Amazon is going to crush this entire group of companies
Amazon.com Inc. (Nasdaq: AMZN) is about to strike a new target.
“It’s a question of when, not if,” David Larsen told clients in a report last Thursday.
Larsen is an analyst at Leerink Partners, an elite boutique brokerage firm that is an expert in healthcare stocks.
From my 20 years on Wall Street, I know the analysts at Leerink are top notch.
When they say something, you pay attention… which is exactly what many of you have to do now.
Because if Amazon enters this market, it would pose an immediate threat to many of its stocks.
These are popular dividend paying stocks that I’m sure many of you own.
And that’s terrible news for you and your wallet.
See, this is what happens when Amazon targets your stock…
First, they start to go down.
Second, as the business that controls your stock “Amazonizes,” it continues to decline.
In this case, it is a business that is seen as safe. It has many barriers to entry, according to one of the CEOs who is under attack.
However, an analyst from a consultancy thinks otherwise.
“They’re instantly disruptive if they do it differently,” says Linda Cahn of Pharmacy Benefit Consultants.
So what is the business that Amazon is preparing to disrupt?
Ripe to be Amazonian
It’s the prescription drug market.
You may not know this, but before you get your meds from your local pharmacy, they go through a pretty wild ride.
This convoluted channeling enriches the middlemen. It also makes medicines more expensive by up to 36%.
This is a big problem. Total prescription drug spending in the US was $457 billion in 2015. And it’s projected to skyrocket to $610 billion by 2021, according to recent research.
The current system is a goldmine for middlemen: Companies like Walgreens Boots Alliance Inc. (Nasdaq: WBA), CVS Health Corp. (NYSE: CVS) and Express Scripts Holding Co. (Nasdaq: ESRX) get rich off us.
That’s because, in the end, all the extra money comes from you and me, most directly through higher copays at the pharmacy and increased health insurance rates. Finally, we also pay through our taxes when we pay for government programs like Medicare and Medicaid.
In other words, this group of companies is ripe to be Amazoned.
Transparency and Efficiency
You see, Amazon specializes in bringing price transparency and efficiency to the businesses it goes after. That’s because these are businesses that make your money. because They lack transparency and efficiency.
“Amazon could bring transparency to a market that it completely lacks,” says Cahn.
Amazon poses a real and direct threat to large drugstore companies, according to Leerink Partners.
I agree. And the stock market is waking up and starting to put a price on this threat.
CVS stock is already down from its high point in May 2016. Walgreen is down from its high point in August 2015. Finally, Express Scripts is down from its high point in July 2015.
I think these companies are going to be destroyed by Amazon. That’s because your only true competitive advantage is information.
It used to be difficult to obtain information on drug prices and pharmaceutical spending. However, this is no longer true.
This information is now widely available. And in the hands of Amazon, it will become a flamethrower that will destroy the profits these middleman businesses generate.
Death traps for your money
When Amazon enters this business, it will reduce prices. We know this from other companies that have been Amazoned. It’s also the first thing Amazon did when it gained control of Whole Foods, which it recently acquired.
With that, the profit margins of CVS, Walgreens and Express Scripts are going to be crushed. Your actions will follow.
Now, many of you will be tempted to buy these shares. They will look cheap. And they will still look cheap. But don’t be lured by them.
I think these companies are death traps for your money. They are doomed. Amazon and innovative companies like it will crush them until they disappear.
