Walgreen (WAG): An Obama boost

"The reason is that these companies operate convenient low-cost walk-in clinics often staffed by nurse practitioners, midwives, and other medical professionals below the rank of M.D.

"These walk-in clinics are attractive for state governments in that they free up emergency rooms and hospitals and provide basic services at much lower costs than the offices of fully accredited doctors.

"Of course, when people come in to seek medical care they often go directly from the clinic to the store's in-house pharmacy to buy over-the-counter aids and/or have prescriptions filled.

"So having clinics on site has the effect of increasing revenues from the pharmaceutical side of the business. But Walgreens benefits in the same way, plus it earns extra profits from the clinics themselves.

"The reason I like Walgreens over Caremark or Target is that they have 346 in-store clinics and more than 370 healthcare centres throughout the U.S. The store sites have treated more than 1.5 million patients since 2005.

"CVS Caremark is second with more than 500 in-store clinics but Target is barely in the game with only 22 clinics in Minnesota and six in Maryland. So based on scale, Walgreens has the best footprint and of all the drugstore companies they appear to be the best run.

"Walgreen recently raised its dividend for the 34th year in a row. In fact, they boosted it by 22%, from 11.25c a share per quarter to 13.75c (55c annually), for a 1.8% yield.

"Given that many S&P companies have cut or even suspended their dividends over the past 18 months, finding one that's actually going up was a real pleasure. This move will put $99.2 million in the hands of investors.

"That said, they missed their earnings estimates for their fiscal third quarter, which ended in May. Earnings came in at 53c a share which compared to analysts' estimates of 56c and last year's 58c. However, revenue was up 8% to $16.2 billion with same-store sales increasing 2.8%.

"That resulted in a big increase in free cash flow, to $1.8 billion for the first three quarters of fiscal 2009. That was up $800 million from the comparable period in 2008, hence their ability to raise the dividend.

"The other reason I like drugstores generally is that they don't really care if they sell generic or non-generic drugs. As the population continues to age, our need for various forms of remedies is likely to continue to increase.

"There will probably be upward price pressure from suppliers but big companies like Walgreens can push back and would likely win that kind of margin battle.

"Certainly, as consumers continue to be challenged by the on-going recession, all retailers are suspect to some degree but the food and drugstore segments appear to be the least vulnerable. Buy with a price target of $32."

Steven Halpern's TheStockAdvisors.com offers a free daily overview of the favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.