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Is Now the Best Time to Buy Shares of Walgreen?

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Knowing when to buy a stock is equally as important as choosing the right stock for your investment needs. Still, as a Fool I don't believe in timing the market. Instead I search for solid companies and wait for attractive entry points to present themselves. Today, we'll look at shares of retail drugstore Walgreen (NYSE: WAG  ) and decide if now is a good time to get on board.

Walgreen is still on the rebound after a messy breakup with Express Scripts (Nasdaq: ESRX  ) that concluded at start of 2012. As a pharmaceutical-benefits manager, Express Scripts is responsible for a range of services such as patient care, home delivery, and benefit management programs. However, Walgreen's decision not to renew its contract with Express Scripts has left a $5 billion void in Walgreen's annual sales figure.

Last month, prescriptions filled declined 8% at Walgreen. Meanwhile, rival drugstore chains including CVS Caremark (NYSE: CVS  ) and Rite Aid (NYSE: RAD  ) continued to benefit from an overflow of patients in the Express network that are no longer served by Walgreen. The battered company isn't getting much love from investors, either. Shares currently trade at $31 a pop, near the stock's 52-week low. Let's see how these industry peers match up.

Stock Price
Dividend Yield
Walgreen $31.22 10 2.9%
CVS $44.73 16 1.4%
Rite Aid $1.18 N/A N/A

From an investment standpoint, Walgreen is the clear winner. The company has paid a dividend for more than 79 years, and has increased its payout at an annualized rate of 23.8% over the last five years. A rock-star balance sheet complete with more than $1 billion in cash is another upside. Clearly, management shouldn't have any problems making future dividend payouts -- even without Express Scripts' customers.

A new prescription for profits
Still, the loss of Express Scripts hit Walgreen where it hurts -- its pharmacy business. While some analysts still speculate that the drug retailer could buy out Rite Aid, the risks are many. As my Foolish colleague Shubh Datta points out, nearly 30% of Rite Aid employees are unionized, which could create future headaches for a traditionalist such as Walgreen. Another risk for the drugstore chain is the fact that it would take on Rite Aid's more than $6 billion in debt. Whether or not an acquisition is made, Walgreen needs to sort out its business issues with the pharmacy benefits manager. However, take a step back and you see a company with tremendous strength in the industry.

From its rock-solid balance sheet to its reliable payout, Walgreen is a good play for conservative investors. With the stock currently trading near a 52-week low, I think it's the right time to pick up shares. That's why I'm giving the stock a three-year outperform rating on my profile in Motley Fool CAPS. Don't forget to add Walgreen and the other companies to My Watchlist -- the Fool's free tool that lets you track and monitor your favorite stocks.

Fool contributor Tamara Rutter does not own any stocks mentioned in this column. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing advice. Motley Fool newsletter services have recommended buying shares of Express Scripts Holding. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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