Category: Stock Pick

Walgreens is a dog…

In fact it’s been a dog for the better part of ten years now. 

Walgreens Boots Alliance (WBA) – Monthly

In 2024, it earned itself a spot in the annual “Dogs of the Dow” portfolio. And it was, in large part, the reason that portfolio underperformed, losing 3% while the average as a whole was up nearly 13%!

The company lost over 64% on the year.

It’s lost just over 90% of its value since mid-2015.

The reasons for its tale of woe have been developing for a number of years and basically boil down to two factors: bad business decisions and struggles within the industry. 

But it, like some other once-big names, has come to realize the error of its ways and is working to make a turn around. 

Can they make it happen?

The Struggling Fall from Grace

The bad business decisions started all the way back in 2020 when Walgreens invested $6 billion for a majority ownership stake in a doctor-staffed clinic operator called VillageMD. The strategy followed an industry trend connecting medical service providers to pharmacies to create one-stop health solutions. 

The plan was, “to open 500 to 700 “Village Medical at Walgreens” physician-led primary care clinics in more than 30 U.S. markets over five years.”  

Business did not grow as projected. In the first three quarters of 2024, Walgreens’ operating loss grew to $13.1 billion. 

A bigger issue, however, has been one that’s hitting the whole industry… getting paid.

In the drug business, the vast majority of prescriptions are paid for by insurance rather than customers directly. To that end, insurance companies hire “middlemen” known as pharmacy benefit managers (PBMs) who negotiate discounts and rebates from drug manufacturers and then set prices with pharmacies. 

The PBM industry, dominated by three companies (all owned by insurance companies), exerts a huge amount of pressure on the pharmacy industry. And its been doing so for — wait for it — the past 10 years. About as long as Walgreens has been taking it on the chin.

According to reporting:

The reimbursement pressure that Walgreens experienced can be seen in its U.S. retail pharmacy gross margin, which fell from 28.2% in fiscal year 2014 to 17.9% in fiscal year 2024, ended in August.

That’s a problem.

Is a Turnaround in Progress?

In the face of talk that it could be bought out by a private equity company, Walgreens has been taking some serious steps to right this ship…

Plans to expand have been sharply curtailed and as newly-installed CEO Tim Wentworth informed the market:

“We believe in the future of these businesses and intend to remain an investor and partner [in VillageMD], but as part of our persistent focus on value creation for WBA, we are collaborating with leadership toward an endpoint to rapidly unlock liquidity and enhance optionality and position them for additional growth.”

Understanding the need to cut bad investments is always a good first sign of a serious turnaround. But in addition, the company is also slashing internally:

The company said last quarter that it surpassed its goal of reducing expenses by $1 billion and announced a plan to shutter nearly 14% of its store locations. It will close 1,200 of its 8,700 stores that it said are unprofitable over the next three years, including 500 stores in fiscal 2025, which ends in August.

Again, early signs are promising.

Last week, Walgreens reported its first quarter earnings (ending Nov 30) and gave Wall Street a pleasant surprise.

EPS came in at 51 cents vs. the street’s estimate of 37 cents. Revenue was a huge beat as well coming in at $39.46 billion vs. $37.36 billion.

That was the good news. The less than glowing news was that the company didn’t change their earnings outlook for 2025. Nor did they include sales guidance in their report. (Last October they guided at $147 billion to $151 billion for FY 2025.)

Still, you gotta take your good news where you can.

And the market did.

Walgreens Boots Alliance (WBA) – Daily

How they deal with the issue of reimbursement will remain to be seen. 

But for now, WBA may be worth keeping an eye on.

Just Do It…

It’s the slogan that launched a giant. 

With inspiring ads featuring the greatest athletes of the day — from Michael Jordan to Bo Jackson to Tiger Woods — they aligned their brand with greatness. And they made greatness accessible to anyone willing to put on a pair of their shoes and accept the challenge. 

And after going public in 1980 for a modest $0.18 a share, the company grew to become a sportswear juggernaut, at one point commanding 48% of the athletic shoe market. 

