Analyst Upgrades

• Siemens (SI) to buy from hold at Deutsche Bank.
• Diamond Offshore (DO) to market perform from underperform at FBR Capital.
• MeadWestvaco (MWV) to conviction buy from neutral at Goldman.
• TD AmeriTrade (AMTD) and Cabot Oil & Gas (COG) to buy from neutral at BofA/Merrill.
• Janus Capital (JNS) to hold from sell at Citigroup.
• Motorola Mobility (MMI) to buy from neutral at UBS.
• Frontier Communications (FTR) to neutral from underperform at Macquarie.
• Humana (HUM) to buy from hold at Argus.

Low-profile American Axel & Manufacturing Holdings Inc. (AXL), first discussed here on November 30, 2010 at a price of $10.74, has raced higher, and I obviously still like the business model at this stage.

American Axel supplies driveline systems, modules, and components to the light vehicle market. It manufactures axels, driveshafts, and chasis components for light trucks, SUVs, and passenger cars.

The company boasts a 38% market share in the United States, and about 11% internationally. Further, one might say that as General Motors (GM) goes, so goes American Axel, as GM accounts for about 78% of its revenue. Hence, GM's turnaround bodes well for AXL. About 8% of its business is with Chrysler.

Readers of this space know that the investment model preferred here tilts toward large-cap plays. But every once in a while, an exception is made, American Axel & Manufacturing Holdings Inc. (AXL) is one, and is worth a review.

American Axel supplies driveline systems, modules and components to the light vehicle market. It manufactures axels, driveshafts, and chasis components for light trucks, SUVs, and passenger cars.

The company boasts in 38% market share in the United States, and about 11% internationally. Further, one might say that as General Motors (GM) goes, so goes American Axel, as GM accounts for about 78% of its revenue. Hence, GM's turnaround bodes well for AXL. About 8% of the company's business is with Chrysler.

American Axle & Manufacturing Holdings (AXL) is prepping for its turn in the earnings spotlight. The auto parts issue is slated to confess its second-quarter results ahead of Friday's opening bell, and at least one speculator is looking for a major post-event move from the shares. Bright and early Thursday morning, an ambivalent options trader opened an at-the-money straddle on AXL.

Specifically, the trader simultaneously purchased several matching blocks of August 9 puts and calls. With AXL trading just pennies above $9, both of these options are at the money. By scooping up equal numbers of puts and calls at the same strike, the trader is hoping to capitalize on a drastic move higher or lower from the security.

Analyst upgrades:

• Credit Suisse upgraded Motorola (NYSE: MOT) to Outperform from Neutral after the close Monday. The firm believes Motorola's devices segment will approach breakeven in 2010 while operating margins in nonhandset segments will expand, and that a break-up story will reemerge. Credit Suisse raised its target on shares to $9.50 from $7.
• UBS upgraded BHP Billiton (NYSE: BHP) to Buy from Neutral. The firm cites BHP's leverage to iron ore, coking coal, copper, and oil for its upgrade after raising its commodity price forecasts.
• Merriman upgraded Walter Energy (NYSE: WLT) to Buy from Neutral to reflect higher met coal price forecasts. The firm believes Chinese demand is strong and has a target range of $66-$72 on the stock.
• Intersil (NASDAQ: ISIL) was upgraded to Outperform from Perform at Oppenheimer.
• Coach (NYSE: COH) was upgraded to Buy from Neutral at BofA/Merrill.
• Lockheed Martin (NYSE: LMT) was upgraded to Buy from Hold at Citigroup.

American Axle (NYSE: AXL) closed at $2.01. AXL entered into a waiver and amendment to the company's credit, facility, which provides the company a waiver of its financial covenants through July 30, 2009. AXL options were active on July 29 with 30,608 contracts trading. AXL August 2.5 straddle is priced at 1.40, October 2.5 straddle is priced at $2.35 suggesting large price movement.

Patterson-UTI Energy (NYSE: PTEN) closed at $14.23. PTEN, an operator of 60 drilling rigs, is expected to report Q2 EPS today. PTEN August option implied volatility is at 55, September is at 49; below its 26-week average of 64. PTEN options were active on July 29 with 6,452 contracts, trading according to Track Data.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

Analyst upgrades:

• Keefe Bruyette upgraded IberiaBank (NASDAQ: IBKC) to Market Perform from Underperform following the company's capital raise, which the firm believes strengthens IberiaBank's balance sheet. Baird upgraded IberiaBank to Outperform from Neutral based on valuation following weakness related to the $100M capital raise.
  
• Pali upgraded shares of Urban Outfitters (NASDAQ: URBN) to Neutral from Sell on valuation as they believe the company's comp slowdown is largely priced in at current levels.
  
• Morgan Keegan upgraded Casey's General Store (NASDAQ: CASY) to Outperform from Market Perform based on valuation, healthy SSS, and easing comps.
• Cabot OIl & Gas (NYSE: COG) and Royal Dutch Shell (NYSE: RDS.A) were added to Goldman's Conviction Buy List.
  
