Fidelity Magellan Fund
sold its stake in Rite Aid Corp. and raised its holdings in CVS
Corp., a rival drug store chain.
Bob Stansky, the portfolio manager at Boston-based Magellan,
bought about 4 million CVS shares between the beginning of April
and the end of September, increasing the fund’s total holdings to
12 million shares, according to filings with the Securities and
Exchange Commission. During the same time, Stansky sold all 8.6
million Rite Aid shares held by Magellan.
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The Magellan transactions may offer guidance to investors in
the retail drug business. The two chains compete in the eastern
U.S. and follow different business strategies, analysts say.
“CVS is still growing its business and Rite Aid is trying
to chop costs out of its business and preserve cash,” said Mark
Husson, a drug store analyst at Merrill Lynch & Co. who says he
doesn’t hold stock in either company. “We would rather own CVS
than Rite Aid.”
Rite Aid, a Camp Hill, Pennsylvania, chain of about 3,400
stores, has been struggling to dig out from $3.4 billion in long-
term debt and an accounting scandal that occurred under previous
management.
CVS, a Woonsocket, Rhode Island, company with more than 4,000
stores, has steadied after suffering problems last year that
ranged from a shortage of pharmacists to a lack of execution,
analysts said.
Rival Stores
The two companies compete for customers in many East Coast
states, Husson said. About 48 percent of Rite Aid stores overlap
with CVS stores, he said.
“CVS is showing considerably more stability than they had
after last year,” said Meredith Adler, an analyst at Lehman
Brothers Holdings Inc. who doesn’t hold shares in either company.
“Rite Aid has made improvements in their business. Their biggest
issue is that they are very leveraged.”
Rite Aid shares were unchanged at $1.95 at 3:07 p.m. in
composite trading on the New York Stock Exchange and are down 61
percent so far this year. CVS shares declined 94 cents to $26.16
at 3:06 p.m. in Big Board trading, leaving the stock down 12
percent so far this year.
Sarah Friedell, a spokeswoman for Fidelity Investments, said
the organization doesn’t comment on the holdings of its mutual
funds.
Neither Rite Aid nor CVS stock has been a major holding at
Fidelity Magellan, one of the nation’s largest actively managed
mutual funds with $58 billion of net assets as of Oct. 31.
Stansky’s moves are still followed because he seldom trades
stocks. Magellan’s portfolio turnover rate was just 23 percent on
an annualized basis for the six months ended Sept. 30.
Bloomerg News