But over the past two years, while under the leadership of CEO John Donahoe, those fortunes have taken a turn for the worse. The company’s stock has lost over 50% of its value. 

And now Nike seems to be taking its own advice.

Just Doing It

John Donahoe took the reins at Nike in January 2020. After overseeing the company’s post-pandemic bounce to its all-time high share price in 2021 — in large part due to Netflix’s 2020 documentary The Last Dance about Michael Jordan and the Chicago Bulls’ final championship season which reignited a massive demand for Air Jordans — the company consistently lost market share. 

Until finally…

June 28, 2024 is a day many Nike employees and shareholders won’t soon forget. It’s when their stock value fell 21 per cent, making it the single worst trading day in the company’s history. This plunge came after Nike released their fiscal fourth quarter 2024 results a day earlier, where the brand announced Q4 revenues were down two per cent and they also expected fiscal Q1 2025 revenue to be down in the double digits at approximately 10 per cent.

Nike took its own advice and just did it. 

The company sent Donahoe to the showers and brought in former Nike insider Elliott Hill. 

It’s worth noting that Donahoe is only the second “outsider” to lead the company. His unfamiliarity with sneaker culture may have been a factor in the company’s struggles. 

A 32-year, career employee with Nike, HIll retired as “president of its consumer and marketplace division where he was responsible for leading all commercial and marketing operations for Nike and the Jordan brand.”

Now with an insider back in charge, the company is hoping to be able to right the ship.

Nike’s Wild Ride (NKE 3-Year Chart)

In a year of high profile CEO moves — Pat Gelsinger out at Intel, Brian Niccol in at Starbucks — Nike has followed suit. 

And the prospect for another CEO driven turnaround is in play…

Seems like everything went right in 2024.

The S&P 500 spent the year making new all time highs soaring nearly 30% on the year.

After its major halving event (cutting rewards to miners) Bitcoin powered into the end of the year crashing through the $100,000 level. 

And in yet another Festivus feat of strength, the Nasdaq Composite (2,500 shares strong) blasted through the 20,000 level. 

In truth, much of this year’s performance in the stock market has been the result of the mega-cap sector: Those trillion dollar-plus market cap companies heavily involved in the AI boom. If you factor out their weighting in the S&P 500, the index’s performance on the year is cut by about half. (It’s only up about 15% which is more in line with the small-cap Russell 2000 has done.)

But alternate measures aside, the AI sector is booming and appears it will keep booming for the foreseeable future.

This week’s stock spotlight is on one of those drivers.

The Boom in Broadcom

Broadcom Inc. (AVGO) is one of the tech stocks that’s muscling its way into the Mag-level club having just eclipsed $1 trillion in market cap.

Broadcom is involved in both the semiconductor industry as well as infrastructure software — namely software in the cloud computing biz.

Last week, AVGO released its fourth quarter earnings. CNBC reported:

Broadcom reported better-than-expected fourth-quarter earnings on Thursday and said artificial intelligence revenue for the year more than tripled.

AI revenue had reached $6 billion from less than $2 billion at the beginning of the year.

Add to that the fact that revenue from its chips segment also grew 12% year-over-year and you’ve got a damn hot stock. 

Broadcom Inc. (AVGO) YTD

The market literally stampeded on board. And this is no doubt excellent news for the company. 

But there are two things investors should take note of.

First, you can see a similar gap higher back during its June earnings release. Prices followed through for a couple sessions, but then consolidated over 20% lower, testing the stock’s 200-day moving average. 

The other thing you’d want to look at is the company’s valuation at current levels. At these post-gap prices, shares are trading at a P/E of 195. (That means you’re paying $195 for every $1 of earnings.)

A lot of tech companies have gotten pretty heady in the past. But things have settled to more realistic valuations. META’s P/E is only around 29. MSFT is only 36. Even the big dog in the AI pack — NVDA — is only sporting a P/E of 53.

Broadcom has moved into some lofty valuations.

