Amazon's Whole Foods acquisition has ignited a flurry of rumors regarding what company may be the next target of the king of retail. Investors looking to ride the acquisition price jump are scrambling to invest before a buyout announcement.
While no one knows for sure what company will be next in line as an Amazon target, the following five names keep coming up on the Street. They are listed in order of most likely to be acquired to least.
1. Bed Bath & Beyond (Nasdaq: BBBY)
Amazon has its sights set on the home décor and furnishing sector. Bed Bath & Beyond, with its 1,100 standalone stores in North America, creates the ideal brick and mortar space for the internet behemoth to showcase its furnishing and home décor products. The chain could also provide widespread geographic locations for online ordered product pickup and return.
Amazon is in the catbird seat when it comes to understanding American moving habits. Consumers tend to purchase furnishing and home décor items when moving to a new home. And with over 60 million Prime members, Amazon knows exactly when folks decide to move as they change their shipping address. This information can be used to target likely home décor and furnishing buyers with marketing long before the competition has a chance.
The potential to improve this existing integration makes Bed Bath & Beyond an ideal acquisition target for Amazon.
2. Restoration Hardware (NYSE: RH)
A big player in the fragmented furniture sector, Restoration Hardware is a strong possible acquisition for Amazon. While Bed Bath & Beyond focuses on mass market home décor and small appliance items, Restoration Hardware attracts higher-end consumers. Restoration Hardware would provide Amazon access to these lucrative consumers and offers an existing national footprint of brick-and-mortar stores.
It's also worth noting the high correlation between Amazon's acquired Whole Foods customer base and customers of Restoration Hardware. This could help the chances of an Amazon buyout.
3. Advance Auto Parts (NYSE: AAP)
A leader in the consumer auto parts space, Advance boasts over 5,200 stores, 100 Worldpac branches, and serves more than 1,300 independently owned CARQUEST branded shops.
With consumers keeping their cars longer, there are more aging vehicles on the road, fueling a DIY ethos that has helped grow the auto part sector over the last decade. However, Advance shares are lower by nearly 50% this year, providing a deep discount for Amazon should it decide to enter the auto parts business.
Auto parts often require the input of an expert to purchase the correct item, making impersonal online shopping difficult. Advance would immediately fill this need for Amazon. The company's existing direct-to-consumer distribution network, name recognition, and consumer goodwill make it an ideal addition to Amazon's portfolio.
4. Abercrombie & Fitch (NYSE: ANF)
The teen-focused apparel retailer with over 900 global locations is the ideal vehicle for Amazon to directly enter the lucrative fashion market. Abercrombie's century-old reputation provides Amazon the needed cachet to capture the fickle fashion-forward consumer.
When I worked on 5th Ave in New York City, our office was several blocks away from the flagship Abercrombie & Fitch store. Every day when going to lunch, I saw a long line of international teen and early twenties consumers queuing up down the sidewalk to enter the store. It was the only shop on the famous shopping street that attracted this level of devotion. This phenomenon makes it very clear that the company has "cracked the code" of consumer attraction and retention.
The purchase of A&F would instantly provide Amazon a global infrastructure of favorable retail locations and a fervent customer base. The low enterprise value of just over $600 million for the Hollister and Abercrombie brands, paired with more than $3 billion in sales, may make the company appealing to Amazon.
5. Kroger (NYSE: KR)
I remember Kroger from several decades ago as a lower end supermarket, but things have changed dramatically since then. Currently operating nearly 3,000 grocery stores under 24 names, almost 800 convenience stores, over 300 fine jewelry stores, over 1,400 fuel centers, and more than 2,250 pharmacies, the company has a massive footprint that, along with Whole Foods, could allow Amazon to dominate this entrenched industry.
Shares have been knocked lower by over 30% this year, but the last several months have seen share price improvements, creating an ideal opportunity for a suitor.
Risks To Consider: It remains pure speculation whether or not Amazon has interest in any or all of the names above. Always use stop-loss orders and position size properly when investing in the stock market.
Action To Take: Consider the potential for Amazon acquisition when evaluating the above five companies as investment candidates. But a potential acquisition alone is not enough of a reason to buy a stock. Research these names on your own to confirm whether you think they make worthwhile investments on their own respective merits first.
Editor's Note: Introducing our 13 investment predictions for triple-digit returns in 2018. Our previous predictions have delivered returns of 310%, 452% and 569%. This year's predictions could be our best yet. Get them all here, free.