Among the biggest losers in Tuesday’s early trading are Patriot Coal (NYSE: PCX), Walgreen (NYSE: WAG) and USG (NYSE: USG).

Another Shoe drops for Walgreen

Fast on the heels of a dust-up with rival and partner CVS Caremark (NYSE: CVS), Walgreen (NYSE: WAG) just delivered a sobering bit of news Tuesday morning: Quarterly sales are weak and expenses are too high. That combination led to a profit shortfall, pushing shares down -6%.

#-ad_banner-#Some of the weakness is beyond management’s control. For example, it was a mild flu season, reducing store traffic. And the recent acquisition of the Duane Reade pharmacy is leading to temporarily bloated integration expenses. But the biggest factor here may be that this industry is simply too crowded. Pharmacy chains are now ubiquitous, and as more stores keep opening, they are cannibalizing sales from existing stores. Excluding prescription drugs, Walgreen’s same-store sales rose just +0.1%, which after accounting for price increases means unit volumes are dropping.

Walgreen is remodeling stores at a fast pace to boost sales, but early results have not been promising. We’ll get a truer picture of the company’s margin profile and sales execution once that process is complete and the Duane Reade stores have been fully integrated.

Action to Take –> Right now, this is a “show-me” stock, and shares are unlikely to find favor until management can point to more impressive sales and profit trends. And that may not happen for quite awhile

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Patriot’s Mine Woes

In the business of energy exploration, stuff happens. Damage to a key property can lead to reduced output and rising costs, as we’ve seen with the BP (NYSE: BP) debacle. Patriot Coal (NYSE; PCX) is today’s poster child for technical troubles. The company’s Harris Mine had a recent roof cave-in, leading management to announce Monday evening that the damage is irreparable and coal-mining at that site will cease. That’s pushing shares down more than -10% in Tuesday trading.

This mine was nearing the end of it useful life and was set to close next year anyway. And unlike BP, Patriot Coal took action PRIOR to any major problems, and isn’t facing any liabilities. But it is still a big deal. The Harris Mine produced high-grade metallurgical coal that fetches a premium for its use in steel-making operations. So analysts’ estimates need to come down. Analysts at Brean Murray think per-share profits will be shaved by $0.40-0.60 both this year and next. (Notably, their lowered 2011 forecast of $1.38 a share in earnings is still well above the broader consensus).

Only a handful of mines can produce this high-grade coal. Alpha Resources (NYSE: ANR) is one operator, and could benefit from rising prices now that supply has been reduced. Shares of ANR are flat on Tuesday, and have fallen nearly -30% since mid-April on concerns that steel production may cool off.

Action to Take –> Both of these stocks look attractive, trading at less than five times earnings before interest, tax, depreciation and amortization (EBITDA) (on an enterprise value basis). Alpha Resources may be the stronger near-term play, as analysts start to boost estimates on the basis of higher metallurgical coal prices.

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Weak Housing Starts Dampen the Sector

The monthly index of the National Home Builders slumped to a three-month low, according to just-released data. As feared, the expiration of home-buyer tax credits has led to yet another housing slowdown. That’s causing pain for homebuilders – and the materials suppliers that benefit from new home construction. USG Corp. (NYSE: USG), for example, is seeing its shares fall -5% on the downbeat news. The company, which provides sheet rock made from gypsum, is on track to keep losing money until new home construction takes off. The company is on track to lose more than -$2.50 a share for the second straight year, though losses are expected to moderate in 2011.

Action to Take –> When the housing market turns around, USG should go back to earning $2 or $3 a share. This is a name to watch when housing starts to improve, as it has a huge amount of operating leverage in the business model.