• American Capital (NASDAQ: ACAS) was raised to Market Perform from Underperform at Friedman Billings.
  
• CIBC lifted Manulife (NYSE: MFC) to Sector Outperformer from Sector Performer.

Analyst downgrades:

• Goldman downgraded Caterpillar (NYSE: CAT) to Sell from Neutral based on expectations for reduced capex spending by mining and oil & gas companies and the impact from the credit crunch.
  
• Deutsche Bank downgraded auto companies and suppliers as they believe the failed government bailout increases risks. Ford (NYSE: F), American Axle (NYSE: AXL), Magna International (NYSE: MGA) and Lear (NYSE: LEA) were downgraded to Sell from Hold.
  
• SAP (NYSE: SAP) was cut to Hold from Buy at Jefferies to reflect the "deteriorating" corporate IT spend environment.
• Waters (NYSE: WAT) was downgraded to Neutral from Overweight at JP Morgan.
  
• Agilent (NYSE: A) was lowered to Equal Weight from Overweight at Barclays; the firm also downgraded Varian (NASDAQ: VARI) to Underweight from Equal Weight.

Analyst initiations:

• Jefferies believes Core Laboratories (NYSE: CLB) is well positioned to benefit from the increasing need for reservoir optimization services. Shares were initiated with a Buy rating and $70 target.
  
• Deutsche Bank initiated Capital One (NYSE: COF) with a Sell rating and $24 target, citing the difficult economic environment and the potential for higher credit losses.
  
• Soleil started Hexcel (NYSE: HXL) with a Buy rating and $10 target and expects the company's military business to remain strong through 2010.
• On Semiconductor (NASDAQ: ONNN) was assumed with a Neutral rating and $3.80 target at UBS.
  
• Cbeyond (NASDAQ: CBEY) was initiated at Oppenheimer with a Perform rating.
• Brocade (NASDAQ: BRCD) was started with a Neutral rating at Piper Jaffray.

General Motors Corp. (NYSE: GM) is not the only auto company in a world of hurt. Its vendors are as well. One of its larger suppliers, American Axle and Manufacturing Holdings, Inc. (NYSE: AXL) will likely be handing out buyout offers to a reported 2,000 U.S. workers. the official word will probably come tomorrow, when American Axlereports its Q2 earnings.

Expect more of this. As GM and other automakers like Ford Motor Co. (NYSE: F) reduce auto shipments, rearrange their product mixes and re-evaluate global strategies, the larger suppliers to those companies will see various levels of hits against them. Unfortunately, the U.S. auto industry is in for more hits throughout the remainder of 2008.

American Axle has an estimated 3,650 hourly workers in the U.S. -- so giving buyout offers to over half of them is a pretty significant step. In addition to that, between 200 and 350 U.S. salaried jobs with American Axle are being eliminated. The company also announced that it was reducing its average labor-hour cost down from above the $73 level to somewhere in the $40 range, saving it in the neighborhood of $300 million per year.

MOST NOTEWORTHY: Anadigics, American Axle and Caterpillar were today's noteworthy downgrades:

• Stephens downgraded shares of Anadigics (NASDAQ: ANAD) following the company's Q2 results, as they believe shares could trade sideways until the macro environment improves. The firm lowered their target to $9 from $14. Jefferies downgraded shares to Hold from Buy to reflect the company's lower than expected outlook. The firm lowered their target to $9 from $15.
• Deutsche Bank cut American Axle (NYSE: AXL) to Hold from Buy to reflect the risk associated with the company's exposure to General Motors (NYSE: GM) and Chrysler. The firm lowered their target price to $7.50 from $11.
  
• JP Morgan downgraded Caterpillar (NYSE: CAT) to Neutral from Overweight based on increasing macro headwinds and likely multiple pressure.

OTHER DOWNGRADES:

• Washington Mutual (NYSE: WM) was cut to Sell from Neutral at Piper.
  
• United Microelectronic (NYSE: UMC) was downgraded to Sell from Neutral at Goldman.
  
• Downey Financial (NYSE: DSL) and City National (NYSE: CYN) were lowered to Market Perform from Outperform at Keefe Bruyette.

TheStreet.com's Jim Cramer says recent downgrades are killing whole industries, and they're coming at a terrible time.

You can't lose autos and aerospace. Yet that's what's happening. The devastating aerospace downgrade by Goldman yesterday had pin action galore, wrecking everything from United Tech (NYSE: UTX) (Cramer's Take) and Parker-Hannifin (NYSE: PH) (Cramer's Take) to BE Aerospace (NASDAQ: BEAV) (Cramer's Take). It took the whole frame down with it and made everything toxic. And it happens at a terrible time. It isn't like Honeywell (NYSE: HON) (Cramer's Take), which with a few days left in the quarter can come out defending itself. Goldman rolled a perfect strike.

