Bottom fishing the Drugstore sector …

Posted By on January 3, 2008

RAD WAG CVSIs it a good time to go contrary in the drugstore stock sector? Thursday financial news has release some poor performance numbers in the nations’ largest drug store chains and traders/investors are exiting positions CVS, Walgreens and Rite Aid.

US Retail Stocks Flat; Drug Stores Under Pressure
By Andria Cheng Last update: 1/3/2008 10:49:38 AM
Retail-sector shares traded flat Thursday, a session marked by selling pressure brought to bear on drug-store operators Walgreen Co. (WAG), CVS Caremark Corp. (CVS) and Rite Aid Corp. (RAD).
Shares of CVS Caremark fell 6.7% and Walgreen dropped 5.7%. Both companies reported December sales that fell short of analysts’ estimates.
Meanwhile, shares of Rite Aid dropped 6% after the company reported an unexpected decline in December sales.
The drug-store chains blamed generic drug introductions and a slow flu season that hurt same-store pharmacy sales.
CVS Caremark said sales at stores open at least a year rose 1.8%. Analysts surveyed by Thomson Financial had been expecting growth of 4.5%.

The pharmacy chain said December sales missed its estimates because of “adverse weather early in the month, a slowly developing flu season and general economic conditions.” The company, however, said full-year profit would be at the high end of its previous forecast as a result of expense controls and improved margins.
Rival Walgreen said monthly same-store sales rose 2.6%, missing the 5% average estimate of analysts surveyed by Thomson Financial, and that total sales rose 7.8% to $5.51 billion. The December results included a 3.3% increase in comparable pharmacy sales, while comparable front-end sales increased 1.7%.
Broadly, the S&P Retail Index rose slightly to 402.41, steadying after retreating earlier at the open.

Traditionally these companies tend to trade higher in the spring and early summer … perhaps its a good time to speculate and bottom fish?

Although I sold WAG last month (dumb luck), I think I’ll put some of that money back to work and dollar cost average a few shares of RAD at $2.39 today (down over 10% today, even more over the last two days) with the plan to add a few more share if it goes lower. Nevertheless, I see a short term gain by spring or early summer.



Desultory - des-uhl-tawr-ee, -tohr-ee

  1. lacking in consistency, constancy, or visible order, disconnected; fitful: desultory conversation.
  2. digressing from or unconnected with the main subject; random: a desultory remark.
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