Dead Cat Bounce or Deep Value? Can You Guess April’s Mystery Stock?

Walgreen Boots Alliance Is This Year's Top Performing Dow Member

2021 has been a year of surprises, with many forgotten old stocks leading the market higher. This month’s mystery stock is major example of that trend.

It’s up 38 percent on the year, more than quadruple the gain the S&P 500. This firm is also the top-performing member of the Dow Jones Industrial Average — even though many people have never heard of it. Or at least, they don’t know the company in its current form.

April’s mystery stock traces its history to a British “chemist,” or pharmacy, founded 172 years ago. Its earliest operations as an herbal-remedy shop in Nottingham morphed into a national chain called “Boots the Chemist.” The company continued to grow in the 20th century and was soon one of the U.K.’s largest retailers. It was acquired by KKR in 2007.

The U.S. half of our mystery stock began on the South Side of Chicago in 1901. It took off in the 1920s when Prohibition drew customers to soda fountains. The company had grown into a national chain by the time founder Charles Walgreen died in 1939.

Walgreen Boots Alliance (WBA), daily chart, with key technical items marked.

Walgreen’s quietly expanded over the following decades, spreading to the East Coast and Puerto Rico. It also bought the iconic New York City pharmacy Duane Reade in 2010. The big transaction came four years later when it purchased 45 percent of Alliance Boots. It acquired the rest of the firm in 2014 and assumed its current form as Walgreen Boots Alliance (WBA).

Walgreens Joins the Dow

Walgreen Boots Alliance (WBA) joined the Dow Jones Industrial Average in June 2018, replacing General Electric (GE).

By that time, WBA was one of biggest players in the U.S. pharmacy industry with over 9,000 locations. The company has continued to evolve since, and recently sold its Alliance Healthcare drug-distribution business to focus on retail-pharmacy and health-care operations. It also came under new leadership last month, when Rosalind Brewer became CEO.

WBA reached an all-time high of $97.30 in August 2015. It then rolled over with most other health-care stocks and trended lower for the next five years. Weak margins and a heavy debt load following several acquisitions contributed to the slide.

Things started to turn around in October when results and guidance surprised to the upside. The stock hit an eight-year low of $33.36 later in the month before turning higher. Another strong quarterly report followed on January 7.

In addition to the improved earnings, WBA benefited this year as investors embraced “value” stocks. It trades for roughly 10 times forward earnings — less than one-third the readings on prominent technology stocks like Apple (AAPL) and Microsoft (MSFT).

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