Dear Mr. Berko: How does Walgreens look to you if you were to chart the stock? Would a chartist tell you to buy, hold, or sell the stock? And, fundamentally, what do you think of Walgreens at this $25 price? Would you buy it, hold it or sell it? — W.R., Kankakee, Ill.

Dear W.R.: I'm not a chartist. But I admit to knowing a few of these dedicated, terribly strange, sorcerer-like, bipedal life forms, one of who has a doctorate in physics from the University of Chicago and another who was the chief technical analyst for Lehman Brothers. The others have insignificant pedigrees. But they have many unique, common affectations. They all keep spiders as pets. They're undernourished, high-strung, have disturbing facial tics and a significant lack of social skills. Three of them chain smoke several packs of unfiltered Camel cigarettes a day, each is a computer freak, each is driven and consumed by their chart work and each believes their charts speak to them.

Sadly, not one of these humanoids has earned any market successes worth bragging about in the past 15 to 20 years. But I did ask one of them for a technical analysis of Walgreen Co. (WAG-$26.26) and he e-mailed me the following:

1. The moving average convergence/divergence indicates a bearish trend.

2. Chart pattern indicates a strong downward trend.

3. Relative strength is bearish.

4. Up/down volume pattern indicates WAG is under distribution.

5. The 50-day moving average is falling, which is bearish.

6. The 200-day moving average is also falling, which is bearish.

His recommendation is to avoid the stock. And if you own the stock, it should be sold immediately.

Now I don't speak Sumerian nor can I read hieroglyphics. But empirically I reached the same conclusion. With the exception of WAG's pharmacy, and over-the-counter medications, a good portion of its revenues derive from impulse sales of knickknacks, doodads, trinkets, gewgaws, trumpery, bric-a-brac and other oddments with markups of 300 percent to 800 percent. However, these are the items that today's consumers are eliminating from their stressed budgets.

WAG also sells candy, vitamins, beauty-care products, paperback books, grocery items, paper goods, toiletries, etc. But today's consumer is buying these items at compellingly lower prices from Costco, Wal-Mart, Dollar Stores or Kmart. WAG's pharmacies are definitely not user friendly and neither are their pharmacists. I'm told that pharmacy revenues may be losing ground to lower cost pharmacies, such as CVS, Wal-Mart and Costco.

WAG's pharmacy departments are an organized nightmare of frenetic activity and long waits in line are not uncommon. Because WAG under-staffs its pharmacy departments, prescriptions are likely to be filled by non-pharmacists. That really concerns me.

Many WAG pharmacy clerks are overstressed and some get snappy with customers who have trouble understanding their Spanish-accented English. However, this is easily solved if Congress would make Spanish our official language.

Meanwhile, analysts are trimming their estimates on WAG's earnings as the company posted disappointing third-quarter results and lower same-store comparisons. It seems that WAG's fourth-quarter earnings will continue lower and the outlook for 2009 is not as sanguine as Wall Street reckoned six months ago.

In August and September, when WAG was trading between $35 and $37, Banc of America, Credit Suisse, UBS, Barrington and Jefferies were solidly bullish and actively recommending its purchase. These esteemed firms believed that WAG would be trading in the low $50s sometime in late 2009 or early 2010. I doubt that will happen.

But if you must own a drugstore, I must recommend CVS. It's a far better managed company, its pharmacy departments are well run and user friendly. Pharmacists actually like to visit with you and the store atmosphere is far more personable. I think CVS will fair much better than WAG in this difficult economic environment.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at [email protected]. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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