"Walgreen (WAG) a holding on our recommended buy list, reported a 10% increase in its fiscal second-quarter profit," notes Geoffrey Seiler.

The editor of BullMarket.com explains, "Although investors hammered the stock, we think the company delivered solid sales growth. We continue to believe the best is yet to come for Walgreen, with several notable catalysts in the wings.

With a name like Drugstore.com (DSCM), there is little doubt what the company does. Unfortunately, the stock price has been miserable since the dot-com bust. All in all, it has remained in the low single digits. Then again, the company has had to deal with tough rivals, like Amazon.com (AMZN).

But Thursday, investors got a nice surprise. Walgreen (WAG) has agreed to buy Drugstore.com for $429 million. In early trading, DSCM was up a whopping 112% to $3.79.

Walgreen (WAG), Dollar General (DG) and Express (EXPR) all reported higher quarterly profits Tuesday morning, with Dollar General and Express both beating Wall Street consensus earnings estimates. With news like this, it may be beneficial for an investor to take a closer look at the retail sector.

Granted, Walgreen did not impress Wall Street, and shares fell more than 7%. Express and Dollar General, however, are reaping the benefits with Express trading up over 5% and Dollar General enjoying a 3% upswing. Both companies opened trading up in the markets Tuesday.

If we told you that the largest pharmacies chains in the U.S., CVS Caremark (CVS) and Walgreens (WAG), planned to sell more groceries and produce, would you believe us? If so, you would be right. CVS Caremark plans to double the size of its food section and revamp about 20% of its 7,000 stores to better cater to groceries and quick check outs, and Walgreens started to satiate its appetite for the nation's trillion-dollar food budget by announcing last year that it would add up to 500 food items including salads, sandwiches, frozen meats, soups, juices, yogurts and even sushi to its offering.

How Do Consumers Benefit?

CVS Caremark (CVS), a drugstore chain that competes with Rite Aid (RAD) and Walgreen (WAG), reported earnings for the fourth quarter on Thursday. The market wasn't taken by them. Looking at the extreme right side of the chart, it can be seen that the stock came under some pressure after the release. This afternoon, the shares are under further pressure: at the time of this writing, they were off by 1.1% to $32.55, with heavy volume backing the trade.

Does it sound like the company missed the estimate attached to it? No, that wasn't the problem. According to the Associated Press, adjusted profit came in at 80 cents per share, one penny ahead of the prediction.

Analyst Upgrades

• Electronic Arts (ERTS) to overweight from neutral at Piper Jaffray.
• Helix Energy (HLX) to overweight from equal weight at Morgan Stanley.
• Quest Software (QSFT) to neutral from sell at Goldman.
• LTX-Credence (LTXC) to buy from hold at Needham.
• Anadarko (APC) to buy from hold at Canaccord.
• Walgreen (WAG) to hold from sell at Citigroup.
• Pericom (PSEM) to buy from hold at ThinkEquity.

Analyst Upgrades

• Polo Ralph Lauren (RL) to buy from hold at Citigroup.
• Qualcomm (QCOM) to buy from neutral at Roth Capital.
• Walgreen (WAG) to conviction buy from neutral at Goldman.
• Rockwell (ROK) to outperform from neutral at Credit Suisse.
• Carnival (CCL) to buy from hold at Deutsche Bank.
• SunTrust (STI) and TD Bank (TD) to outperform from market perform at Keefe Bruyette.
• Hawaiian Electric (HE) to outperform from neutral at RW Baird.
• Essex Property Trust (ESS) to outperform from neutral at Macquarie.
• Amgen (AMGN) to neutral from underperform at BofA/Merrill.

Walgreen (WAG) is having a merry Christmas. The stock closed on Thursday at $39.19. The 52-week high for the shares is $40.20. Pretty cool for those who own this name. Something even cooler: the drugstore chain issued a solid fiscal first-quarter report earlier in the week.

The press release begins with three bragging bullet points: the top line gained 6% and came in at $17.3 billion; gross margin expanded by 80 basis points; operating cash flow was $1.2 billion. Nice, but in terms of the latter point, it should be noted that cash from operations was essentially flat compared to last year's number. That's okay, though, it's still respectable.

Walgreen (WAG) is expected to report Q1 EPS on December 22. January and February put option implied volatility of 27 is near its 26-week average, according to Track Data, suggesting non-directional price movement.

Massey Energy's (MEE) board is considering several bids for the company, reports the Wall Street Journal. Overall option implied volatility of 36 is below its 26-week average of 51, according to Track Data, suggesting decreasing price movement.

Options Update is by Stock Specialist Paul Foster of theflyonthewall.com.

Analyst Upgrades

• Amgen (AMGN) to overweight from neutral at Piper Jaffray.
• Goodrich Petroleum (GDP) to outperform from market perform at Wells Fargo.
• Tutor Perini (TPC) to buy from neutral at UBS.
• Covidien (COV) to buy from neutral at Goldman.
• Sara Lee (SLE) and Comcast (CMCSA) to outperform from market perform at Bernstein.
• Research In Motion (RIMM) to outperform from sector perform at FBN Securities.