When bottom-fishing for value stocks, investors should consider a number of factors, explains Chuck Carlson, dividend reinvestment specialist and editor of DRIP Investor.
Buy bargains with good financial positions. You need the stock to stay in business long enough for your rebound idea to work.
Look for catalysts that can signal change for the better. Such catalysts might be the sale of an underperforming division or new management.
Consider buy decisions of corporate insiders. When buying beaten-down stocks, I always feel better if I see corporate insiders — board members and top management — buying.
One stock that fits this bill is Walgreens Boots (WBA). Walgreens has been a beaten-down stock for several years. Indeed, since hitting more than $84 per share in 2018, the stock has been on a protracted decline.
To be sure, I’ve been fooled by past “head fakes” in the stock — moves to the upside that were not sustained, with the stock eventually falling to lower levels. However, I am encouraged by recent insider buying. The company’s CEO, Rosalind Brewer, just bought 10,000 shares of Walgreens stock for an average price of just under $34 per share. This is the first open-market purchase of stock for Brewer since she became CEO in March 2021.
Now, I don’t want to make too much of this purchase, and I would feel better if I saw other corporate insiders buying. Furthermore, corporate insiders tend to be early in their buying, so I’m not expecting an instant bounce in the stock. Still, the insider buy is a positive for these shares.
Another potential catalyst for the stock would be the sale of its Boots international unit. Walgreens had attempted to sell Boots at one time but was unsuccessful. However, Boots, which operates retail pharmacies primarily in the United Kingdom, has been recovering post Covid shutdowns, so perhaps Walgreens may try again to sell.
At this point, I see limited downside action for Walgreens — the $30 level should provide support. And the dividend yield of more than 5% is a decent payoff while waiting for a sustained turnaround. Bargain hunters may want to give these shares a fresh look.
Walgreens offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company. Minimum initial investment is $250. Subsequent investments are a minimum $50. There is a $10 one-time enrollment fee.