AMZN crushed WBA just like it did COST and WMT, wait a minute….

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WBA got crushed on AMZN worries

WBA got crushed recently when AMZN announced it was going after parts of WBA’s business by expanding grocery operations. This sound vaguely familiar to the talk in 2017 after WFM got taken over by AMZN and near destroyed all grocery stocks.  COST and WMT suffered hugely at that time and they stayed in the stock doldrums for a short while.  Then something happened.

 

COST and WMT bounced back huge from getting Amazoned

COST and WMT stormed back in a big way.  It turns out the world is big enough for a few retailers at least and COST jumped from 150 to 230 and WMT 65 to 105.  Once the dust and the algos settled someone figured out COST has some scale and items that you actually have to be in a store to find.  WMT massive footprint is something AMZN wants and the move into web retailing by WMT is growing hugely.  Now what will become of WBA.

Chart from Cboe Livevol Pro

WBA can compete with AMZN in store front sales

WBA has a massive pharmacy business and is usually the impulse drug store of choice.  Well run and on every corner in a big city and usually in every town in the USA and across Europe.  WBA is also trading at a multi-year low multiple as the AMZN threat has everyone nervous.  If AMZN is going to compete against a master off the shelf retailer like WBA I wish them luck.

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IV is too cheap given headline news

As an option trade I think the market is totally under-pricing potential volatility in this name. I like long strangles in the May term and beyond right now.  Thinking  a range for WBA is 60/90 over the next 3 months.  Earnings are in late March.

 

Disclosure- positons in WBA, WMT, COST AMZN

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