By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 1/2/12 Sign up for free Cabot Wealth Advisory e-newsletter
Which stocks will perform well in 2013? As the Editor of the Cabot Benjamin Graham Value Letter, I follow value stocks closely. For the past several decades, value stocks have outperformed growth stocks consistently, but during the past 15 months, growth stocks have outperformed value stocks.
During the past three months, though, value stocks have begun to outshine growth stocks. I believe 2013 will be an exceptional year for value stocks. Top-notch companies in leading industries are clearly undervalued and look very attractive.
I scanned my database to find five stocks with the right credentials to perform very well in 2013.
One of my recommendations is Walgreen (WAG). Walgreen, founded in 1901, is the largest drug store retailer based on sales. In addition to 8,200 drug stores, the company operates 700 health clinics within existing stores and on employer work sites. Walgreen's clinics offer primary and acute care, pharmacy and disease management services, and health and fitness programming.
Sales decreased in 2012 due to the loss of Express Scripts' prescription business from January 1 until September 15. In addition, Walgreen will no longer be included in the Defense Department's Tricare health plan network.
Walgreen is headed in a new direction. The company purchased a 45% stake in Alliance Boots GmbH for $6.7 billion in cash and stock. Boots is a leading drugstore and wholesale pharmaceutical operator in Europe. Based in Switzerland, the company operates 3,330 health and beauty retail drug stores in the U.K., Norway, Ireland, the Netherlands, Lithuania and Thailand. Boots' pharmaceutical wholesale business supplies medicines and healthcare products to more than 170,000 pharmacies, doctors, health centers and hospitals from 370 distribution centers in 21 countries.
Sales and earnings at Boots are growing at a 10% to 15% pace, which will greatly enhance Walgreen's growth in the future. Walgreen is expected to purchase the remaining 55% ownership within three years. Together, the two companies will operate over 11,000 pharmacies in 26 countries. The opportunity for Walgreen to expand globally is exciting, but I expect earnings to lag during a 12 to 18 month "transition" period before accelerating rapidly in future years.
Walgreen shares are undervalued at 13.0 times my 2013 EPS estimate of 2.84. The recently increased dividend now yields an attractive 3.0%. WAG's stock performance has lagged the stock market during the past five years, but the current price presents an excellent opportunity to buy a blue-chip company with improving growth prospects. I believe WAG shares will reach my Min Sell Price within two to three years. WAG is very low risk.
I will continue to follow Walgreen and other blue-chip, high-quality investments in my Cabot Benjamin Graham Value Letter. In every issue, you'll find my legendary Maximum Buy and Minimum Sell Prices for over 250 stocks plus my up-to-date predictions for the Dow Jones Industrial Average.
From Cabot Wealth Advisory 10/21/10 Sign up for free Cabot Wealth Advisory e-newsletter
Walgreen (WAG), a leading drug store retailer, is adding worksite and homecare facilities to its pharmacy business. The company has also become more active in acquiring small competitors, and its new management is renovating existing stores and cutting operating costs.
Sales, earnings, and dividends increased 11% to 12% per year during the past 10 years. We foresee sales, earnings and dividend growth of 8%, 12% and 15% during the next five years. New acquisitions and the expected rapid growth of the drug store industry will spark strong results.
WAG shares are reasonably priced at 14.5 times forward 12-month EPS. Dividends have been paid since 1933 and currently provide a yield of 2.1%.
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J. Royden Ward
Editor of Cabot Benjamin Graham Value Letter
A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the Value Letter.
From Cabot Wealth Advisory 4/27/10 Sign up for free Cabot Wealth Advisory e-newsletter
Walgreen (WAG), founded in 1901, is the second largest drug store retailer in the U.S. In addition to 7,000 drug stores, the company operates 680 health clinics within existing stores and on employer worksites.WAG's clinics offer primary and acute care, pharmacy and disease management services, and health and fitness advice.
Walgreen typically adds new stores and renovates old stores, but occasionally acquires smaller competitors if the price is right.The company's strategy has led to steady, reliable growth for decades.
Walgreen recently acquired Duane Reade, based in New York City, for $1.1 billion cash. Reade will add significant sales and earnings and enhance WAG's future growth prospects.
Same store sales increased by 1.6% in March compared to an increase of 0.6% in February and a decrease of 0.6% in January.New management is renovating existing stores, cutting operating costs, and improving customer service. We foresee sales and EPS growth of 7% and 15% respectively for the next 12-month period followed by 14% EPS growth in future years. The dividend yield is 1.5% and growing.
Walgreen shares are undervalued at 14.6 times next 12-month EPS. WAG's stock price increased just 28% during the past decade while earnings and dividends more than tripled. We believe the company's stellar performance will now be rewarded and push WAG shares to our target sell price within the next one to two years.
Editor's Note: You can read more about disciplined conservative investing and get continuing coverage of Teva Pharmaceutical and Walgreen in Cabot Benjamin Graham Value Letter. Our subscribers are holding lots of winners including: Cash America up 75%, Google up 82%, Reinsurance Group up 67%, ResMed up 71%, and Tractor Supply up 88%. Don't miss out on Roy's next recommendations.Click here to get started today!
200 Wilmot Road
Deerfield, IL 60015
|Index Membership: S&P 100, S&P 500, S&P 1500 Super Comp |
Industry: Drug Stores
Full Time Employees: N/A
10/21/10 Walgreen (WAG): Adding Worksite and Homecare Facilities to its Pharmacy Business
4/27/10 Walgreen (WAG): Recently Acquired Duane Reade