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Summary

  • Rite Aid and Wendy's shares find themselves in a similar position.
  • Rite Aid and Wendy's have both rallied out of the recession.
  • These true turnarounds have offered returns of 476% (RAD) and 80% (WEN) in the last two years.
  • A recent setback in share price may be indicative of an opportune buying time for potential investors.

Over the last two years, both Rite Aid (NYSE:RAD) and Wendy's (NASDAQ:WEN) have performed exceptionally well. Rite Aid has seen a two year increase of 476% and Wendy's has seen a two year increase of 80%. However, since hitting multi-year highs earlier this year, Rite Aid and Wendy's have suffered an approximate 20% depreciation in price per share. Despite RAD and Wendy's experiencing 20% decreases from recent highs, there is reason to believe these decreases will not only be erased but there are potentially serious future gains still in store. Quite arguably, these gains will more than make up for the recent pullback.

Flashback exactly two years and Rite Aid and Wendy's were both down and out and trading at $1.20 and $4.50, respectively. Needless to say, they had fallen from past successes and massive highs that were once the reality and the share price. The recession was a reality and at this point, hedge fund managers and small time investors alike cut their ties and moved onto smarter, safer, and better investments; and rightfully so. At the time, some stocks were on virtually the same riddled path and also witnessed huge decreases in share value. Some of these same stocks never even had the chance to recover and return value to shareholders. However, ultimately Rite Aid and Wendy's proved to be battle tested, resilient, savvy, inventive, and ultimately in a different situation from the rest. For that, Rite Aid and Wendy's now find themselves in a very similar situation.

Rite Aid had a real scare and threat of bankruptcy as its stock bottomed out at a measly $.22 back in March of 2009. Since this low point, Rite Aid has offered investors a nearly 3,000% return. Regardless, Rite Aid fought of bankruptcy rumors and actually managed to turn its business around. Rite Aid suffered years of compounding losses, and it wasn't until they posted a surprise profit in April of 2013 that the company really took off and showed signs it was out of its rut and on the road to recovery. Management got its act together, pharmacy sales took off, underperforming stores were closed, and the company went on a remodeling initative. On 4/12/14, RAD reported 2014 full year earnings of $.33 on revenue of $6.5 billion. Subsequently, Rite Aid reported first quarter earnings that slightly beat analysts' consensus on 6/15/14. However, this actually sent the stock down and investors are looking for some reassurance in the second quarter earnings report which is slated for September 18th.

Wendy's was less of a threat to suffer bankruptcy than Rite Aid. The stock bottomed out at $4 back in 2009 and it traded in that same range until 2013 when it simply took off running. Wendy's proved to be pioneers of a new food concept and arguably reinvented fast food. Wendy's unleashed the "right size, right price" menu which allowed consumers an option and varying prices for potential food choices. Just like RAD, Wendy's went on a massive remodeling initiative and is still in the process of upgrading and remodeling 1000s of its stores. The selection of items was improved and the very same pretzel bun that was so successful has recently been brought back. Now, customers can upgrade to a pretzel bun as an alternative to any sandwich for just $.30. Wendy's is listening to its customers and is not only improving its food, but its process and its operations and facilities. All of these innovative decisions translated to 2013 annual earnings of $.30 per share. In addition to Wendy's posting healthy profits, they have also consistently paid a dividend for over 10 years. Wendy's is slated to report earnings on August 7th and it may prove to be worth taking a bite at current levels.

Ultimately the same attraction that led investors to these two amazing turnaround stories will attract new investors. As revenues, profits, and innovation continue to grow over time new investors will buy into these intact stories and will in turn strengthen their portfolio. It is clear that Rite Aid and Wendy's are out of the woods and that the worst is over. It's a matter of how well they can continue to grow and progress. There is no question that Rite Aid and Wendy's have both recently pulled back substantially, but if they can continue to follow the carefully laid out plans set by management, then we are presented with two perfect buying opportunities. Rite Aid and Wendy's share similarities like brothers or sisters and I want them both in my portfolio family.

Source: Rite Aid And Wendy's Are Facing A Similar Situation