The "Rite" Speculation?

01/07/2005 12:00 am EST

Focus:

John Dessauer

President, John Dessauer Investments, Inc.

For this selection, we  draw from two of the very best in the investment advisory business- Vahan Janjigian and John Dessauer. Though both are generally conservative investors, their Top Pick for 2005 is an out-of-favor, turnaround play, Rite Aid.

Says Vahan Janjigian, editor of  Forbes Growth Investor, "This year I am going with Rite Aid (RAD NYSE), as my top pick. With almost $17 billion in annual sales, Rite Aid is the third-largest drugstore chain in the country. The stock, however, is selling for only a tenth of sales. This is because RAD is still a troubled company. It is still recovering from an accounting scandal that sent several former executives to jail. But now a new team is directing the company and trying to turn things around. The company has already made significant progress. RAD is showing a profit over the past 12 months. Nonetheless, the company is saddled with about $3.2 billion of debt. But this figure is down $600 million over the past quarter and reducing it further remains a top priority. Investors have very low expectations for this stock, which of course, makes it attractive at the current price.

Adds John Dessauer, editor of Investor's World , " Rite Aid is not the disaster the stock price implies. The company has plenty of liquidity and several options when it comes to long-term debt. It will take time, perhaps another six months, for Rite Aid to get sales growing again. But Rite Aid is in far better financial shape than it was a few years ago. CEO Mary Sammons articulated a credible broad based strategy to get overall sales growing again. Plans cover more prescription file buys, new technology in the photo shop area, a new prototype store layout, and the rollout of the new pharmacy systems. Investor expectations are now so low that it will be very hard for Rite Aid to disappoint and very likely that we will get pleasant surprises. Rite Aid is a buy."

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