An astute viewer of this recent video asked how portfolio manager Chuck Saletta knew when to buy Walgreen's (NYSE: WAG ) stock for the real-money Inflation-Protected Income Growth portfolio in January. Since that time, it has risen a meteoric 45%. In this follow-up video, Chuck shares the secret behind that success.
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- Walgreen was ending a battle with pharmacy benefit manager Express Scripts (NASDAQ: ESRX ) . (Some background: Walgreen and Express Scripts were fighting over reimbursement rates, with Walgreen alleging that Express Scripts was trying to force below-average reimbursement rates. During that battle, Walgreen lost the pharmacy business for the approximately 90 million people in Express Scripts' network. As Express Scripts is the largest pharmacy benefit manager, losing its customers cost Walgreen around $4 billion in revenue.)
- Walgreen's stock looked fairly valued, even if it didn't win back the customers it lost during its battle with Express Scripts.
- Walgreen had a strong balance sheet that looked like it would survive another economic downturn.
- Walgreen had a strong dividend and dividend growth history and looked capable of keeping that trend alive.
- Net: The gain on Walgreen's business recovery was a nice bonus, but that recovery wasn't needed to make the stock seem worth owning in the first place.
In other words, when stocks have low enough expectations priced into them, there's a reasonable shot that the surprises they'll have for their owners will be good ones. Walgreen was one of those cases.
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