Rite Aid (NYSE: RAD), which competes with Walgreen (NYSE: WAG), CVS Caremark (NYSE: CVS), and Wal-Mart (NYSE: WMT), saw a big increase in volume on Wednesday after it reported earnings for the first quarter. In fact, as Douglas McIntyre observed, shares of Rite Aid were up 5% at one point during yesterday's session. However, the shares ended up losing their green status by the close of trading. Rite Aid actually lost 3% when all was said and done. What does it all mean?

Well, Rite Aid did beat analyst forecasts by a wide margin. The call was for a loss of 13 cents per share. Rite Aid lost only 6 cents per share once adjustments are made. Revenues dipped a little over 1%, and same-store sales, after excluding the effect of the Brooks Eckerd acquisition, increased 1.5%. Interestingly, the mix of this increase is as follows: the pharmacy sales went up 3.1% on a comparable basis, and the non-pharmacy sales went down 1.4% on the same basis.

Rite Aid (NYSE: RAD), whose competitors include Walgreen (NYSE: WAG), CVS Caremark (NYSE: CVS), and Wal-Mart (NYSE: WMT), reported Q4 numbers today, and when you read through the release, you sort of come away with a decent feeling. You hear about improvements in this metric and that metric. You wonder if a turnaround might be in the offing. Then you look at the stock price and, even though it is currently being bid higher (it's up over 14% as I write), you come back down to earth and reality hits you in the face. Anything trading under a buck has to give you pause. Rite Aid is no different.

For the quarter, Rite Aid posted a 1.7% decrease in the top line. On an adjusted basis, the drugstore chain reported a loss of $0.14 per share. According to this source, Wall Street thought Rite Aid might lose $0.105 per share. The company is still adjusting to the Brooks Eckerd acquisition. Excluding that effect, same-store sales increased 0.8%. Including the asset, comps decreased 0.1%.

Walgreen (NYSE: WAG ) knows that people want all kinds of options to meet their healthcare needs. Walgreen also knows that it needs to grow and keep up with competitor CVS Caremark (NYSE: CVS) and the pharmacy department at Wal-Mart (NYSE: WMT). And, yes, I suppose Rite-Aid (NYSE: RAD) is technically a competitor, too, although you wouldn't know it by that drugstore chain's stock price. Well, according to The Wall Street Journal, Walgreen plans to promote an initiative called "Complete Care and Well-Being" to employers. The goal here is to give corporate, as well as government, employees and their families access to healthcare services such as preventive medicine and dental examinations in off-hour time periods. Walgreen will use a network of in-store clinics and health centers to provide these services. That's pretty cool, right? Well, one of the bigger benefits to Walgreen is the synergy it can promote by leveraging this program.

CVS Caremark (NYSE: CVS - option chain) stock is declining sharply this morning after the company forecast a fiscal-2009 EPS of $2.53 to $2.61, well below analysts' estimates of $2.74. The company cited lower sales of prescription drugs for the forecast. If you think this stock won't be rising too far in the coming months as a result of this news, then it could be a good time to look at a bearish hedged play on CVS.

This morning, CVS opened at $27.00. So far today the stock has hit a low of $25.50 and a high of $27.09. As of 12:45, CVS is trading at $25.84, down $3.50 (-11.9%). The chart for CVS looked bullish up until today and S&P gives CVS its highest 5 STARS (out of 5) strong buy ranking.

For a bearish hedged play on this stock, I would consider a February bear-call credit spread above the $30 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in six weeks as long as CVS is below $30 at February expiration. CVS would have to rise by more than 16% before we would start to lose money. Learn more about this type of trade here.

CVS hasn't been above $30 by more than a few cents since November and shown resistance around $29.50 recently.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in CVS.

Rite-Aid Corporation (NYSE: RAD) is the drugstore you should avoid. You can consider CVS Caremark (NYSE: CVS). You can take a look at Walgreen Company (NYSE: WAG). Rite-Aid? It's definitely not the cure for an ailing portfolio.

