10Jun10:57 amEST

What if the Amazon/Whole Foods Synergies Underwhelm?

At first blush, the Amazon/Whole Foods synergies formed since AMZN bought out WFM two summers ago seem to be rather underwhelming, with many Whole Foods Markets' locations featuring somewhat lower prices on various items, but also worse customer service and generally more of a "warehouse" feel inside the stores.

Naturally, the lower prices and synergies for Amazon Prime members are appealing. But, then again, why not just go to a place like a Trader Joe's (privately held) instead for an experience like that? In other words, Whole Foods seems to have lost much of its identity, despite the magic of Jeff Bezos and his iconic track record--Even the very best of the best occasionally have an underwhelming moment. 

Now, whether or not the Amazon/Whole Foods synergies eventually prove to be a big winner remains to be seen. I would not be surprised in the least if Bezos hits the nail on the head in the next five years especially with more innovations to come. 

However, the point here is that AMZN/WFM has not been the kill-all-competitors-in-grocery merger many expected it would be when it happened in 2017.

In fact, I am eyeing a name like Sprouts Farmers Market, Inc. (SFM) as they have impressive growth across the country still in effect and have yet to act like Amazon is driving them out of business. Quite the opposite, in fact, as aggressive call buyers seem to be consistently confident in looking out to some of the options a few months or even quarters away. Again, the impressive growth rate for SFM would seem to confirm this sanguine attitude. 

Turning to the SFM daily chart, updated below, there is little doubt that Sprouts has been a clear laggard since last summer. Despite its growth, the market may very well have adopted a "guilty until proven innocent" mindset given the Bezos factor.

But in the last week SFM has been trying to "hammer" out a bottom (arrows). The risk/reward now seems skewed towards the long case with a stop-loss below $19.70 or so, as plenty of caution has been priced in already without much account for SFM's growth and popularity. 

Also note some retail and consumer names have been improving, too, beyond just software and some healthcare names, which would also benefit the likes of SFM for a potential summer turnaround move higher. 

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