Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
By now you've heard that Amazon.com Inc. (Nasdaq: AMZN) purchased Whole Foods Market Inc. (NYSE: WFM) for $42 per share. That's $13.7 billion!
This is the largest acquisition in AMZN's history. And all the media heads right now are trying to figure out what exactly this means for the company – and the future of grocery stores altogether.
But while they're sorting that out, I want to talk to you about something much more important – how to cash in on this historical deal.
And these are the best two ways to do it…
The "End of Grocery Stores" Marks the Beginning of Brand-New Profit Opportunities
The days of sauntering into your local corner grocery store are just about to be a thing of the past. Sure, there's still a very small percentage of "mom and pop" grocery stores scattered around here. In fact, most of the ones I see are near a local high school, where they can cater to kids' appetites for soda, snacks, and candy. But as you've seen, even the "super" regional grocery stores, like Super Kroger, Super Valu, and Super Target, have experienced challenges that have put a lot of pressure on their stock prices.
So when Jeff Bezos, founder and CEO of Amazon, announced the buyout of Whole Foods, it sent the entire grocery store sector reeling. Kroger Co. (NYSE: KR), for example had already reported less-than-stellar earnings and lowered its annual guidance by 10% before news of AMZN's announcement – with the stock clocking at $24.56 per share. And after the news broke, KR gapped down even further to $21.19 on the open. It continued trading lower during the day and subsequently closed a bit higher – but only marginally did it start to refill the downside gap.
Other retail grocers were down on the news, too, with Costco Wholesale Corp. (Nasdaq: COST) trading down to 6.2%. And other major retailers that include built-in grocery stores, like Wal-Mart Stores Inc. (NYSE: WMT) and Target Corp. (NYSE: TGT), were down 5.8% and 12%, respectively.
And this is only the beginning…
AMZN is going to keep putting pressure on these grocery retailers. The decline in price of these stocks on Friday alone is a telling sign that investors fear and anticipate the demise of grocery stores to the effect of retail brick-and-mortar stores.
But what's bad for them is a huge moneymaking opportunity for us…
And these are the best two ways you can cash in.
About the Author
Tom Gentile is widely known as America's #1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Now, he's diving into the biggest market in the world - one that almost no one has heard of before.
"Consider Buying Puts on WFM (or Other Grocery Stocks, Like KR and COST)"
Did you eventually mean WMT instead of WFM? There could be a bidding war coming up. The downside is very limited and the upside potential is huge for WFM. I am long calls on them.