The troubled pharmacy chain is no stranger to losses and its public stock sits well below a buck a share. The third quarter numbers don't look too appealing. On an adjusted basis, Rite-Aid lost $0.15 per share. That may have been better than what analysts were calling for, namely a loss of $0.17 per share, but you have to look at the overall picture. Rite-Aid is closing stores, and that will hamper sales going forward (not to mention its brand equity, as well). Some will argue that it's all part of the turnaround. Sure, turnarounds can be ugly and painful, granted, but that doesn't mean you have to participate, hoping for the best. Why hop on this low-priced equity when integration of the Brooks Eckerd assets doesn't seem to be going very well?

According to the press release, there are a few positive statistics. Management says that overall same-store sales were up 1.4%, EBITDA increased over 8%, and operational cash flow was positive over the last three quarters (by comparison, cash was used for operations in the year-ago similar period). But the guidance isn't good, and I have no confidence in this management team to improve its GAAP performance. The company has to juice its sales, but with competition from stronger foes like CVS Caremark and Walgreen, I just don't see any silver lining to the Rite-Aid story. Turnaround specialists can make whatever argument they want. As for me, I'm going to make like the galaxy in Star Wars and stay far, far away from Rite-Aid's stock...

Disclosure: I don't own any company mentioned; positions can change at any time.

Walgreen (NYSE: WAG), a drugstore chain which competes with CVS Caremark (NYSE: CVS) and Rite Aid (NYSE: RAD), dropped the ball in the fourth quarter, at least as far as analyst estimates are concerned. On a GAAP basis, Walgreen increased its earnings per share by a nickel, coming in at 45 cents.

That would be pretty cool if there were no adjustments to be made. Unfortunately, there is one. It relates to an adjustment for vacation-time accrual, which added almost $80 million to the bottom line. Take that away, and you get no earnings growth, as earnings per share would have been 40 cents, meaning non-GAAP number missed expectations by 5 cents.

I think Walgreen is a strong brand in its space. However, with the economic meltdown continuing its dire course, I would imagine that the chain is going to become affected by it, strong brand or not. Drug prescriptions certainly might be considered a defensive element in such an environment, but keep in mind that Walgreen doesn't just make its money on prescription sales. It sells a whole host of items in every location. And I'd have to imagine that the consumer is going to be scaling back. Yep, get ready for the good ole negative wealth effect.

Rite Aid (NYSE: RAD), a drugstore brand that competes with Walgreen (NYSE: WAG) and CVS Caremark (NYSE: CVS), reported results for the second quarter on Thursday. Unfortunately, they did not meet the expectations of analysts. Revenues were basically flat at $6.5 billion. The net loss more than doubled to $0.27 per diluted share, compared to $0.10 per diluted share one year ago. According to this item, Wall Street was hoping that Rite Aid might be able to deliver a loss of $0.15 per diluted share. Furthermore, that news source states that guidance for the fiscal year is worse than the consensus. The consensus believed that Rite Aid might bleed about $0.51 per share in red ink. The loss will at least be $0.56 per share, according to management. It might even go as high as $0.67.

So, I just gave out all the nasty stuff. Is there anything encouraging from the release? Let me put on my look-on-the-bright-side glasses. Net cash from operations was positive during the quarter. Over $96 million was generated. Last year, operations required almost $140 million. I dig cash, no doubt about it. But I really love free cash flow. If you add back sale-leaseback transactions, there was some free cash, but I can't say it changes my general stance on Rite Aid. I mean, overall same-store sales are weak, and the stock is currently priced at less than a buck. It's done horribly year-to-date according to the AOL Finance snapshot taken at the time of this writing. Down 67%. Not encouraging.

Rite Aid's shares aren't so much stock certificates as they are lottery tickets. Do you like playing the lottery? If so, go buy one of those scratch-off deals. You might have better luck with them than you would with Rite Aid.

Disclosure: I don't own any company mentioned; positions can change at any time.

CVS Caremark (NYSE: CVS) will begin testing an upscale beauty store concept this year under the less than creative name "Beauty 360", with the first locations set to open up right next to existing CVS locations. "Beauty 360" will offer 32 lines of skin care and cosmetics along with various fragrances, according to Reuters.

