CVS Caremark Corporation (CVS), Walgreen Company (WAG): A Good Buying Opportunity in the Pharmacy Space

In the last 12 months alone, Rite Aid Corporation (NYSE:RAD) has produced net income of $225 million, which is a near $600 million difference compared to the company’s $370 million net loss in the fiscal year of 2012 (ending March 3, 2012). Moreover, this massive improvement came with a profit margin of just 0.94%, compared to a negative profit margin of 1.40% in fiscal 2012! Hence, if Rite Aid can continue to increase margins at a moderate level, its profit can rise tremendously due to having more than $25 billion in annual sales. As a result, its stock could trade significantly higher.

In this April 2013 article, I explained why Rite Aid Corporation (NYSE:RAD) is worth $7 a share. Today, I still believe that this level of upside could exist if Rite Aid capitalizes on higher margin generic drugs.

Final thoughts

Like I said, the valuation relative to sales is the clincher for me; it’s what separates Rite Aid Corporation (NYSE:RAD) from its competitors. However, I still like CVS Caremark Corporation (NYSE:CVS) and Walgreen Company (NYSE:WAG), and depending on your goals, I don’t think you can go wrong with any as an investment – especially in the next two years.

The fact of the matter is that pharmacies rise with new generic introductions, and the next two years are filled with generic intros. As a result, I view CVS Caremark Corporation (NYSE:CVS)’ post-earnings weakness as a great opportunity for investors, one that I feel should pay off.

Brian Nichols is long RAD. The Motley Fool has no position in any of the stocks mentioned.

The article A Good Buying Opportunity in the Pharmacy Space originally appeared on Fool.com.

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