Pick up the gift the market is sending you

Have you heard tax inversion? If you know the saga Pfizer was playing recently in trying to buy the UK company AstraZenec, then you should know what it is. In a nutshell, a large US-based company buys up a small foreign company located in a country with lower corporate tax. Then the US company moves its tax headquarter (on paper) to that country but maintain its operations still in the US. Without practically changing anything, suddenly the US company becomes a foreign company and pay much less corporate tax. This is a tax loophole but perfectly legal and makes a lot of sense business-wise, although in the eyes of the US government, this is very unpatriotic.

 Walgreens (WAG) started its buying process for a UK-based company, Alliance Boots. The Wall Street has always expected that WAG would for sure to go with the inversion to lower its tax. But last Wed, WAG announced that it would not pursue an inversion. I’m there are a lot reasons for them to make this decision but this unexpected decision definitely got the market off the guard. WAG was severely punished and its share price got a haircut with a 14% plunge. Well, this is to me a classic overreaction we have seen so many times by now. I take this as a gift the market is sending you. You see, the underlying business for WAG has not changed in any way. It is still a great healthcare company that will continue to thrive along with the aging population and increasing costs on medications. Walgreens is a high-quality company I have been watching for long time. It is very investor-friendly by paying increasing dividends and buying back shares for years. I don’t see this trend will change any time soon. I won’t pass this gift sent my way for free. I have not only bought WAG for myself, I also bought some for my son's portfolio.