Walgreens vs. Rite Aid: Which is the Better Bet?

When it comes to buying stocks, everyone wants to pick a winner. But when investors are faced with two very similar stocks for competing companies in the same market it can be challenging to choose the best one.

The drug store market has seen several companies perform well on Wall Street but two of the industry leaders, the Walgreen Company WAG and Rite Aid Corporation RAD, have proven themselves to be particularly strong over the last several years. But if you could only choose one of them to add to your portfolio, how do you determine which one it should be? 

Both Rite Aid and Walgreens are major players in the drug store market. In fact, they are leading the industry in just about every conceivable category. Sales and stock performance for both are very strong, and there seems to be no end in sight for their success. With the ever-increasing need for prescription drugs and other health products among the enormous baby boomer generation, business for these companies is likely to remain vibrant for the foreseeable future. But choosing the better stock means taking a closer look at each company.

RiteAid has 4,600 stores spread out over 31 states in the U.S. -- with a good number of outlets on the lucrative east and west coasts. It is the third-largest drug store chain the country and the largest on the East Coast. The company recently began offering more private label products, which inherently have much higher margins, and has also begun offering guaranteed 15-minute prescriptions. These kinds of proactive maneuvers are sure to be helpful in maintaining strong stock performance. There are, however, some concerns among analysts about Rite Aid's ability to remain competitive in the market, particularly because of its rather sizable long-term debt of nearly $6 billion -- which accounts for full 130 percent of the company's assets. Rite Aid also has more than $5 billion in off-balance sheet debt, which obviously doesn't help its cause.

Then there is Walgreens, which in the enviable position of being the largest drug store chain in the United States. The company reported $72 billion in sales in 2012 and its more than 8,100 stores can be found in every state in the union as well as D.C. and Puerto Rico. Same-store sales in August of 2013 were up nearly 5 percent, which was almost 3 percent higher than analysts had predicted. However, the company also saw same-store traffic drop 1.5 percent and fell short of its fourth-quarter sales expectation of $17.99 billion.

Overall in 2013, Rite Aid has seen its stock do nothing but rise -- as it has gone from barely $2.00 in mid-March to $5.76 in mid-December. Walgreens, on the other hand, has seen its stock price go from just over $47.00 in mid-March to $57.14 in mid-December. At the end of the day the future looks bright for both of these companies -- but while Rite Aid may be a bit of a risk, it also has a higher potential payoff. Walgreens is an all-around safe investment, especially for investors who may be a little more on the conservative side. But which ultimately is the best pick for your portfolio is up to you.