The Pharmacy Competitive Struggle Is Your Shot at Double-Digit Gains
It all came on the same day, based on the same news item.
Cardinal Health Inc. (NYSE: CAH) sunk 7.8% in a single day.
McKesson Corp. (NYSE: MCK) fell nearly 7.5% on the news that same day.
Diplomat Pharmacy Inc. (NYSE: DPLO) dropped 5.8%.
Walgreens Boots Alliance Inc. (Nasdaq: WBA), CVS Health Corp. (NYSE: CVS) and Rite Aid Corp. (NYSE: RAD) all fell by 9% or more.
It’s a bloodbath that is déjà vu to me, because I’ve seen it before.
A knee-jerk reaction to an event that ultimately could have little or maybe even no impact on these stocks.
Yet, investors acting in such a fashion creates numerous opportunities.
And I want to tell you about one of them that will make double-digit gains for those of you who get in right now.
Disrupting the Pharmacy Industry
First, let’s look at what happened.
The news that sent each of these stocks significantly lower was that Amazon.com Inc. (Nasdaq: AMZN) would acquire PillPack.
PillPack is a private pharmacy startup looking to disrupt the sector. Since Amazon is the company that bought it, investors reacted in worrying fashion, sending many pharmacy-related stocks significantly lower on the news.
Basically, investors are worried Amazon will apply the same little-to-no profit margin formula it has used to steal market shares in other sectors.
There’s just one thing: Amazon doesn’t usually succeed in its ventures.
Most of its attempts to disrupt markets end up as failures, as I have written about before. And Amazon already tried to jump into the online pharmacy segment nearly two decades ago with Drugstore.com.
To give the company credit, though, it has gotten a few things right — like cloud services, online retail and the smart speaker. But the laundry list of things it has got wrong is a lot longer.
And let’s assume Amazon is successful with a jump into the pharmacy sector. That still doesn’t mean all or even any of the companies above become less valuable.
In some cases, as we have seen with the smart speaker, Amazon has pushed adoption of a certain item, or a way to purchase items, in a manner that helps an entire industry.
In the end, Walgreens, CVS, Cardinal Health and the rest are going to remain solid businesses.
The Grocery Sector Bloodbath
As I mentioned, we’ve seen this before.
In June of last year, it was Amazon’s acquisition of Whole Foods Market that sent shockwaves through the grocery sector.
Great companies like The Kroger Co. (NYSE: KR) and Costco Wholesale Corp. (Nasdaq: COST) were plunging between 5% and 10% on the news.
Everyone thought Amazon would crush the grocery sector and forever change the industry, just like they are wildly assuming about the pharmacy sector right now.
But, a year later, and Amazon hasn’t had much of an impact.
Costco continues to expand its online segment, which everyone considers Amazon’s turf.
And Kroger is leading the tech race when it comes to the grocery shopping experience, testing driver-less grocery deliveries this year. It sounds like something Amazon would have launched instead.
In other words, the grocery sector, and its stocks, continue to flourish despite Amazon’s push into the sector a year ago.
I wrote you about this last year, and told you each of those stocks were a buying opportunity. Afterward, you had the chance to scoop up an average gain of 15% on the beaten-down grocery stocks in just two months.
Thanks to Amazon’s latest acquisition, you can make a quick double-digit gain once again.
Now’s a Great Time to Jump In
The stocks I mentioned, Walgreens, CVS, Cardinal Health and so on, had nothing materially change to cause their recent drops.
The only major event for the sector was Amazon jumping in to acquire PillPack.
But PillPack already existed.
Though small, the disruptive company Amazon acquired already had relationships with CVS and Express Scripts. If they saw PillPack as a major threat, one of them would have acquired it by now.
But they didn’t because they are working on similar disruptions.
And the perks that helped push Amazon to fame — convenience and free shipping — already existed with PillPack, and it still failed to gain much traction.
Sure, Amazon will help expand PillPack’s presence due to its loyal Amazon Prime following. But other than that, Amazon’s ambitions to disrupt the pharmaceutical sector will take longer than planned.
Meanwhile, every other pharmacy is making the push to disrupt it themselves.
Without there being an immediate impact (and I don’t see there being one), pharmacy-related stocks will snap back.
Just like we saw with grocery stocks, these stocks are set to pop 10% to 20% in the next couple of months. Now’s a great time to jump in.
Regards,
Chad Shoop, CMT
Editor, Automatic Profits Alert