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.

The last trading day of 2010 seems to indicate that traders are committed to maintaining the solid gains of the past year. Volume was light with fewer than 1 billion shares traded by early afternoon. Oil prices pushed back to over $91/barrel, and gold has also risen more than 1%, to around $1,420/ounce. The dollar gained a bit of strength to the euro, but continues its slide against the Japanese yen.

Here are the numbers for late afternoon trading today:

Dow Jones 11,577.51 +7.80 (0.07%)
S&P 500 1,257.64 -0.24 (-0.02%)
Nasdaq 2,652.87 -10.11 (-0.38%)

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.

It will be a busy week. Republicans are poised to gain control of the House of Representatives and gain governorships in Tuesday's mid-term elections. Also, the Federal Reserve is expected to announce another round of quantitative easing Wednesday, following the FOMC meeting. Major retailers are scheduled to report October same-store sales Thursday, while the October unemployment rate, announced on Friday, is expected to remain at 9.6%.

Toyota's (TM) fiscal second-quarter results will be one of the highlights on the earnings front this week. After three periods of way underestimating Toyota's earnings, have the analysts surveyed by Thomson Reuters got it right this time? The stock sure could use a boost. Teva Pharmaceuticals (TEVA) is in a similar situation; i.e., high expectations for this week's quarterly results but a stock in need of a boost. Marathon (MRO) and Starbucks (SBUX) are also expected to post strong earnings growth this week, but both stocks are riding high.

Analyst Upgrades

• Verisk (VRSK) was upgraded to outperform from market perform at Wells Fargo.
• Marriott (MAR) was upgraded to outperform from market perform at Bernstein.
• Jefferies upgraded Teekay (TK) and Tsakos Energy (TNP) to Buy from Hold.
• Cadence Design (CDNS) was upgraded to sector perform from underperform at RBC Capital.
• BofA/Merrill upgraded NV Energy (NVE) to buy from underperform and Education Realty Trust (EDR) to neutral from underperform.
• Men's Wearhouse (MW) was upgraded to buy from hold at Stifel.
• William Blair upgraded Atheros (ATHR) to outperform from market perform.
• Freeport McMoran (FCX) was upgraded to buy from hold at Argus.

I never would have predicted such a bullish reaction. As I write this, Walgreen (WAG) is up over 12% to $34.04 on the back of an earnings report. With one hour to go before the market closes, volume is huge.

Those of you who bought prior to the report could not have possibly expected this. It represents a big departure from the last time the drugstore posted results. Back in June, shareholders were disappointed with their investment since Wall Street thought the stock should be sold off on the data. It's like night and day this afternoon.

Walgreen Co. (WAG), which recently began carrying fresh fruit and vegetables in some of its stores, is scheduled to discuss its fourth-quarter fiscal 2010 financial results Tuesday, September 28, in a conference call beginning at 8:30 AM (ET). You can catch a live webcast of the call at the company's website.

During the three months that ended in August, Deerefield, Ill.-based Walgreen launched a social responsibility website and boosted its dividend. Analysts surveyed by Thomson Reuters are looking for the drugstore chain operator to report that its earnings for that period were about the same as a year ago, or 44 cents per share. Revenue is expected to total $16.8 billion, which is a 7.3% increase from the same period of last year. And for the full year, analysts forecast EPS of $2.12 (+4.7%) on revenue of $67.4 billion (+6.4%).

One of the most prominent quarterly reports scheduled this week, as the quarter winds down, comes from Walgreen (WAG). Analysts surveyed by Thomson Reuters are looking for the drugstore chain operator to report Tuesday that its fiscal fourth-quarter earnings were about the same as a year ago, or 45 cents per share. Note, though, that Walgreen fell short of earnings expectations in the previous two quarters.

During the three months that ended in August, Deerefield, Ill.-based Walgreen launched a social responsibility website and boosted its dividend. Revenue for that period is expected to total $16.8 billion, which is a 7.3% increase from the same period of last year. And for the full year, analysts forecast EPS of $2.12 (+4.7%) on revenue of $67.4 billion (+6.4%).

Rite Aid's (RAD) sell-off Thursday was almost comical. Sometimes you've just got to laugh when a stock that's trading around a dollar suddenly drops over 13%. That's exactly what the drugstore's shares did by the end of the day's regular session. It finished at a quote of 95 cents. And, as you might expect, volume was pretty significant.

Who buys a stock like this? Clearly, someone braver than me. Adding this one to a portfolio is basically no different than playing the slots in Vegas. The one-year chart hasn't changed much since I discussed the company back in June; it still tells a tale of volatility and downward momentum. It's not a ride I'm willing to take.

I'm going to offer up brief opinions on some of the events from the past trading week. Maybe you had your eye on one or two of them as well.

Playboy (PLA) reported a net loss in its second quarter. The red ink came out to 16 cents per share this time around; last year, the loss was 26 cents per share. You know what? It doesn't really matter if management was able to narrow the bleeding. Playboy is purely an arbitrage play now, with Hugh Hefner making a bid to take control of the business (a competing bid has been made by FriendFinder, which owns Penthouse). I would avoid making a buy here, since the arbitrage game can be a difficult one to win.

Analyst Upgrades

• BofA/Merrill upgraded ConocoPhillips (COP) to neutral from underperform following the better-than-expected Q2 report. The firm has a $61 price target on shares.
• Deutsche Bank upgraded Citrix Systems (CTXS) to buy from hold following the company's Q2 results and raised its target for shares to $65 from $45. Shares were also upgraded to neutral from underperform at Cowen following the better-than-expected Q2 report.
• Macquarie upgraded Arch Coal (ACI) to outperform from underperform and raised its price target to $29 from $23. The firm expects PRB priced to move higher given increased domestic and export demand combined with supply shortfalls.
• Boeing (BA) was upgraded to hold from sell at Societe Generale.
• Equinix (EQIX) was upgraded to outperform from perform at Oppenheimer.
• Williams-Sonoma (WSM) was upgraded to equal weight from underweight at Barclays.