Friday, November 1, 2013

Walgreen (WAG)

WAG has been a great investment in the Chump IRA.  I started a position in WAG on August 13, 2012, and that original investment is up 69% at today's close.  I added two additional purchases in mid september 2012 to make it a full position in the portfolio.  I trimmed the WAG position twice this year due to the size of position coupled with a rising PE, but today, it's still the largest position in the portfolio at 4.5%, and I hold shares in my taxable account as well.

After today's run up of over 2%, I decided to look again at the valuation and possible trim of the position next week.

Here is a FAST Graph for the past 20 years, and shows why I like the company so much:

With few exceptions, earnings and dividends just keep marching forward.  As you can see by the black price line, the price followed the market PE of 25 until the recent recession, then underwent a compression, and has more closely followed the orange eps growth line ever since.  That eps growth line is drawn at 15%, so when the PE rises above the 15 level, the stock tends to correct downward;  at least this has been the pattern since 2008.  Now look at the FASTGraph for the past six years:

When the stock got up to a recent PE 19.5, I trimmed the position.  I did this again after the little dip, then return to PE 19.5.  Today, the PE based on the trailing years earnings is up to 21, ripe for a return toward the orange earnings line a PE=15.  It may be time to trim the position again next week.  I'll wait and see what next week brings, and continue to monitor.

That's all for now,


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