The under-performance in drug store stocks is testing value investors. But after a strong rally last Thursday, July 11, these stocks could move up from here. Compelling valuations and growing dividend yield are just a start. What changed, fundamentally, to warrant looking at drug store stocks?
The Trump administration ended the rebate rule that would have overhauled the way drug middlemen collect rebates. The news sent CVS Health (NYSE:CVS) and Walgreens (NASDAQ:WBA) higher on the day. United Health (NYSE:UNH) and Cigna (NYSE:CI) rose by even more.
While all of these stocks are compelling buying ideas, Walgreens is a notable investment. When Walgreens declared its quarterly dividend, it increased it by 4%. This took the market by surprise because the company reported quarterly revenue and profits that disappointed investors.
Despite weak results, Walgreens’ slowing business was better than expected.
The rally in CVS is long overdue. Since March, the stock tested and then bounced off of the $51-$52 levels. Yet CVS now owns Aetna and will find synergies to cut operating costs. Growth will improve over time as the two firms find efficiencies and take more market share.
Your Takeaway
Walgreens and CVS are good dividend-income investment ideas that may be at the start of an uptrend.