Can you say flop? The problem is that people hate CVS. Googling the phrase "hate CVS" yields 17,900 results, and the chain has experienced success with decent prices on prescription drugs and an expansion strategy that has obliterated most of the mom and pop stores. I can't even imagine why anyone would choose to go to CVS to buy expensive skincare products.

Plus the name "Beauty 360" is really, really, really insipid.

CVS's only hope of having any success with this concept would seem to be making the stores nothing like CVS, and hoping consumers won't notice that there's any connection. Opening them next door won't accomplish that.

CVS Caremark (NYSE: CVS), a big competitor of both Walgreen (NYSE: WAG) and Rite Aid (NYSE: RAD), released its Q1 earnings last week. They were very good, and they reminded me that I probably need to throw a drugstore chain's stock in my core portfolio as a long-term play on the increasing health-care needs of the baby boomers (and every other demo, for that matter).

Looking through the reported growth rates, you can see that we're talking best-of-breed here. Revenues were up over 60%, and adjusted earnings per share increased over 18%, coming in at $0.55. The Caremark merger has obviously proven to be a good move. Same-store sales rose 3.9%, benefited in part by the early appearance of Easter in March.

According to earnings.com, CVS Caremark basically matched earnings expectations. That's okay, though, I don't think you can hold it against this big brand name. As of this writing, CVS is near a 52-week high. Buying at the 52-week high is always a dicey thing, but if you plan on holding for years, it wouldn't be that much of a concern. Shorter-term traders would need to wait for a pullback. But I like the first quarter results for CVS, and I think the stock is poised to do well over time. And like I said at the beginning, this really may be a stock for the core portion of an individual's investment program -- a true buy-and-hold idea.

Disclosure: I don't own shares in any company mentioned here; positions can change at any time.

With the current challenging market conditions probably many of us are wondering which are those reliable stocks that could offer us a big profit in the next coming years. In the light of those questions, Gene Marcial's new book, 7 Commandments of Stock Investing, reveals his perspective over seven stocks that are considered to be worth buying and holding for the next seven years (check out BusinessWeek's slideshow of his seven picks).

Taking advantage of the experience he gained over the past 30 years, BusinessWeek's Gene Marcial shares his opinions related to investors' strategy to use market meltdowns for their own benefit, being able to turn the stock market panic into success.

MAJOR PAPERS:

• Luqman Arnold, the former UBS AG (NYSE: UBS) president forced out in 2001, wants the firm to split its investment bank from the private client bank, and look at selling the investment bank and asset management business, according to the Wall Street Journal's "Heard on the Street".
• Microsoft Corporation's (NASDAQ: MSFT) bid to acquire Yahoo! Inc (NASDAQ: YHOO) has not gained any steam even though executives of the two companies met this week, the Wall Street Journal reported.
• The Financial Times reported that the landmark merger that created Citigroup Incorporated (NYSE: C) was a "mistake" that failed to benefit the financial services giant's investors, customers and employees, said John Reed, who masterminded the $166B deal with Sandy Weill in 1998. Reed, the former head of Citicorp, has advised Citigroup CEO Vikram Pandit at least to consider spin-offs, sources said.

WEB SITES:

• Walgreen Co (NYSE: WAG) is branching out by acquiring two companies that provide health-care services, BusinessWeek reported, following in its competitor CVS Caremark Corporation's (NYSE: CVS) shoes. Some investors are wary of Walgreen's move, but Mark Wiltamuth of Morgan Stanley sees it as a new growth avenue and as a push into services complementary to drugstores.

Walgreen Company (NYSE: WAG) reported earnings for the second quarter on Monday. Net sales grew by a very decent 10%. Diluted earnings per share for the quarter were $0.69 versus $0.65 in the year-ago period; this represents a bottom-line gain of 6%.

