Amazon, You Have to Hurry Up
Go figure, Amazon (AMZN) is getting dominated in something: striking the truly splashy deal that finally gets the internet beast into healthcare. CVS Health (CVS) now has Aetna. Walgreens Boots Alliance (WBA) will eventually get AmerisourceBergen (ABC) . And Thursday, Cigna (CI) planted a flag in the changing healthcare landscape with a blockbuster $67 billion deal for Express Scripts (ESRX) . The threat of Amazon's entry into the space is not lost on the metrics of Cigna's deal. The health insurer is paying a hearty nine times Express Scripts 2017 EBITDA (earnings before interest, taxes, depreciation and amortization) -- considering Express Scripts is beyond the heady growth years seen five years ago thanks to generic drug adoption (it's bread-and-butter business), that's no chump change for Cigna to lay out. Essentially, Cigna is paying up to protect itself against a future where Amazon is trying to make headway into healthcare. Amazon and its healthcare tag team of JPMorgan & Chase (JPM) and Warren Buffett's Berkshire Hathaway (BRK.A) have to make a move on a deal before all the wide moat franchises are gobbled up. If they don't move quickly, they risk overpaying for entry. Bigger thought here: The healthcare industry is shaping up to be dominated by about three companies. Perhaps Amazon knows this, and will just go big with a $100 billion purchase of Walgreens Boots Alliance. Oh, Amazon and JPMorgan & Chase are holdings in Jim Cramer's Action Alerts Plus. Your loss if you're not on this service.
About the Stock Market
Always great to see a somewhat bearish Goldman note in your inbox at midnight the day after stocks staged an impressive reversal off the lows. The white glove investment bank has this to say about the S&P 500 in 2019: "The backdrop for stock returns appears less favorable in 2019. Our economists project the Fed will tighten interest rates eight times during the next two years, economic growth will decelerate to 2.2% in 2019, and bond yields will likely climb towards 4%." Get those bomb shelters and canned goods ready, baby, it's all going to hell in a hand basket in 2019 thanks to eight interest rate hikes from the Jerome Powell-led Fed.
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At Least Amazon Could Feel Good About This
Costco's (COST) quarter wasn't as sexy as it seemed at first blush on Wednesday evening. Shares will come under pressure Thursday for several reasons. First, what looked like a massive earnings beat was actually an earnings miss as the results included a lift of 17 cents a share from the new tax reform plan. Further, like other retailers such as Target (TGT) and Walmart (WMT) that battled Action Alerts Plus holding Amazon (AMZN) online during the holidays, gross profit margins compressed. Costco's gross profit margin fell slightly from the prior year to 10.98%. With inflation starting to pick up and margins already under pressure, Costco bulls could be wondering if it's time to ring the register. On another note, before the earnings release Costco's stock had only risen 12% over the past year (relative under-performance to major indices). The company has to use its cash more aggressively to get investors excited about the story again -- it had more than $5.8 billion at quarter-end.
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