One-Stop Shops: 3 Solid Investments

People have less time to shop than ever -- so a popular one-stop shop makes for a balanced consumer goods investment.

Jun 16, 2014 at 9:00AM

Having lived in the Northeast my entire life, I've been spoiled, with most major retail stores within a fifteen minute drive. Free weekends and shopping holidays are times to explore different options, but during the average week many people focus on balancing their work hours and family life.

Being short on time leads to a short shopping list, so for the necessities Walgreen (NASDAQ:WBA) is often around the corner. Seeing just as many people shopping in the aisles as there are waiting for prescriptions is a great sign; Walgreen offers items such as fresh dairy and premium snacks that make customers return for their everyday needs. Meanwhile rival CVS Caremark (NYSE:CVS) is demonstrating success with similar tactics, resulting in growing satisfaction for consumers and investors alike.

America's fifth most popular store
Fools know better than to chase the most popular stocks every week, but they should consider chasing the stores most frequented by consumers when picking retail stocks. According to Placed, "a consumer habits data service provider that monitors behavior of more than 150,000 American consumers at 150 million locations daily," Walgreen is the fifth most popular store in the nation. This is fueled by over 8,200 drugstore locations in the 50 states, the District of Columbia, Puerto Rico and U.S. Virgin Islands. 

Popularity is great, but the consumers who walk in need to make purchases when they visit -- and although just a single year has passed since Walgreen was fined $80 million for dispensing and record-keeping violations, the company has performed well enough to make up the deficit, with 14 straight months of sales increases. Each monthly sales report from Walgreen describes store openings and closings, showing that efficiency is just as important as the company's vast moat of locations. Perhaps even more important is the growing store model and marketing campaign:


Friendly pharmacists, a growing selection of freshly prepared foods, and the usual offerings of over-the-counter health care products attract people seeking to improve their health. As for the stock, a P/E over 26 and a dividend at just 1.7% may not be attractive for some investors, but Walgreen is making the case for its place in your portfolio.

Two spots down
National one-stop shops need to be popular to succeed, and Walgreen's rival CVS is the seventh most popular store on the aforementioned list from Placed. With over 7,600 stores and a market cap approximately 20% larger than that of Walgreen, CVS is in a similar position of ubiquity while still having growth potential. 

The analysis from Placed reveals a surprising statistic that makes CVS stand out from its rival. Unlike Walgreen and its aggressive marketing campaign, CVS spent just over $400 million on advertising in 2012, placing it at the back edge of AdAge's top 100 advertisers list. Being a loyal CVS customer, the weekly coupon emails are great at creating repeat customers, but the low marketing spending shows that they have maintained popularity without breaking the bank.

CVS has almost $3.8 billion in free cash, but the imminent purge of tobacco from the store has been projected to threaten up to $2 billion in annual revenue. However, the move aligns with the store's focus on health while putting it in a unique position among retail stores overall. CVS remains confident in its ability to maintain and improve EPS, so investors can expect dividend growth as well, hopefully greater than the most recent 0.1% improvement. 

The wild card -- number six on the list
Although not known as a retail pharmacy store, Target (NYSE:TGT) should be in a discussion of one-stop shops because of its customer satisfaction and focus on well-being and affordability. Target landed at number six on the Placed analysis, showing that customers continue to return despite the personal data public relations disaster in the middle of the 2013 holiday shopping season.

Target is most often compared with fellow big-box retailer Wal-Mart, but the Placed findings that "consumers in the 18-to-34 age group were 11% more likely than the average American to visit a Target," and that "Americans earning at least $100,000 annually were even more likely to visit Target than other stores" shows that Target can attract young (likely money-crunched) shoppers and more affluent consumers alike. 

When comparing Target to Walgreen and CVS, the store is at a distinct disadvantage, as it lacks power in the retail pharmacy market. However, popularity that can only grow after recovering from bad press combined with vigorous advertising efforts can bring customers to Target regularly, giving it an opportunity to lure in their prescriptions as well. The store's advantages lie in their wider selection of consumer products and growing fresh grocery departments.

A glance at media and a quick stock price examination show Walgreen and CVS being more stable companies, but Target's stock price decrease of almost 20% over the last year has put the company at an attractive forward P/E of 12.3 according to Morningstar. Positive statistics combined with a 3% dividend are great reasons to invest while the store is still recovering from the holiday season.

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Kyle Vaughan has no position in any stocks mentioned. The Motley Fool recommends CVS Caremark. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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