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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Walgreens Boots Alliance

July 5th 2018

Walgreens Boots Alliance
Industry: Pharmaceuticals
NYSE stock symbol: WBA
Price as of 7/2: $61.13

 

The major averages finished the week on a whimper but closed higher for the month of June which is seasonally one of the worst months of the year. After a great January most of the major averages have come back to earth and remained dormant. The Dow Jones is actually negative for the year. The S&P 500 is modestly higher for the year, up 2.6%. The International markets have done no better, now negative for the year. The real winners so far have been the Nasdaq up 9% and the Russell 2000 up 7.6%. Only three sectors are beating the S&P 500. Those three are tech, retail and energy. Tech was the big winner last year and remains one of the top sectors in 2018 up 10%. Personally, I think tech is ready for a rest and may underperform going forward. Retail is rebounding as the fears of Amazon are subsiding. Energy closed out the second quarter with the best performance of all 11 sectors. Energy remains my top sector since highlighting it back at the end of February and is typically the best sector to own in the late stages of an economic cycle.  The Energy sector is up 10% since we featured it with three of our picks up 13% or more. The big winner so far is the Chilean oil company, Geopark (GPRK).

Geopark is up 70% in the last four months, but even though the stock is up a lot, the fundamentals are getting better. Currently the stock trades for 11 times earnings and 9 times next years' earnings. The same multiple back in February. Geopark is only a billion company with plenty of room to grow in the untapped continent of South America. Geopark may be a great stock for us for a number of years going forward.

Outside energy may favor stock ideas are the low multiple, strong cash flow companies that are buying back a lot of stock. Boeing and Apple are two of my former picks that fit this category. Citigroup, a recent pick, also fits that category returning $40 billion or 23% of their market cap to shareholders over the next two years. This week we'll feature a stock that beat earnings estimates, raised its dividend, announced a $10 billion share buyback and was recently added to the Dow Jones Industrial average and yet the stock dropped 10% follow earnings. The stock of the week is Walgreens Boots and Alliance.

It safe to say a lot of bad news is priced into Walgreens. The stock currently trades for 10 times earnings, 9 times next years' earnings and 0.5 times sales with a dividend yield just below 3%. The reason for Walgreens' sell off was due to Amazon buying the online drug delivery firm, PillPack for a billion dollars, whipping out $20 billion in market cap in the competing pharmaceutical space. On the Walgreens earnings conference call, they discussed the recent merger saying, Amazon's announcement that it was buying PillPack is "a declaration of intent." But the pharmacy space is much more complex than just delivering certain pills or certain packages. Walgreens is working on their own online pharmacy services, but the physical pharmacy will continue to be very, very important in the future.