And now the bowlers are back for more with an equally devastating "sell everything" call based on GM (NYSE: GM) (Cramer's Take). Once again it is seamless: Lear (NYSE: LEA) (Cramer's Take) and Tenneco (NYSE: TEN) (Cramer's Take) get jettisoned too, but you know that Visteon (NYSE: VC) (Cramer's Take) and American Axle (NYSE: AXL) (Cramer's Take) and Johnson Controls (NYSE: JCI) (Cramer's Take) and BorgWarner (NYSE: BWA) (Cramer's Take) -- the good ones! -- go down with the car.

MOST NOTEWORTHY: Alcatel-Lucent, Opnext and American Axle were today's noteworthy upgrades:

• Goldman upgraded shares of Alcatel-Lucent (NYSE:ALU) to Neutral from Sell to reflect the recovery of U.S. corporate bond yields which they believe is positive for the company's long-term pension liability. Goldman also thinks analyst estimates may have bottomed.
  
• Thomas Weisel raised Opnext (NASDAQ:OPXT) to Overweight from Market Weight after their research indicated an acceleration in optical communications component industry revenue growth.
  
• Deutsche Bank upgraded American Axle (NYSE:AXL) to Buy from Hold to reflect the cost savings from the UAW contract.

OTHER UPGRADES:

• MFA Mortgage (NYSE:MFA) was upgraded at Keefe Bruyette to Outperform from Market Perform.
  
• Citigroup upgraded Flagstone Reinsurance (NYSE:FSR) to Buy from Hold.
  
• Merrill raised Crane Co (NYSE:CR) to Buy from Neutral.

MOST NOTEWORTHY: American Axle, Knight Transportation and Newfield Exploration were today's noteworthy upgrades.

• Citigroup upgraded shares of American Axle and Manufacturing Holdings Inc (NYSE: AXL) to Buy from Hold on valuation following the recent sell-off and recommends switching out of General Motors Corporation (NYSE: GM) and into AXL; the firm downgraded GM to Hold from Buy.
• Wachovia upgraded Knight Transportation Inc (NYSE: KNX) to Outperform from Market Perform as they expect the company to benefit earlier from capacity leaving the TL market.
• KeyBanc raised Newfield Exploration Company (NYSE: NFX) to Buy from Hold based on production growth visibility, Rockies value, and increased estimates.

OTHER UPGRADES:

• LCA Vision Incorporated (NASDAQ: LCAV) was upgraded to Sector Perform from Underperform at RBC Capital.
• Deutsche Bank raised Grupo Aeroportuario del Pacifico SA (NYSE: PAC) to Buy from Hold
Baker Hughes Incorporated (NYSE: BHI) to Buy from Neutral.

MOST NOTEWORTHY: General Motors, Anheuser-Busch and GlaxoSmithKline were today's noteworthy downgrades.

• Citigroup downgraded shares of General Motors Corporation (NYSE: GM) to Hold from Buy to reflect reduced earnings power and cash burn risks and recommends swapping into American Axle & Manufacturing Holdings Inc (NYSE: AXL).
• Deutsche Bank cut Anheuser-Busch Companies Inc (NYSE: BUD) to Hold from Buy on valuation following the recent rally spurred by takeover speculation. The firm believes the reported $65/share cash takeover offer by Inbev requires aggressive cost reduction and could harm the brands.
• Morgan Stanley downgraded shares of GlaxoSmithKline Plc (NYSE: GSK) to Underweight from Equal Weight as they see risk to Street expectations for a U.S. Cervarix approval in 2009.

OTHER DOWNGRADES:

• Wachovia downgraded Old Dominion Freight Line Inc (NASDAQ: ODFL) to Market Perform from Outperform.
• Lehman downgraded Yara International (OTC: YARIY) to Equal Weight from Overweight.
• Goldman downgraded China Mobile Limited (NYSE: CHL) to Sell from Neutral and added shares to the Conviction Sell List.

General Motors (NYSE: GM) shares are falling after the company announced this morning it expects a loss of $1.8 billion from the recently ended strike by American Axle & Manufacturing Holdings Inc. (NYSE: AXL) workers. The company also expects a lost production of an additional 230,000 vehicles in the second quarter. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on GM.

After hitting a one-year high of $43.20 in October, the stock hit a one-year low of $17.47 in March. This morning, GM opened at $18.31. So far today the stock has hit a low of $17.63 and a high of $18.34. As of 12:10, GM is trading at $17.63, down 80 cents (-4.0%). The chart for GM looks neutral and improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $25 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 8.7% return in four months as long as GM is below $25 at September expiration. GM would have to rise by more than 43% before we would start to lose money. Learn more about this type of trade here.

GM hasn't been above $25 since February and has shown resistance around $21 recently. This trade could be risky if the US economy gets back on track, but even if that happens, this position could be protected by resistance GM might find around $23, where it topped out back in late April.

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 GM or AXL.

General Motors (NYSE:GM) is recently down 84c to $17.59. GM announced it expects a pre-tax profit reduction of $1.8 billion in Q2 because of the just-ended American Axle (NYSE:AXL) strike. GM call option volume of 62,606 contracts compares to put volume of 29,536 contracts. GM July option implied volatility of 58 is near its 26-week average of 56 according to Track Data, suggesting non-directional price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com