Market Report: Walgreen: Punished Enough, It's Time to Buy

On Monday, Walgreen (WAG) posted worse-than-expected Q4 earnings, thanks to higher expenses and lower reimbursements for generic drugs. Profits were down 3.8% to $396.5 million. Sales were up 9.8% to $13.4 billion from $12.2 billion.

Because of that, the stock fell from $48 to $30. But, with 5,500 retail locations and years of consecutive record earnings, WAG is still a strong company… just unfairly beaten.

But how do you know where the bottom of the latest plunge is?

WAG hit nothing more than an earnings bump. Unfortunately, we’re now seeing the infamous “pile on” downgrade effect from the banks, which should pass in another day or two. When banks begin to kick a downed company, you look for entry.

Also, WAG is fundamentally strong, sitting at two-year support at $40 with a hammer reversal signal at the bottom of trend. Should $40 hold, we’ll see a refilled gap in three to six months, worst-case scenario. Profit disappointments aside, foot traffic at WAG is strong. Same-store sales were up 6.3%.

We’re beginning to see signs of a coming reversal using Black Sheep Trader methodology. MACD (12, 26) has already crossed north of the MACD (9). We now need confirmation of trend with a DMI+ crossover of the DMI-.

Buyers on recent WAG weakness will be rewarded.

Ian L. Cooper
Black Sheep Trader