Walgreen Company (NYSE: WAG) is quickly becoming a fundamentalist favorite with its attractive valuation and strong growth amid the economic slowdown. Shares in the drugstore chain had been shot down from their highs of $49.10 to around $32.50 before rebounding to the $35.43 level today. Many analysts believe that the company may be able to sidestep most of the economic turmoil facing other retailers, but the fact that it resides in the category means it will be available on the cheap. So, should you look at adding Walgreens to your portfolio?

Walgreens is currently trading at just 17.5x earnings with a PEG of around 1.17, which is among the lowest valuations in its industry. Meanwhile, the company beats its competition with better gross and operating margins than the industry by around 2-3 percent on both sides. Notably, the company has also had an earnings surprise for three out of the last four quarters, which is what really matters for shareholders. And finally, the drugstore’s balance sheet is also well capitalized with low debt and extra cash.

Walgreens recently reported strong sales in January, which relieved many investors worried about decreased consumer spending. The company noted that same-store sales (the key measure in retail) were up 3.8% while total sales increased 9.6% for the month. Walgreens has recently been trying to increase its sales by adding more high value products and services with its DHL partnership and ink cartridge refilling initiatives. Investors can expect more strong growth from the company going forward.

Walgreens also announced that it opened 39 new stores in January, including two relocations and four closed stores. Management has stated in the past that they are committed to an 8% annual store growth rate in 2008 with 550 new stores opening. More, they expect to open around 600 new stores in 2009 and continue until reaching their U.S. plateau of 13,000 stores. Meanwhile, the company has been expanding abroad after they announced a purchase of 20 Puerto Rico stores. These increases all point to a faster growth story.

In the end, Walgreens is a quickly growing company that appears to be trading at a relatively cheap level thanks to a slowdown in the retail sector. The specialty pharmaceutical retailer segment continues to grow at a solid rate and investors should consider picking up shares while they are cheap. Combined, these factors make WAG a stock worth watching!

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