It looks like Monday will be another dismal start to the trading week with indexes down almost another 1%. I believe it is prudent to be defensive in this type of market environment. Non-cyclical dividend payers with low valuations are the way to go. One defensive stock that I own looks like it has bottomed, has some positive catalysts as well as cheap valuations. It is Walgreen (WAG).
Positives on Walgreen:
- Both the company and Express Scripts (ESRX) have ended their legal fight against each other. Hopefully this will open the door to a resolution to their contract fight and eventually the two firms partnering again.
- Walgreen is now yielding 3% which should help put a bottom on the stock.
- Speaking of bottoms, after trading in the 40's last year, the stock has been range bound for the last six months or so and seems to have built technical support (See Chart)
Four reasons WAG is a solid long term bargain at $30 a share:
- The stock is selling at the very bottom of its five year valuation range based on P/B, P/E, P/S and P/CF.
- As stated previously, Walgreen now yields 3% and has grown its dividend payouts at an annual clip of 23% over the last five years. It has an A rated balance sheet as well.
- WAG is a classic defensive stock selling at less than 10.5 times forward earnings, a discount to its five year average (14.4).
- The stock is cheap at just over 7 times operating cash flow, 35% of annual revenues and has a median analysts' price target of $37 a share.
Disclosure: I am long WAG.