Hey! So this trade is a super simple trade having to do with Amazon's recent announcement that they will be entering the online pharmacy space. TLDR: go long CVS and short WBA on a pullback in this pair.
While I like this trade long term from a valuation / EPS / brand strength perspective, the catalyst for a new leg up in this ratio was just announced: the entrance of Amazon into the digital pharmacy space. CVS will outperform WBA, and here's why: Last year CVS Health bought AET, the massive health insurance company. This was to diversify its holdings, but also to ensure a steady stream of pharmacy business given that the insurer has a degree of control over its own health network. It can choose to have it's insuree-s get their pills from CVS stores, not Amazon. WBA is floating right now, out in the ether with neither the reputation of Amazon nor the infrastructure of CVS to compete in this space. It is simply outclassed and will continue to underperform the leaders that are well prepared to do battle.
Buy on any pullbacks.
Another potential trade to consider would be Long AMZN and CVS, and Short WBA and RAD, but it's likely that you're already in an Amazon position from another theme so you may not want to over-allocate.
Cheers!
While I like this trade long term from a valuation / EPS / brand strength perspective, the catalyst for a new leg up in this ratio was just announced: the entrance of Amazon into the digital pharmacy space. CVS will outperform WBA, and here's why: Last year CVS Health bought AET, the massive health insurance company. This was to diversify its holdings, but also to ensure a steady stream of pharmacy business given that the insurer has a degree of control over its own health network. It can choose to have it's insuree-s get their pills from CVS stores, not Amazon. WBA is floating right now, out in the ether with neither the reputation of Amazon nor the infrastructure of CVS to compete in this space. It is simply outclassed and will continue to underperform the leaders that are well prepared to do battle.
Buy on any pullbacks.
Another potential trade to consider would be Long AMZN and CVS, and Short WBA and RAD, but it's likely that you're already in an Amazon position from another theme so you may not want to over-allocate.
Cheers!
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