And while the future may be bright for this newly minted $1 trillion behemoth, investors might do well to exercise some patience when looking at it.

What a week for tech stocks. 

A sci-fi-level technology known as “quantum computing” is fast becoming a reality, and certain stocks in the field have seen explosive gains in the last week.

Quantum computing is based on the science of quantum mechanics — a theory in physics that deals with our world at the subatomic level. And things at the subatomic level operate a little differently than we understand them.

Where bits in the observable world are only 0’s or 1’s, bits in the quantum world (also known as “qubits”) can be 0’s, 1’s or 0’s and 1’s simultaneously.

If that concept makes your head spin, don’t worry about it; you don’t have to completely understand a new technology to potentially make a ton of money investing in it.

You can bet that most early IBM investors didn’t know exactly how its revolutionary, world-changing microprocessor technology worked … but those investors were able to see extraordinary gains as computing took over the world.

This new quantum computing tech has the same world-changing potential (maybe even more) as the microprocessor — and this rapidly developing technology is leading to some exciting opportunities for investors.

Here are three ways to play the trend … plus one bonus “sleeper” play for investors looking for aggressive growth potential.

Quantum Play #1: The 800-Pound Gorilla

For investors interested in doing some more due diligence in the area of quantum computing, here are three places to look for opportunity.

For those looking for the safest play in this up and coming field, look no further than Google (GOOG).

Google has been at the leading edge of quantum computing for years. And recently they just announced a major breakthrough in their technology.

One of the challenges that comes with this new quantum tech is the ability to scale it. Adding more and more qubits to a process increases the number of errors that are likely to occur. (This has been a challenge in the field since 1995.)

It appears that Google has finally designed a breakthrough with its latest quantum processor known as Willow. According to an article in Nature Magazine…

Researchers at Google have built a chip that has enabled them to demonstrate the first ‘below threshold’ quantum calculations — a key milestone in the quest to build quantum computers that are accurate enough to be useful.

“Below threshold” calculations drive the number of errors down, while scaling up the number of qubits processed.

According to a recent blog post by Hartmut Neven, the founder of Google Quantum AI:

Willow performed a standard benchmark computation in under five minutes that would take one of today’s fastest supercomputers 10 septillion (that is, 10²⁵) years — a number that vastly exceeds the age of the Universe.

You read that right. Willow did in five minutes what it would take the most advanced supercomputer today 10,000,000,000,000,000,000,000,000 years to do.

And it did it while reducing the number of errors that occurred.

Needless to say, this is a HUGE breakthrough for Google.

Quantum Play #2: Leveraging Light Waves

For those looking for a more aggressive play, look no further than what’s becoming the hottest quantum stock in the market today… Quantum Computing Inc. (QUBT).

While Google is busy scaling, QCi has been attempting to carve out its own niche in the quantum field using a technology known as thin-film lithium niobate (TFLN) chips that leverage nonlinear quantum optics.

That’s a mouthful, but what it basically means is that QCi’s technology uses light to generate qubits. Where a computer today can only understand bits where a light is on or off, qubits generated from light can act like a dimmer switch. They can be on, off or anything in between. Nonlinear quantum optics is the science that allows their technology to create and work with these qubits.

While the company is relatively small — its market cap is only around $2 billion — it has recently announced multiple orders for their tech.

The first came from an unnamed “prominent research and technology institute based in Asia.”  A week later they announced a second purchase order from the University of Texas at Austin.

And even more recently…

While the specifics of the orders weren’t completely clear in the press releases, the company’s share price exploded over 1,100% in the last month on the news.

Quantum Play #3: The Wild Card

Investors interested in more of a pure quantum play could look into Rigetti Computing (NASDAQ: RGTI).

The California-based quantum computing pioneer had a lot to be thankful for in late November as its stock popped following news that it had raised $100 million in a direct offering.

And that wasn’t the only good news coming out of Rigetti this year. It also announced that it had installed a 24-qubit quantum computer in the UK’s National Quantum Computing Centre.

