Hence, the premium is on defensive plays, and Walgreen (NYSE: WAG) qualifies.
Consider Walgreen 'the defensive's defensive' because not only is it in a conservative sector (drug stores), Walgreen has resisted the urge to grow by acquisition. Instead, WAG has focused 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). The tactic really hasn't hurt WAG's store count, with the chain operating about 6,500 stores in the U.S. as of October 2008.
In F2009, look for revenue to advance about 5-7% to a maximum of $63.5 billion from $59 billion in F2008. Front store revenue will face rough sledding, as recession and consumer cutbacks hit every dimension of retail, but Walgreen won't be hurt as much as others: prescription (back store revenue) accounts for about 65% of store revenue. The F2009 / F2010 EPS estimates for WAG are $2.10/$2.32.
That strong pharmacy unit performance, combined with favorable U.S. demographics, and a disciplined cost containment culture, make Walgreen's shares attractive here in the $25-range; the p/e of 12 is reasonable.
Stock Analysis: Walgreen is a low-risk stock. Walgreen is an investment, not a trade. Consider buying a 25% position in WAG now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your WAG position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $17.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.