The company is probably one of the best managed retailers in the world. WAG's consistency is amazing. Last quarter, the company grew revenues by 14.6% and earnings per share by 24.5%. Earnings have risen faster than sales because of the increasing use of generic drugs, which carry higher margins than name brand drugs. For those of you who don't have a conveniently-located, open-24-hours Walgreen located in your town, WAG is the largest national retail pharmacy chain in terms of revenue and profitability. While CVS has more stores, Walgreen's same store sales have grown faster than CVS', indicating that WAG is taking market share. At present, the company operates 5,461 stores in 48 states and Puerto Rico. The company has plans to operate more than 7,000 stores in 2010. Despite the rapid expansion, the company still generates a large amount of free cash flow, which it uses to buy back stock. WAG announced a new stock repurchase program of up to $1 billion, which the company plans to execute over the next four years. In November 2006, Walgreens completed a $1 billion repurchase program that was announced in July 2004. The balance sheet has no debt, although from time to time, inventory levels do rise a bit.

The laundry list of problems affecting Wal-Mart are well known. From worker's compensation, to non-organic organic food, to dirty stores, to problems in Germany, to high gas prices, it seems that Wal-Mart has been on a bad run for over five years now. And the stock and valuation reflects that. But if you step back for a moment and look at the company's fundamentals, they are pretty good. In fact, for the world's largest retailer, they are outstanding. The company has grown earnings at over 10% for the past seven years. Since 2000, annual net income has gone from $5.5 billion to $12.2 billion. To put that in perspective, Wal-mart's yearly NET INCOME GROWTH ($1 billion last year) is larger than most retailer's TOTAL REVENUES. Even in the US, where the company has "struggled," revenues have grown faster than the overall retail industry and faster than those of its major competitors. That's why I think most long term investors should be adding to Wal-mart on every dip. Sure the company is huge and can't sustain it's historical growth. But 10% total growth and 30% international growth is unbelievable for a company Wal-mart's size. If Wal-mart executes as well internationally as it has in the US, then the stock will move higher. The main driver of growth for Wal-Mart will be the international division. Wal-Mart’s International sales last quarter were $22.7 billion, up 29.6% y/y. This sales increase included the impact of WMT’s acquisition in southern Brazil and the consolidation of Seiyu and Wal-Mart Central America. The strongest sales performances in the quarter came from Mexico, Brazil, China, and Argentina. Operating income for international stores was an even better $1.513 billion, up 32% from last year. More importantly, the company is showing improving operating leverage in its new markets. It seems to me that the negatives have been well documented and discounted by the market. This gives long-term investors an opportunity to buy one of the world's largest and best run companies at a discount to its historical valuation. If the stock can break out of its seven year funk, I think it can make up for the lackluster performance in a hurry.

Total revenues in the company's fiscal second quarter were up 13.8% and earnings were up 16.2%. Demand for both payroll and benefit services remains strong within the small business market, as evidenced by PAYX’s reported and forecast growth. The company recently added human resource services outsourcing (HRO) services which include retirement services administration, workers’ compensation administration, employee benefit solutions, and other administrative services for businesses. Revenues and earnings in these new divisions grew at 23.7%, much faster than the company's core payroll service, which grew 9.4% last quarter. The market still provides ample opportunity for PAYX to grow its core payroll business, which makes up about 75% of the company’s total revenue. Only 30% of small companies outsource their payroll administration. In addition, PAYX is just beginning to get traction in the larger human resources outsourcing market, where growth has been 20.0% for several years. As smaller businesses are more aware of the ability to outsource more than just their payroll, and companies like PAYX create solutions that are tailored and priced for the small business market, the demand for other outsourcing services should remain as strong as it is, if not stronger. With roughly $1.06 billion in cash and no debt, the company can raise its dividend, buy back stock, or make acquisitions. In fact, PAYX increased its quarterly dividend by 31.0% during the quarter to $0.84, which creates a current dividend yield of 2.1%. While the stock is still not cheap, trading at 24x estimated earnings, it is trading at the lowest valuation in over 15 years. If the company's human resources division continues to grow above 20% and becomes a more significant part of PAYX's total business, the current valuation is not that far out of line. In fact, at the bottom of the stock's seven year trading range (the low $30s), the valuation would be considered down right attractive. All in all, PAYX is a high quality stock that's worth accumulating on dips despite the fact that it hasn't gone anywhere in a long time.

