Walgreen (WAG) doesn’t strike most investors as a tech-savvy, forward-looking company. In fact, Walgreen and its entire industry — including notable rivals like CVS Health Corp (CVS) and Rite Aid (RAD) — can come off as a bit boring.
Throw those preconceived notions out the window. WAG stock has climbed 16% so far this year and 8% in the past month alone. On Nov. 5 it reported surprisingly strong same-store growth of 5.6% in October. Analysts only expected 5.2% growth last month.
But I see more compelling growth prospects for Walgreen ahead for reasons that most investors are overlooking: The company’s investments in the cutting edge of health technology. Given these investments, I see WAG as one of the few dividend-paying growth stocks on Wall Street today.
That’s right, with its 2% yield, some might call WAG a dividend stock. I think it’s more of a growth stock. Here’s why:
A New Era Of Health Solutions
The single biggest catalyst for WAG stock in the future may be the company’s decision to partner with the privately held health-tech firm Theranos. This company has the potential to change the way laboratory blood tests are conducted.
Theranos founder Elizabeth Holmes, at age 30, is the newest member of the Forbes 400 list, as well as the list’s third-youngest member. Her decision to drop out of Stanford at age 19 to revolutionize the business of medical lab services is proving to be the right call. Instead of using needles and extracting large amounts of blood, Theranos can run accurate tests on a single drop of blood. All you needlephobes out there, take note. Blood tests that require only a prick of a finger are coming.
Walgreen took notice of the new technology and last year partnered with Theranos directly, rolling out Theranos Wellness Centers in Phoenix and Palo Alto. More locations are coming.
Not only are Theranos’ tests easier on patients, but they are accurate and far faster than conventional methods. Plus, they’re much cheaper than current testing. WAG stock has explosive potential if the company exploits the opportunity well. Think of this: the Theranos-Walgreen partnership has the potential to replace some of the tedious, time-consuming doctor’s visits with a trip to your local pharmacy.
Theranos claims that its “rates are always less than 50% of medicare rates.” If that’s true, Walgreen’s stores shouldn’t have any difficulty getting people in the door, where customers are more likely to stick around and shop. And let’s not forget that Walgreen’s pharmacy would no doubt see a surge in business if Theranos’ proprietary system emerged as the new standard of quick lab testing.
An Apple Pay Bonus
Another catalyst: If the new mobile payment system from Apple (AAPL), Apple Pay, ends up taking off, WAG is currently the only big-name drugstore that participates in the system. Both CVS and Rite Aid use the CurrentC payment system exclusively. Annoyed Apple users may switch their allegiance to Walgreen’s pharmacies if Apple Pay becomes mainstream.
As if being on the cutting edge of healthcare innovation and paying a 2% dividend wasn’t enough, WAG stock also looks like a winner to some Wall Street bigwigs. Activist investor Barry Rosenstein — now a member of the Walgreen board — increased his fund’s exposure to WAG by $77 million in October. Rosenstein’s hedge fund Jana Partners now holds nearly $900 million of WAG stock. Since Jana is a self-described “event-driven investing” fund, that tells me I’m not the only one who sees major catalysts on the horizon for this often overlooked stock.
As of this writing John Divine owns shares of AAPL stock. You can follow him on Twitter at @divinebizkid.