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Why CVS, Walgreens, Rite Aid, and Other Pharmacy Stocks Plunged Today

By Joe Tenebruso – Nov 17, 2020 at 5:46PM

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A formidable competitor is entering the healthcare arena.

What happened 

Pharmacy stocks fell sharply on Tuesday after (AMZN 1.26%) launched two new prescription medicine services. By the market close, shares of CVS Health (CVS -0.52%), Walgreens Boots Alliance (WBA -0.14%), and Rite Aid (RAD 3.70%) were down 8.6%, 9.6%, and 16.2%, respectively.

So what

Amazon Pharmacy will give customers the option of ordering their prescription medications online on Amazon's main website. Prime members can have these medicines shipped free to their homes within two days and enjoy savings of up to 80% when paying without insurance. The new Amazon Prime prescription savings benefit will also provide sizable savings at more than 50,000 other participating pharmacies in the U.S.

"We designed Amazon Pharmacy to put customers first -- bringing Amazon's customer obsession to an industry that can be inconvenient and confusing," Amazon Pharmacy Vice President TJ Parker said in a press release. "We work hard behind the scenes to handle complications seamlessly so anyone who needs a prescription can understand their options, place their order for the lowest available price, and have their medication delivered quickly."

A downwardly sloping stock chart.

Pharmacy stocks got hit hard on Tuesday. Image source: Getty Images.

The news drove investors to sell off shares of CVS Health, Walgreens, and Rite Aid, on fears that Amazon's new venture would dent these pharmacy companies' profits.

Now what

Amazon is not a competitor to be taken lightly. The e-commerce juggernaut is notorious for being willing to incur large losses as it enters and disrupts new industries. This utter disregard for short-term profits could allow Amazon to quickly gain share in the prescription medication market -- and make it more difficult for traditional pharmacies to compete effectively.

Thus, today's declines in CVS Health, Walgreens, and Rite Aid's stock prices appear warranted, and their shares could remain under pressure as Amazon advances its beachhead into the massive healthcare industry.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends CVS Health and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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