Considering some of the other action on Wall Street on Monday -- the increased offer for Bear Stearns, the approval of the Sirius/XM merger -- Walgreen's earnings report was simply an okay event, even though the stock closed up around 5% on the news. Same-store sales may have increased 4.7%, but the retailer sold a lot of items with lower margins this time around, thus reducing its gross-margin metric by 14 basis points (the release did cite a big shift to pharmacy sales in the quarter as having negatively impacted margins). So Walgreen needs to work on its non-pharmacy revenues. One cool thing from the report is the jump in net cash from operations -- that number increased by 10%.

Walgreen, which competes with CVS Caremark Corporation (NYSE: CVS) and Rite Aid Corporation (NYSE: RAD), isn't a bad way to play the long-term drug-retailing business. To be sure, baby boomers -- as well as everyone else -- will always need to visit drugstores on a go-forward basis. It's the company that can capture a significant amount of non-pharmacy sales that will prosper the most. Walgreen and CVS are excellent brand names in this sector -- I'm not so keen on Rite Aid, though (take a look at the stock price and see if you think the company might be cheap-for-a-reason, as they say).

Disclosure: I don't own any shares in any of the companies mentioned here; positions can change at any time.

CVS Caremark (NYSE: CVS) is no longer looking for new acquisitions, but rather will focus on assimilating recent acquisitions, Chairman and Chief Executive Thomas Ryan said on Wednesday. While speaking to the Reuters Health Summit in New York (check out the blog for the conference here), Ryan said, "It's most important that we stay focused on the integration, the execution and getting our balance sheet in order, and then we will have the opportunity to look at opportunistic acquisitions."

CVS acquired giant pharmacy benefits manager Caremark in March and continues to integrate recent drugstore chain purchases.

It sounds like the company has its hands full given the amount of M&A work CVS has done over the past couple of years combined with the organic growth the firm is seeing. While fierce competitor, Walgreen (NYSE: WAG), is considering applying the brakes in terms of opening up new doors, CVS is in full-throttle mode right now.

Continuing with our defensive stock series.... With the markets in a choppy /consolidation mode (or perhaps worse), the drug store chain sector has appeal as a defensive strategy, and CVS Caremark (NYSE: CVS) is a superior performer in the aforementioned sector.

CVS has used acquisition (1,100 Eckerd drugs stores acquired in 2004, 700 Albertson's drugs stores acquired in 2006) and a super-rigorous, systematic store opening plan to create the drug store world's equivalent of a lien, mean, fighting machine: more than 6,200 stores in 43 states.

CVS has the resources, economies of scale, and, arguably, most importantly, the store site selection experience to continue to drive impressive revenue/EPS gains. Further, recent improvements in inventory processes and cost management support the above, and the acquisition of Caremark should add new clients/customers. True, back-store (pharmacy) margins may be pressured by generic competitors, but the front-store (everything else) should make up for it in 2007-2009. CVS's shares closed Tuesday up 39 cents to $40.11.

It must not be much fun to compete with Wal-Mart (NYSE: WMT) in the prescription drugs business. The world's largest retailer keeps dropping prices.

Today, Wal-Mart said it would extend its $4 generic drug program to include a number of additional treatments for "problems including glaucoma, attention deficit disorder, fungal infections and acne," according to MarketWatch. For other items like birth control pills, it will charge $9 against a national average of $30.

Wal-Mart says that the program will save consumers $600 million over the next year, with some of the savings being tremendous. While antifungal Lamisil cost an average of $337.26 one month ago, its generic equivalent, terbinafine, sells at Wal-Mart for $4 for a commonly dispensed quantity of up to a 30-day supply, the company said.

The low-cost drugs raise the question of whether Wal-Mart makes money on them at all. It may use the price points to drive traffic to its stores. If so, companies like CVS Caremark (NYSE: CVS) would watch their stock prices take a beating.

The generic prices also raise the issue of unfair competition. If Wal-Mart does offer the drugs at below cost, is it building an antitrust case for other companies?

The new pricing may be good for consumers, but that doesn't mean the government won't look into it.

Douglas A. McIntyre is a partner at 24/7 Wall St.