Amazon Shocks Grocery Industry with $13.7 BLN Whole Foods Buy

Nobody saw THAT coming!

Amazon.com (AMZN, Rated “C”) shocked the entire grocery industry on Friday when it announced plans to buy the higher-end chain Whole Foods (WFM, Rated “C”) for $13.7 billion. The e-commerce giant will pay $42 a share for WFM, a hefty 27% premium to where WFM was trading before the news broke.

The deal is the biggest-ever acquisition out of Amazon, with the next closest being a $970 million video game service purchase back in 2014. It catapults Amazon headlong into a grocery business it was already beginning to disrupt with the launch of its AmazonFresh and grocery store pickup services.

That’s because Amazon will now have access to Whole Foods’ 460 locations in 42 states. It could use those locations to improve product distribution, boost its home food and drink delivery operations, and increase its overall market share in American pantries and refrigerators.

Of course, the news is the last thing traditional grocers need right now. They’re facing margin pressure from falling food prices, and Amazon is notorious for putting even more pressure on profits when it enters new categories. Kroger (KR, Rated “C”) shares were already falling in the after-hours session Thursday after it reported disappointing sales and earnings, and they got hit even harder after Amazon announced its plan.

Who else might be impacted by the move going forward? That’s a great question, and the Weiss Ratings website makes it easy to find answers! All you have to do is click on the “Similar Stocks” link for any stock in the news to find its competitors. If you do that for Kroger, for instance, you find everyone from Sprouts Farmers Market (SFM, Rated “C”) to organic and natural food seller United Natural Foods (UNFI, Rated “C”).

You can also zero in on the entire “Food and Staples Retailing” industry using the website. That’s exactly what I did recently, creating a “Food and Grocery Company Screener” for you.

The Stock Screener lists every company in the sector with a market cap of at least $50 million and 30-day average trading volume of at least 50,000 shares. If you sort in descending order by rating, this is what you got on Friday (Keep in mind the YTD return figures were from the previous day’s close, meaning they don’t include the impact of Amazon’s earth-shattering news):

What’s interesting is that some of the highest-rated and best-performing plays are based in Canada and trade north of the border. That includes companies in the #2, #3, #4, #6, and #7 spots like George Weston Ltd. (WN.TO, Rated “B”) and The North West Co. (NWC.TO, Rated “B”).

Some of the worst-performing stocks in the sector include Rite Aid Corp. (RAD, Rated “D”), the aforementioned Kroger, and Ingles Markets (IMKTA, Rated “C+”). All of them have sizable double-digit losses, and Amazon’s move won’t make their lives any easier.

Bottom line: If you’re going to go shopping in the grocery sector, or even purchase shares of the companies that supply traditional grocers with food and beverages, stay selective! Use the Weiss Ratings to identify only those with the strong fundamentals and staying power necessary to profit in an Amazon-disrupted world.

Speaking of the Ratings, I’m looking forward to telling you and other investors what they have to say about various stocks and sectors in person! Your first chance for us to meet up is at the MoneyShow San Francisco that runs from August 24-26. Then a few weeks later, from September 8-9, I’ll be at the MoneyShow Toronto.

You can reserve your spots – for free – by clicking here for San Francisco or here for Toronto. Or call 1-800-970-4355 and tell them I sent you.

Until next time,

Mike