As of this writing, the company’s stock is up more than 928.85% over the last 6 months, but analysts are mixed as to whether Rigetti is hitting a roof or if the company still has room to grow.

But with $100.5 million in cash reserves, growing partnerships worldwide, and fresh interest in its industry-leading quantum services, Rigetti could make a very compelling investment opportunity for the right investor.

Bonus Play: The Quantum “Sleeper”

Finally, if you’re an investor with a bit more risk appetite looking for an under-the-radar small-cap company that’s targeting a critical area in the quantum field, you might want to investigate Scope Technologies Corp. (OTCQB: SCPCF; CSE: SCPE).

Scope Technologies is a Canadian-based company that has developed, among other things, quantum-proof encryption technology.

This is no small area when it comes to the prospects of quantum computing. The prospect of calculating at quantum speeds offers the potential for amazing benefits. But it also brings with it the potential for enormous threats.

Consider what Google’s Willow chip just did — it performed a benchmark calculation in five minutes that an advanced supercomputer would take 10 septillion years to do.

Now think of that in terms of today’s computer security.

Cybersecurity company Hive Systems created a table estimating how long it would take a sophisticated hacker today to crack passwords of various lengths and complexities…

The bottom right corner shows the strongest password combination would take roughly 26 trillion years to beat.

That’s probably two-and-a-half minutes in Willow’s quantum time.

As the power of quantum computing becomes more and more mainstream, the need for equally powerful cyber defenses will skyrocket.

Streetlight Confidential Senior Editor Tim Collins has put together an in depth research report on the topic that you can access here.

Scope Technologies is a small firm — only about $45 million as of this writing — and, unlike the other stocks listed above, its stock hasn’t seen a ton of upward momentum yet. But the company has great potential in an area that will be more and more critical as this technology evolves.

AI may be the tech darling of the day, the future of tech (and investors’ bottom lines) is shaping up to be in the quantum realm.

Washouts happen.

But ultimately they can be for the good. 

Take Cisco Systems. 

Back during the 90s tech boom, Cisco exploded becoming priced so far ahead of its earnings, that after it got its bubble comeuppance it never regained its previous highs. Still, the company bounced back, grew steadily and in early 2011 began paying a dividend. It went from being a superstar growth stock to a reliable dividend payer.

Cisco Systems (CSCO)

And while the company still hasn’t rebounded all the way to its all-time high, it has experienced a solid bullish trend from its lows. 

Cisco is now a good stock to own.

Today, another of the pandemic darlings may be getting ready to rise from the ashes.

Is Zoom Ready to Boom Again?

Zoom Communications (ZM) — formerly Zoom Video Communications (more on that in a second) — could be repositioning itself to a similar end. 

During its pandemic heyday, it was adopted as a major growth stock — a company with massive growth potential. It traded from an IPO value of around $63 to a staggering $550-plus in a matter of months.

A little too far out over its skis, the company crashed back to reality. 

These days, however, the company has been performing well financially. Its most recent earnings report saw the company beat estimates on both earnings per share ($1.38 vs. $1.31 estimated) and revenue ($1.18 billion vs. $1.16 billion).

Its bottom line numbers also showed some significant improvement as well: $207.1 million up from $141.2 million in the same quarter a year earlier. 

Surprisingly, the stock sold off on the news.

But the company recently announced a major shift in its business direction. It dropped the word “Video” from its company name to signal its expansion into the field of AI.

In reaction, the company is introducing a number of artificial intelligence (AI) features. It recently unveiled its AI-first Work Platform designed to help enhance interaction and productivity through AI tools. This includes its Zoom AI Companion 2.0, an AI assistant that can perform tasks such as summarizing conversations, identifying action items, and helping compose messages.

And the company has plans to introduce more AI-driven features, designed to target specific industries.

Leveraging AI functionality in their software could be a critical move in an age of exponentially growing digital data. 

Zoom Communications (ZM)

While it may never see its lofty all-time highs again, Zoom could be rebuilding for a Cisco-style comeback. 

And it may now be a stock worth watching…