CVS and Walgreen: A drug store dynamic duo

By Money Matters Editors

You’ve heard of the Dynamic Duo – Batman and Robin. Well, consider owning shares in the Dynamic Duo of U.S. drug store chains: CVS-Caremark (CVS) and Walgreen (WAG).

Short-term, each is likely to benefit from increased store traffic, due to the H1N1 flu virus. Long-term, each is destined to increase their market share.

CVS is renowned for its highly effective new store location formula. Meanwhile, Walgreen is ‘the defensive’s defensive’ because it’s not only in a conservative sector (drug stores), it’s resisted the urge to grow by acquisition, instead focusing on the old-fashioned method of growth by opening new stores, and other methods (large penetrations into new markets, relocating stores, expanding 24-hour service to more stores).

Further, CVS and Walgreen have a demographic trend in their favor: the  U.S.’s aging populace. Also, a successful effort by the U.S. Congress to pass a universal health insurance program would be a bonus: it would result in 1-3 million potential, new drug customers per year for at least 10 years.

Of the two, Walgreen, with a P/E of about 19 is pricier than CVS’s P/E of 13, but each makes a great stocking stuffer. Walgreen and CVS are stocks that you can buy 500 shares for your child’s college fund, and in 10 years, you’ll be glad you did.

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Disclosure: No Money Matters Editor or staff member owns a position in a stock they write about.