Heading into its quarterly earnings report, it appears that Walgreens Boots Alliance, Inc. (WBA) stock has become "too cheap to ignore" from both a fundamental and technical perspective. The stock has a P/E ratio of 8.50 and offers a solid dividend of 3.39%, according to Macrotrends. This stock thus qualifies as a future member of the "Dogs of the Dow" in 2020.
The stock closed Tuesday, June 25, at $52.95, down 22.5% year to date and in bear market territory at 38.7% below its 52-week intraday high at $86.31 set on Dec. 4. Walgreens shares are up 7.4% since setting a 52-week low of $49.31 on May 31. The stock set its all-time intraday high of $97.30 during the week of Aug. 7, 2015, just as Amazon.com, Inc. (AMZN) started to breathe down its neck.
Walgreens remains the country's largest corner drug store, selling prescription medications, over-the-counter drugs, and many aisles of a typical five-and-dime merchandise. The drugstore chain serves Americans living in the rural United States and on Main Streets in major cities and suburbs around the world. Walgreens is the newest stock in the Dow Jones Industrial Average, replacing General Electric Company (GE) in 2018.
Analysts expect Walgreens to post earnings per share (EPS) of $1.43 when it reports quarterly results before the opening bell on Thursday, June 27. The drug store giant released its prior earnings report on April 2, and an EPS miss resulted in the stock falling to its 52-week low of $49.31 on May 31.
Walgreens is transforming from being just a pharmacy chain to offering services to help cancer patients. The program called "Feel More Like You" trains pharmacists and beauty consultants to help cancer patients look and feel more comfortable while fighting this tough decease.
The daily chart for Walgreens
The daily chart for Walgreens shows the formation of a "death cross" on March 1, when the 50-day simple moving average fell below the 200-day simple moving average, indicating that lower prices lie ahead. The huge price gap lower on April 2 was caused by disappointing earnings. The downside continued until the 2019 low was set on May 31 at $49.31.
The monthly risky level for June is at $58.60, with its second quarter pivot at $55.04, which was a magnet between April 2 and April 18. The stock is attempting to close above its 50-day simple moving average at $52.64, with its 200-day simple moving average at $66.81.
The weekly chart for Walgreens
The weekly chart for Walgreens is negative but oversold, with the stock below its five-week modified moving average of $53.03 and well below its 200-week simple moving average, or "reversion to the mean," at $75.46. The 12 x 3 x 3 weekly slow stochastic reading ended last week rising to 18.52, up from 12.15 on June 21. At the May 31 low, this reading was just 4.38, well below 10.00 as a technical indicator showing that the stock was "too cheap to ignore." A weekly close above $53.03 with the weekly stochastic reading rising above 20.00 would be a technical buy signal.
Trading strategy: Buy Walgreens with the stock between its 2019 low of $49.31 and its second quarter pivot at $55.04. A daily close above the 50-day simple moving average at $52.65 would be a positive. Reduce holdings on strength to its 200-day simple moving average at $66.81.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level changes at the end of each month. The quarterly level was changed at the end of March.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
In terms of my analysis, the close on June 28 will be the second most important for 2019. This close is an input to my proprietary analytics and will generate new weekly, monthly, quarterly, and semiannual levels.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a reading below 10.00 as "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.