The new buzzword on Wall Street is rotation, rotation, rotation. The market (at least in the minds of the mainstream media) is rotating out of growth and big-tech into value. Oddly enough, this is something I’ve been saying for over a year. The market darlings are trading well above fair value while other stocks with equally attractive business, growth, and dividend are lagging. That’s opened up some deep values in the market and these are just a few.
Walgreen’s Boots Alliance Is Ripe For Reversal
Walgreen’s Boots Alliance (NASDAQ:WBA) has been struggling with growth and competition for years. As my colleague Sam Quirke puts it, it’s been death by a thousand cuts as one stumbling block after another gets in the way. The latest was COVID-19 but even that headwind is passing. After years of effort, the company is on track to deliver growth in the coming years.
CEO update: “We are seeing gradual improvement in key U.S. and UK markets and continued strong performance in our wholesale business. I’m also encouraged by the accelerating growth in our e-commerce platforms. Now, more than ever, our pharmacy-centered business is at the heart of community healthcare and we are expanding on that role for the future.”
In terms of its value, Walgreens Boots Alliance is trading at only 9X this year’s earnings and 8X times next providing a deep value relative to the broad market. Relative to its peers Rite Aid (NYSE:RAD) and CVS (NYSE:CVS) the value story is a little different but still compelling. CVS is trading about 9.5X this year’s and next year’s earnings while Rite Aid won’t produce a profit for years. And then there is the dividend to consider. Walgreens Boots Alliance pays a safely growing dividend that yields nearly 4.5% compared to CVS smaller 3.4% yield and Rite Aid’s lack of distribution.Mysterious Bounty Hidden in Desert (Ad)
The 4th quarter results are a great example of why this stock is ripe for reversal. The company delivered 2.4% YOY growth to beat consensus, delivered free-cash-flow growth, and provided positive guidance for fiscal 2021. Looking at the chart, it appears as if the reversal is in-play.
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