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3 Opportunities from Amazon’s Whole Foods Buyout


Written by

Jae Jun

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A few years back in 2014, I started buying Whole Foods with my initial intrinsic value target between $38-$50.

I then adjusted it down in 2016 to $32 – $36.

Amazon’s acquisition price of Whole Foods is $42.

Few thoughts:

  • Valuation is always a range of approximate values. Never believe anyone that says they have a single target price.
  • Valuation isn’t rocket science like what “smart money” makes it out to be. You’re discount rate doesn’t need to be within 0.01%. Approximations and common sense works out faster and better.
  • “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

But Amazon’s purchase has created noise, thus creating potential opportunities.

The media and markets are so excited about the noise they can generate with Amazon’s purchase decision, it has created negative sentiments towards other companies.

Here are some.

Costco (COST)

cost action score

Maybe I’m missing something, or a lot.

But I don’t understand the connection of how Amazon acquiring Whole Foods affects Costco all that much. Different business model, different strategy.

Costco isn’t cheap in terms of price, but they score well on the Quality and Growth side.

I’ve been wanting to buy Costco for a long time. Maybe the Amazon noise will help me out. 

Kroger (KR)

Kroger dropped about 30% recently when they put out profit warnings during their call.

I can see the relevance here and how they could be affected by the AMZN+WFM combo. Nevertheless, Kroger is a quality supermarket retailer and at the right price is another opportunity.

Here’s a super rough valuation of KR. This is a rare case where the valuation models show similar numbers. Valuation range is between $30-$33.kr valuation range

Wal-Mart (WMT)

I wrote that WMT should be worth between $60 – $98. That’s a wide range, but life brings about wide situations.

I purchased WMT when it was rated an A on the Action Score. At the moment, it’s a C, as the P/FCF and EV/EBIT barely dropped out of the optimal zone. From what I see, the value score is higher than a C.

Overall, I’ll adjust my rating of WMT to a B and with a Quality and Growth score of A, it’s another one to keep an eye on.

wmt quality growth score

Noise and distractions in the market creates nice opportunities.

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Disclosure

Long WMT

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