Monday, July 3, 2017

The Apocalypse of the Retail sector?

The purchase of organic giant Whole Foods WFM by Amazon AMZN at $13,700M continues to generate headlines within a week of its announcement. The immediate repercussion is the reinforcement in the fall of the Retail XTR sub-sector, which was already terrible in 2017 with news such as the closing of giant stores in the sector (Sears: 19 of its stores and 72 more on the way, JC Penney, RadioShack, Macy, among many others), Experts estimate that we are witnessing the beginning of the end of the retail as an economic model and lifestyle in the US, exported to the whole world. This good article by Francisco Jiménez for El Economista covers what I( say.

The YTD performance of the retail sector is around -18%. As a trader, 
you have to look for purchase opportunities in companies that survive this crisis.

Grocery supermarkets, direct competitors, felt the blow, it is enough to see a week their falls in the price of their stocks:
Kroger KR -25%
Target TGT -13%
Costco COST -10%
WalMart WMT -5%

The new strategies, promotions and loyalty chains will be everything for these companies if they want to lose part of their market share to the technological giant, because now the shopping experience at WFM will improve with the unique Amazon online platform. For the moment I suggest entering short in the retail sector, through the XTR etf, or triple-speed RETL. This situation is for a short time, because the idea is to look for the business opportunity that appears in every fall. Putting the mentioned companies on radar, today it is premature and risky to say what their destiny will be: their news, strategies, earnings of the next months will be those that define their future and subsistence.


The table shows the PE (Price / Earnings) in the main US supermarkets. Costco's high value is worrisome, above 20.03, which is the average PE of the retail sector.
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