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SCOTUS Ruling Should Not Stop Amazonization: ETFs in Focus

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The U.S. Supreme Court dealt a blow to online retail stocks on Jun 21, 2018 by its decision on State Sales tax. The 5-4 ruling permits states to collect sales taxes from online and out-of-state retailers. The latest decision rules out a 1992 Supreme Court ruling that barred such practice.

But then, online retailing was a small section in 1992. Justice Anthony Kennedy noted that the reason for the upturn in the previous ruling was the radical change in the online retail industry. The 1992 ruling was mainly concerned about the mail-order business worth $180 billion.

But now the online retail industry has bourgeoned. "Last year, e-commerce retail sales alone were estimated at $453.5 billion,” Justice Anthony Kennedy mentioned. This along with traditional remote sellers amounted to more than half a trillion dollars.

Needless to say, such a ruling weighed on online retail ETFs on Jun 21. Amplify Online Retail ETF (IBUY - Free Report) was down 1.4% and ProShares Long Online/Short Stores ETF (CLIX - Free Report) lost 2.3%. On the other hand, brick-and mortar retailers staged a jump (read: Here's Why the Rally in Retail ETFs Will Continue in 2H).

Among online retail stocks, Amazon.com Inc. (AMZN - Free Report) lost about 1.1% on Jun 21 while eBay Inc. (EBAY - Free Report) shed more (down 3.25%) than Amazon. Retailers like Overstock.com Inc. (OSTK - Free Report) (down 7.25%) and Shopify Inc. (SHOP - Free Report) (down 4.55%) were also hit hard.

What Left Amazon Less-Battered?

Experts do not see Amazon as suffering from the Supreme Court ruling. This is because “Amazon already collects sales tax on the products it sells directly.” Since this makes up about half of all units sold on its site, the court ruling should not have much impact on Amazon.

However, the rest of the products are sold by third-party merchants on Amazon's marketplace and “the ruling doesn't make clear how third-party sales should be taxed,” per a law professor at the University of Arizona, as quoted on CNBC. Moody's analyst Charlie O'Shea also believes that if whether higher taxes on those smaller retailers’ goods will affect Amazon's overall revenue is still unclear. Moreover, companies like Amazon have wide international exposure, which should guard them from U.S. State taxes.

Strong Technicals of Amazon

The stock has a Zacks Rank #1 (Strong Buy). It comes from a top-ranked Zacks industry (top 33%) and a top-ranked Zacks Sector (to 31%).

Amazon’s short-term moving average is well above the long-term and mid-term averages as depicted by the 200-Day SMA and 50-Day SMA in the chart below. This suggests continued bullishness for this stock.

However, the Relative Strength Index for AMZN was at 69.72, reflecting an overbought position. Since this sent the stock in an overvalued territory, recent selling pressure (due to Supreme Court ruling) in the stock may bode well for it over the long term.

In this regard, we would like to note that investors uncomfortable with Amazon’s overvaluation can play the company via ETFs.

ETFs in Focus

So, investors can have faith on Amazon-heavy ETFs like Consumer Discret Sel Sect SPDR ETF (XLY - Free Report) , VanEck Vectors Retail ETF (RTH - Free Report) , iShares Edge MSCI Multifactor Consumer Discretionary ETF , Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report) and Vanguard Consumer Discretionary ETF (VCR - Free Report) . Amazon has weights in the range of 16% to 19% in those funds (read: 6 ETFs to Ride On Amazon's Blowout Q1).

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