The largest bank in the US is about to enter a battle royal between management and activist shareholders. And I believe the battle will break the shares out of their seven year slumber. Edward Lampert's hedge fund, ESL, recently built its position in Citigroup (C) to over 3%. Lampert probably isn't buying $800 million of Citigroup shares to be a passive investor. I believe investors have been overly influenced by the negative press surrounding Citigroup. The company has actually increased earnings by 55% and book value by 80% since 2000. Citigroup's above average capital generation enables it to support growth and return capital to shareholders through buybacks. And Citigroup's return on equity has been around 18%, which is above the average diversified financial conglomerates. All in all, Citigroup's stock has actually performed in line with its peers since 2003 and in the middle of the group since 2000.

Despite growing earnings at over 25%, Amgen's (AMGN) stock has been in an anemic trading range between $80 and $50 for the majority of the past seven years. The company's stock is beset by many of the same problems affecting the drug giant Pfizer (PFE). Amgen's core franchise is under attack from competitors, Medicare is lowering reimbursement rates for its drugs, and the strong pipeline may not make up for the decline in several blockbusters. I believe investors are currently over estimating the probably of an earnings decline, which is making the stock cheap. Given my base case of flat earnings at around $4.10 and applying a market multiple of 17x trailing earnings, the stock looks undervalued. In fact, every time in the past 15 years when AMGN has traded below a market multiple, it's presented an excellent buying opportunity for long term investors. Although the outlook for Epogen/Aranesp looks bleak, I believe the majority of the bad news has already been priced into the stock.

Medtronic is an exceptionally well managed company. Unlike rival Boston Scientific's Guidant unit (BSX), Medtronic has had relatively few recalls for its devices. In addition, Medtronic invests more in research than any other pure-play medical technology company. The company has a robust product pipeline targeted at many under-penetrated markets. In the next 12 months, the company is expected to win FDA approvals for its drug-eluting stent Endeavor, the hemodynamic monitor Chronicle, and for its three artificial spinal discs (Prestige ST, Bryan and Maverick). The strong operating performance is matched by its financial performance. Medtronic generates consistent cash flow and has a strong balance sheet. Over the past five years, the company has generated an average of $1.9 billion in free cash flow per year. On top of that, the company already has $6.3 billion in cash and investments versus roughly $5.9 billion in long term debt. Year to date the company has repurchased approximately 10 million shares for a total cost of over $400 million. However, the slow recovery in the Implantable Cardioverter Defibrillator market and the slowdown in the drug eluding stent market have eclipsed the potential upside from other divisions of the company. MDT recently lowered the upper end of its revenue guidance, which reflects the company’s slower-than-expected recovery in the ICD market. And in part due to the ongoing disruptions in the emergency response systems business, the company withdrew its FY08 guidance. New products, easier comps, an eventual pick-up in ICDs should all lead to accelerating growth. Medicare recently expanded reimbursement for ICDs and Medtronic will introduce several new products which should allow that division to return to growth. The artificial spinal discs are expected to be important growth drivers for Medtronic’s overall spine franchise in the long term. And international sales remain an untapped market for growth. Medtronic's valuation looks attractive, especially compared to its historical valuation range. While the estimated price to free cash flow multiple of about 28x will turn off hard-core value investors, the price to earnings estimate of 20x hasn't been lower in the past 12 years. If investors believe in management's initiatives, the stock could be considered attractively valued at these levels.

CDW (CDWD) is a distributor of name brand computer hardware and software to small and medium sized businesses. The company differentiates itself from competitors by offering a high level of customer service. The company has over 2,100 account managers, many of whom are certified technical sales specialists who can help customers solve their technology issues. The sales force is well trained, the company stocks over 120,000 products and the company offers overnight shipping all in an effort to provide high levels of service and support. CDW is an exceptionally well-managed company in all respects. One of the things that makes CDW really unique for a technology distributor is that it actually generates significant and consistent free cash flow. Most technology distributors such as Ingram Micro (IM) and Scan Source (SCSC) don't generate much cash flow, and if they do, it's very volatile and difficult to forecast. However, CDW has been generating an average $181 MN yearly free cash flow since 2000. In addition to the strong cash flow, the company has posted very high returns on equity, which have averaged well above 25%. growth has recently picked up which is driving the shares higher. The most recent quarter, in which revenues grew 17% and EPS grew 27%, continued the pace of acceleration which began in the middle of last year. In addition, CDW finally showed some gross margin expansion. The company raised its gross margins estimates which should help earnings grow faster than sales. One of the main knocks against the company is its inability to get earnings leverage. However, with the majority of the company's investments behind it, I believe margins can begin expanding. The strong growth has reignited the shares but the stock is still attractively valued. I believe that EPS can approach $5.00 in 2009. CDWC has traded at a median 21x forward earnings multiple. Therefore, I believe CDWC can trade over $100 by next year. In addition, CDWC is trading at the low end of its historical price to sales multiples. If you assume CDWC trades at its median price to sales multiple of 1.1x, then the stock should be valued above $100 in 2008, as well.