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Quarter-End Insights

Consumer Cyclical: Amazon Reshapes Retail in Real Time

The consumer cyclical sector looks fairly valued, as restaurants and travel-related stocks help offset the carnage in retail following Amazon's bid to acquire Whole Foods.

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  • On the surface, consumer cyclical sector valuations remained relatively flat in the second quarter, with a market-weighted-average price/fair value ratio of 1.01, coming in just ahead of last quarter's 1.00. However, price movements varied widely across the cyclical categories, with restaurants and travel-related stocks helping offset the carnage across the retail sector resulting from  Amazon's (AMZN) bid to acquire  Whole Foods (WFM).
  • Despite making inroads into grocery and apparel the past several years, we believe Amazon's Whole Foods acquisition and Amazon Wardrobe represent the most significant moves to date in removing key barriers to accelerate growth in these large retail categories, adding credibility in fresh food through Whole Foods' suppliers and making apparel returns an effortless process.
  • Not surprisingly, we believe the U.S. retail category may be overstored because of these disruptive moves from Amazon, with  Target (TGT), traditional grocers, department stores, and apparel retailers likely the most exposed to the company's recent moves.
  • That said, we believe there are a handful of traditional retailers offering some combination of product specialization, convenience, and experience that have been excessively punished by the market.

R.J. Hottovy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.