking technologies such as 5G and artificial intelligence will spark a huge leg up in the markets, perhaps for the next 10 years.
But you have to be aligned with the trend in order to benefit. Otherwise, you end up with something like RAD stock.
In 2018, Amazon bought out PillPack, an online pharmacy. Part Netflix (NASDAQ:NFLX) and part CVS Health (NYSE:CVS), PillPack’s service revolves around individual patient needs. Delivered monthly, PillPack includes a patient’s medication in small packages labeled with a time and day to take them, along with printed instructions.
With PillPack, the pharmacy comes to you, not the other way around.
Interestingly, health insurers are enthusiastic about PillPack, mainly because their members are. I’m not surprised.
According to the Pew Research Center, millennials are the largest generation in the U.S. workforce. Logically, they would be most attracted to solutions that align with their consumption trends. And unsurprisingly, the average Amazon shopper is around 37 years old.
But most of Rite Aid’s customers are over 55 years old. Moreover, they skew even older than Rite Aid’s direct competitors, CVS and Walgreens Boots Alliance (NASDAQ:WBA).
In other words, Rite Aid customers are not the most receptive to digital solutions that the company needs to truly become relevant. On the other hand, Amazon is winning over the youth market, and that’s the market that will drive the healthcare industry of tomorrow.
Two-Minute Warning
Heyward Donigan promised to deliver details about Rite Aid’s long-term strategy to revitalize its brand. Undoubtedly, she’s doing the best job she can. But to me, this is like a fullback pledging to block harder than before.
The problem isn’t Donigan nor the team working long hours to make the recovery work. Instead, it’s the fact technology is shifting in big ways. It will make many winners over the years. But it will also leave those who can’t adapt in the dust.
RAD stock enjoyed phenomenal growth when it was relevant. But in the digital age, the pharmacy’s yesteryear business model (and its core consumer base) can’t do anything but muster a low-probability Hail Mary pass.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and+1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
