Q. I'm a long-time holder of Walgreen Co. stock and would like to know what the future holds.—P.G., via the Internet

A. The largest U.S. drugstore chain by store count faces a future of intense competition from discount retailers, mail-order pharmacies and rival drug store chains.

There is also the uncertain economy to contend with, in which people tend to reduce their doctor visits. The company generates about two-thirds of its sales from prescription drugs.

Nonetheless, Walgreen will face these challenges with strong brand recognition, 8,065 drug stores in the U.S. and Puerto Rico, and a network of worksite health centers and in-store health clinics.

It has benefited from an increase in influenza vaccinations this year, even offering flu-shot gift cards to expand that profit center and increase the store traffic that accompanies it. It completed its acquisition of the New York-based Duane Reade drugstore chain last spring and bought 18 ApothecaryRx pharmacies from Graymark Healthcare Inc. this fall.

Shares of Walgreen (WAG) are down 8 percent this year following last year's 49 percent gain. Profits rose 8 percent in its fiscal fourth quarter on increased prescription drug sales and successful promotions of non-pharmacy items such as packaged foods, greeting cards, photofinishing, and household and personal-care products.

Walgreen has a reputation for thinking about its shareholders. The company, which has raised its dividend for 35 consecutive years, recently boosted the dividend by 27 percent. With a $2 billion share buyback completed, its board approved a new $1 billion buyback plan.

An investor's consideration of Walgreen stock requires weighing those significant competitive pressures against the company's proven long-term strengths and ability to adapt to changing conditions.

Consensus rating on Walgreen shares is "buy," according to Thomson Reuters, consisting of six "strong buys," seven "buys," 10 "holds," one "underperform" and one "sell."

The company has lately focused on cost cutting, expansion of its health-care service offerings and renovations of stores that includes installation of lower shelves and more-focused inventory. It plans considerable store expansion, based in part upon an aging population and the likelihood of increased health care spending.

Walgreen, already the largest provider of home-infusion services delivering intravenous medications, is acquiring Omnicare Inc.'s home-infusion business in exchange for its own long-term care pharmacy operation. In addition, the firm is seeking a buyer for its pharmacy benefits management business.

Earnings are expected to increase 16 percent this year and 15 percent next year. The expected five-year annualized return is 13 percent versus 15 percent forecast for the drugstore industry.

Q. I would like to invest in emerging markets for the first time, since that seems to be where the growth is, and wonder if Oppenheimer Developing Markets Fund would be a good choice.—B.K., via the Internet

A. If you're a first-time investor in emerging markets, be prepared for some significant fluctuations. You're basically betting that some incredibly strong rallies will make up for any lackluster periods or sharp declines.

Holding 111 different stock names, this fund is banking on consumer strength and a growing middle class in rising countries. That's a great idea but means the fund should be a smaller portion of your personal holdings, not a mainstay, because growth will not occur in an upward straight line.

The $18 billion Oppenheimer Developing Markets Fund (ODMAX) is up 22 percent over the past 12 months and has a three-year annualized return of 4 percent, both results ranking in the top one-tenth of emerging markets funds.

"We think very highly of this fund and like what we see from manager Justin Levernez, who took over the fund in May 2007," said Karin Anderson, mutual fund analyst with Morningstar Inc. in Chicago.

"There was a smooth transition, which is important because it is the kind of fund that can be pretty volatile."

Oppenheimer Developing Markets Fund is theme-driven, with little consideration of sector or regional benchmarks. Brazil and India are its largest country concentrations.

Nearly half of its holdings are in Asia; more than one-fourth in Latin America and the rest mostly in the U.K. and Western Europe. The portfolio turnover has been around 50 percent, which is low for its category.

Financial services is the largest industry concentration, followed by industrial materials, telecommunications and energy. The largest stock holdings are India's Infosys Technologies Ltd., Mexico's America Movil S.A.B., Brazil's Petroleo Brasileiro Sa Petrobras, Taiwan's Mediatek Inc., India's HDFC Bank Ltd., South Korea's Nhn Corp., Russia's Magnit-Open Joint Stock Co., the U.K.'s SABMiller Plc, Brazil's Natura Cosmeticos S.A. and China's CNOOC Ltd.

This 5.75 percent "load" fund requires a $1,000 minimum initial investment and has an annual expense ratio of 1.43 percent, which is low for an emerging markets fund.

Q. How do you figure the percentage yield of a stock? I see this mentioned frequently.—K.C., via the Internet

A. Be careful about chasing yields, since there are a number of factors to consider.

A stock's yield, which represents its return on investment, is the amount of its dividend paid over the past 12 months divided by the current stock price.

For example, if a company has paid 25 cents per share each quarter for the past four quarters and the stock price is $10 a share, there is a 10 percent dividend yield. If it was a $20 stock, that would be a 5 percent dividend yield.

"An investor must also ask what the company is likely to pay out over the next 12 months," cautioned Tom Winmill, portfolio manager of the Midas Fund (MIDSX) in New York. "You must look at how much money the company earns because it can't pay out more than it earns."

A solid company will not pay out more than 50 percent of its cash in the form of dividends because it needs to set aside money for capital projects that allow it to stay competitive, he concluded.

Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, 555 N. Central Ave., Suite 302, Phoenix, Ariz. 85004-1248, or by e-mail at andrewinv@aol.com

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