Amazon’s US$1.37 billion deal to acquire Whole Foods Market (WFM) initially led to a heavy sell-off of traditional retailers, which might have been worsened by options-related activities.
However, the market calmed down over the weekend. Some investors have even started to figure out which companies might continue to do well despite Amazon’s march into the physical retailing sector.
I bought shares of Costco Wholesale during the market correction, and I’m pretty confident about it.
Costco targets very different groups of customers from WFM. The former’s main selling point is its offering of good value, affordable products and it largely relies on membership fees for revenue, while the latter focuses on middle to high-end customers.
Meanwhile, the deal reveals the seemingly boundless ambition of Amazon, made possible by its financial strength and tech power.
For instance, Amazon and other tech giants can find new applications of their big data capability in other industries. The synergy effect may go far beyond cutting costs and acquiring distribution networks.
There are just a handful of global internet firms which have such capability. Therefore, these companies will become more valuable.
The recent correction in NASDAQ may provide good timing to increase exposure to leading internet plays.
Smaller players that are safe from these giants, or those that might become M&A targets would also become more valuable. Meanwhile, losers will sink deeper over time.
What we are looking at is an increasingly divergent stock market.
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