Walgreens Boots Alliance (WBA), which was a Top Pick for the year — has enjoyed a nice rally in the first half of 2021 — rising 34% and handily outperforming the S&P 500 Index, observes Chuck Carlson, dividend reinvestment expert and editor of DRIP Investor.
The stock is benefiting from a number of factors:
• The market’s improved support for value stocks has been a plus. Walgreens, trading at less than 12 times its 2021 earnings estimate of $4.66 per share, is in the value camp even after its nice run so far in 2021. I think the market’s pivot toward value stocks has legs, which bodes well for Walgreens for the remainder of the year.
• Walgreens has beaten earnings estimates in the last two quarters. Walgreens has been putting together better earnings performance, which has helped drive support for the stock.
• Dividend stocks have been behaving better. Walgreens, which has raised its dividend for 45 consecutive years, is benefiting from a rebound in dividend payers.
Going into 2021, I liked Walgreens for its modest valuation. I also liked the stock for its “mean reversion” opportunity. Indeed, Walgreens had been a dreadful performer for much of the last two years, so some mean reversion was likely in 2021.
Given the strong snap back in Walgreens stock in the first half of the year, I don’t expect the second half of the year to be as strong.
Competition continues to heat up in the pharmacy area, which could provide a headwind. Still, yielding well over 3%, Walgreens should outperform the broad market in the second half of 2021. The stock remains a “buy” for growth-and-income investors.
Please note Walgreens offers a direct-purchase plan whereby any investor may buy shares directly, the first share and every share. Minimum initial investment is just $250.
