We recently compiled a list of the 18 Best 52-Week Low Stocks to Buy Now According to Short Sellers. In this article, we are going to take a look at where Walgreens Boots Alliance, Inc. (NASDAQ:WBA) stands against the other 52-week low stocks.
Buying low and selling high is a popular investment strategy that value investors inspired by Warren Buffett have perfected over the years. The legendary investor has consistently emphasized the importance of identifying stocks of undervalued companies with significant growth prospects and holding onto these investments for an extended period.
Some of the most undervalued stocks to buy are those trading near their 52-week lows, backed by solid underlying fundamentals. A lot of these companies have durable competitive advantages but have fallen due to an overreaction by pessimists to short-term headwinds. The companies should boost strong brands in their respective fields with high barriers to entry.
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Value investing means paying attention to more than just the stock price but by focusing on valuation. A pullback often creates buying opportunities where quality companies become available at low price-to-earnings multiples or low price-to-sales ratios relative to their industries.
Over the past 20 years, 95% of investment firms have failed to beat the S&P 500. In contrast, Buffett has averaged an annual return of 20%, nearly double the S&P 500 over the same period.
With the S&P 500 up by about 20% for the year, most stocks are trading at premium valuations above their 52-week highs. The impressive gains have come amid unfavorable market conditions, with interest rates near all-time highs of between 5.25% and 5.50%.
On the other hand, some stocks have pulled back significantly and are currently trading close to the 52-week lows, their core business hurt by the high interest rate environment. Additionally, some of the stocks have underperformed due to deteriorating macroeconomics. Concerns that the U.S. economy could plunge into recession have always hurt some of the stock’s sentiments. The U.S. Federal Reserve is expected to cut interest rates in September and these stocks might not be near their lows for long.
According to Stuart Keiser, Citi head of equity trading strategy, the high interest rate environment has left the market in a very unstable situation amid a “ tricky environment.” Likewise many investors are on edge as to whether there will be a soft or hard landing. Keiser said, in an interview on CNBC’s Fast Money:
“Basically you had a 12 to 18 month period of positive economic surprise of what I would call higher for longer growth strong rate cuts getting pushed out. Markets were able to deal with that because growth was really positive. Since late June economic data surprised negative, economic data momentum negative. The market is now trading instead of higher for longer trading, a bit of growth slowdown. That’s why you are getting this schizophrenia because as growth decelerates you get into a borderline at which the risk becomes really big that you could go hard landing instead of soft landing. So our view is that the risk reward is not what it was a couple of months back”
Amid the market outlook uncertainty, focusing on stocks near the 52-week lows is a sure way of balancing the risk reward amid the premium valuation in play. While the focus has been on artificial intelligence investment plays, stocks in various sectors are trading at discounted valuations and are sure to offer significant returns.
Our Methodology
To compile the list of the best 52-week low stocks to buy now, according to short sellers, we first screened for stocks that were trading near their 52-week lows (0-10% range) using the Finviz stock screener. Next, we looked at their short interest and picked the stocks with the lowest short interest that were the most popular among elite hedge funds. The stocks are ranked in descending order of their short interest.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A pharmacist discussing the health benefits of a prescription medication with a customer.
Walgreens Boots Alliance, Inc. (NASDAQ:WBA)
52 Week Range: $9.38 – $10.37
Current Share Price: $9.45
Number of Hedge Fund Holders: 35
Short interest rate: 7.68%
Walgreens Boots Alliance, Inc. (NASDAQ:WBA) provides healthcare, pharmacy, and retail services. Its U.S. Retail Pharmacy division runs drugstores, health and wellness, specialty, and home delivery pharmacy services, including health and fitness, beauty, personal care, and everyday items. The International division sells prescription drugs and various consumer goods outside the U.S.
Walgreens Boots Alliance, Inc. (NASDAQ:WBA) has been under pressure over the past year owing to growing concerns over its pharmacy business. The primary challenge Walgreens needs to grapple with is the low reimbursement rates it receives for drugs from pharmacy benefit managers (PBMs). Over the last ten years, PBMs have exerted significant pressure on drugstores, including Walgreens, reducing profit margins over time.
Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is currently negotiating with pharmaceutical manufacturers and insurance companies to adopt a pricing strategy known as cost-plus, which would allow it to receive payments proportional to its services. In the long term, reducing the financial strain on pharmacies will be necessary, leading to the exploration of alternative pricing strategies. It’s important to note that pushing pharmacies out of operation would ultimately harm all parties involved.
Additionally, Walgreens Boots Alliance, Inc. (NASDAQ:WBA) made a questionable investment when it acquired a majority stake in VillageMD and aided its expansion by acquiring Summit Medical. The owner of primary care medical clinics struggled to grow beyond its established geographic area. Walgreens has been considering various strategies for VillageMD, including possibly selling the entire company.
Regarding its main pharmacy operations, the firm has initiated the process of closing down stores that need to generate more profit throughout the nation. This decision is beneficial for multiple reasons. Firstly, it will lower expenses by decreasing the number of stores and reducing overhead costs. Secondly, although it will decrease revenue, it is expected to maintain significant sales as customers shift their patronage to other local establishments. This is anticipated to enhance in-store sales and profit margins as it manages increased foot traffic with a more economical cost base.
Barely 1% above its 52-week low, Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is trading at a significant discount with a price-to-earnings multiple of 4 compared to an average P/E of 34 for healthcare stocks. Additionally, as of the end of July, the percentage of outstanding shares stood at 7.68%.
The number of hedge funds tracked by Insider Monkey holding stakes in Walgreens Boots Alliance, Inc. (NASDAQ:WBA) fell to 35 at the end of June, from 41 a quarter earlier.
Here is what Ariel Investments said about Walgreens Boots Alliance, Inc. (NASDAQ:WBA) in its Q1 2024 investor letter:
“Alternatively, several positions weighed on performance. Shares of retail drugstore operator, Walgreens Boots Alliance, Inc. (NASDAQ:WBA), declined over the period as challenging consumer and macroeconomic conditions, ongoing operational issues and a significant cut in the dividend weighed on shares. To address these performance lows, WBA’s new CEO is rebuilding the company’s management team with leaders who have significant experience in healthcare services. Meanwhile, WBA continues to execute on its cost savings initiatives to optimize profitability and is using excess capital to prioritize the sustainability of its operations and balance sheet. Over the medium-term, we expect a re-rating in shares as the new executive team earns credibility, margins and free cash flow show signs of improvement and the company deleverages. WBA shares are currently trading at a significant discount to our estimate of private market value.”
Overall WBA ranks 17th on our list of the 52-week low stocks to buy now according to short sellers. While we acknowledge the potential of WBA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than WBA, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.