Walgreen (WAG): Get this great defensive play cheap

It's a slow week on Wall Street. But after the year we've had (for a great read, check out Markets Gone Wild: 10 Craziest Days on Wall Street in 2008), that's a welcome change.

However, there are some individual stories worth noting. One in particular that caught my eye was the action in Walgreen Co. (NYSE: WAG).

Before the opening bell on Monday, the giant drug store announced earnings that missed expectations.

Investors were not pleased and shared immediately sold off. By the end of the day, shares had shed another dollar of value. The bleeding continued on Tuesday with another dollar lost. Shares closed Wednesday at just over $24.

While it may have been a good week to announce negative news, WAG could not escape the wrath of the sell-first-ask-questions-later crowd.

Does this make any sense?

Not to me.

Walgreen announced that it made $408 million, or 41 cents per share, in its first quarter of fiscal year 2009, ending Nov. 30. Analysts were expecting 46 cents per share.

The miss continues a trend of slower profit growth for what had been one of the more consistent companies in the S&P 500 index.

I guess that explains the disappointment over the earnings miss, but I find the reaction a bit ridiculous.

The economy is in a world of hurt, so it should have been no surprise that even a dependable earnings machine like WAG would have trouble.

The sell-off is your opportunity, in my opinion. There are plenty of great long-term reasons to own the stock.

For starters, in a poor economic environment, WAG can be counted as a defensive play. That status does not change due to a 5-cent miss on earnings.

The company is profitable and has a solid balance sheet with $400 million in cash and just over $1 billion of debt. They pay a nice dividend of just under 2% that investors should be able to count on while we wait for the economy to find its footing.

Like every other stock in the market, WAG has seen its share price drop during the last year. That said, the stock has fared better than some, having only lost about 38% of its value.

With many questions remaining about the economy, I would much prefer owning WAG than some other names with greater risk.

The company did announce that it was reducing store openings for the coming year, focusing on cutting costs and redesigning stores in order to increase grocery items for busy shoppers.

The later strategy makes a lot of sense if you think about what is working for other retailers, like Wal-Mart (NYSE: WMT), or gasoline convenience stores like Casey's General Store (NASDAQ: CASY).

Filling a prescription is no different than filling the gas tank. If a customer can pick up a gallon of milk and some other items while waiting for a prescription to be filled, WAG will benefit by offering more choices.

WAG makes a ton of sense as a defensive play, and I would consider it a buy.

Jamie Dlugosch is a contributor to OptionsZone.com.