Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

CVS Caremark Corporation (CVS), Walgreen Company (WAG), Rite Aid Corporation (RAD): This Drug Store Can Make You Money

In a bull market, traders want to jump into low-priced, high-potential stocks, because they know the broader market’s momentum will carry these smaller players higher and offer the best returns. However, over the long haul, this isn’t where you want to be. Rite Aid Corporation (NYSE:RAD) is the only company of the three that didn’t manage to remain profitable during The Great Recession, and it currently sports a net margin of just 0.94%, whereas CVS and Walgreen sport net margins of 3.30% and 3.01%, respectively. Rite is also the only company of the three that doesn’t pay a dividend. As mentioned earlier, Walgreen currently yields 2.50%. CVS yields 1.50%.

Rite Aid Corporation (NYSE:RAD) sees the generic drugs trend picking up steam, and it’s planning to expand in that area, which looks to be a wise decision. However, it doesn’t offer brand recognition and strategic locations like its peers. If the economy were to falter, Rite Aid Corporation (NYSE:RAD) might have trouble competing with deeper-pocketed rivals. Rite Aid Corporation (NYSE:RAD) can be considering for a speculative trade, but I don’t recommend it as a long-term investment.

Then there’s Wal-Mart, a company that enjoys steamrolling small players in hot industries. Wal-Mart sees what’s happening with generic drugs, and it’s in attack mode. Wal-Mart has a couple of advantages. One, it attracts many consumers thanks to its wide array of product offerings (this can lead to increased drug sales and stolen market share from CVS). Two, it has low-cost manufacturing, primarily in India, which means it will have the ability to sell generic drugs for cheaper prices than peers.

Conclusion

Despite threats from Walgreen Company (NYSE:WAG) and Wal-Mart, CVS Caremark Corporation (NYSE:CVS) should still be capable of growth, especially on the bottom line. Top-line growth is likely, but it will be more challenging due to lower-cost generic drugs becoming the drug option of choice for consumers. It would be difficult to go wrong with CVS or Walgreen over the long haul. However, it’s highly recommended that you scale into these positions slowly as a safety measure against any downside moves in the broader market.

The article This Drug Store Can Make You Money originally appeared on Fool.com and is written by Dan Moskowitz.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.