Analyst upgrades:

• Citigroup upgraded Capital One (NYSE: COF) to Buy from Hold as it believes the credit cycle is starting to recover for U.S. credit cards and an improving economy will support bank credit stabilization. The firm raised its target on shares to $44 from $28.
• JPMorgan upgraded Morgan Stanley (NYSE: MS) to Overweight from Neutral on valuation and believes the stock market recovery will serve as a catalyst.
• Deutsche Bank upgraded F5 Networks (NASDAQ: FFIV) to Buy from Hold after its channel checks indicated a sooner-than-expected order ramp and stabilizing pricing trends. The firm raised its target on shares to $46 from $39.
• COTT Corp. (NYSE: COT) was upgraded to Buy from Neutral at UBS.
• Blackstone Group (NYSE: BX) was upgraded to Equal Weight from Underweight at Barclays.
• Illinois Tool Works (NYSE: ITW) was upgraded to Conviction Buy from Neutral at Goldman.

Analyst upgrades:

• Keefe Bruyette upgraded Popular (NASDAQ: BPOP) to Outperform from Market Perform as it believes the issuance of new common stock in exchange for outstanding preferred and trust preferred stock is a net positive. The firm has a $3.50 target on the stock.
• Merriman upgraded Super Micro Computer (NASDAQ: SMCI) to Buy from Neutral as if finds the currrent valuation compelling and believes the company should directly benefit from improving IT budgets. The firm thinks fair value is in the $9.11-$11.13 range.
• Kaufman Bros. upgraded Netflix (NASDAQ: NFLX) to Buy from Hold after its proprietary survey indicated the company is well positioned longer term. The firm finds the valuation on shares attractive at current levels and raised its target price to $53 from $48.
• Taleo (NASDAQ: TLEO) was upgraded to Buy from Neutral at Janney Montgomery.
• Boardwalk Pipeline (BWP) was upgraded to Neutral from Underperform at BofA/Merrill.
• Lloyds Banking (NYSE: LYG) was upgraded to Buy from Hold at RBS.

Analyst upgrades:

• Thomas Weisel upgraded PerkinElmer (NYSE: PKI) to Overweight from Market Weight on valuation as it sees limited downside to consensus estimates. The firm raised its target on shares to $20 from $18.
• Jefferies upgraded WuXi PharmaTech (NYSE: WX) to Hold from Underperform following the Q2 results as it believes the company's cross-selling strategy is paying off. The firm raised its target on shares to $12 from $5.
• FBR Capital upgraded J. Crew (NYSE: JCG) to Outperform from Market Perform to reflect the company's trend-right product, inventory control, unit growth, and strong management. The firm raised its target on shares to $36 from $25.
• Popular (NASDAQ: BPOP) was upgraded to Buy from Neutral at B. Riley.
• Pan American Silver (NASDAQ: PAAS) was upgraded to Buy from Neutral at UBS.
• HearUSA (AMEX: EAR) was upgraded to Buy from Hold at Roth Capital.

Analyst upgrades:

• Ericsson (NASDAQ: ERIC) was upgraded to Add from Hold at WestLB.
  
• JP Morgan upgraded Shire Plc (NASDAQ: SHPGY) to overweight from Neutral to reflect Vyvanse share gains and valuation.
  
• Wachovia upgraded Jefferies (NYSE: JEF) to Market Perform from Underperform because they believe that the recent collapse of the large cap bank sector, Jefferies' cash equity business, and the company's partial privatization as a result of its Leucadia investment will shield shares.
  
• Canaccord upgraded Amylin Pharma (NASDAQ: AMLN) to Hold from Sell.
• ADC Telecomm (NASDAQ: ADCT) was upgraded to Buy from Hold at Kaufman Bros. on valuation following the recent weakness.
• STEC Inc (NASDAQ: STEC) and Popular (NASDAQ: BPOP) were raised to Buy from Neutral at B. Riley.
  

Analyst downgrades:

• Merrill downgraded Disney (NYSE: DIS) to Underperform from Neutral and cut its target to $27 from $34 citing the impact from the current economic climate on earnings.
  
• Barclays downgraded IBM (NYSE: IBM) to Equal Weight from Overweight citing the impact from the weakening economy and the company's large exposure to the financial services industry. IBM's target was cut to $108 from $130.
  
• Jefferies downgraded Salesforce.com (NYSE: CRM) to Underperform from Buy on increased risks of deteriorating payment terms and price pressure on renewals. The company's target was lowered to $36 from $75.
• Goldman downgraded First Solar (NASDAQ: FSLR) and added shares to the Conviction Sell List.

MOST NOTEWORTHY: Genitope Corp, Discover Financial and Mine Safety Appliances were today's noteworthy downgrades:

• Genitope Corp (NASDAQ: GTOP) was downgraded to Underperform from Sector Perform at RBC Capital following MyVax's failure to meet its Phase III trial endpoint.
  
• Calyon downgraded shares of Discover Financial (NYSE: DFS) to Neutral from Buy citing the weak macro environment.
  
• Soleil downgraded Mine Safety Appliances (NYSE: MSA) to Hold from Buy at Soleil on valuation..

OTHER DOWNGRADES:

• Morgan Stanley downgraded Vale do Rio Doce (NYSE: RIO) to Equal Weight from Overweight.
  
• Keefe Bruyette downgraded Popular (NASDAQ: BPOP) to Underperform from Market Perform.
  
• Calyon downgraded Pride International (NYSE: PDE) to Neutral from Add.

MOST NOTEWORTHY: Popular (BPOP), MRU Holdings (UNCL), CDC Corp (CHINA) and Oscient Pharmaceuticals (OSCI) were today's noteworthy initiations:

• Kaufman initiated Popular (NASDAQ: BPOP) with a Hold rating and $13 target, citing the company's direct exposure to nearly $2B of Alt A residential mortgage loans originated by its U.S. operations and approximately $250M of exposure to another $4B of collateralized, securitized mortgage pools.

• MRU Holdings (NADSAQ: UNCL) was initiated with a Buy rating and $8.50 target at Roth Capital. Roth Capital believes MRU Holdings is on the threshold of potentially explosive growth in the fast growing segment of the education lending market, that of private loans.

• JMP Securities said CDC Corp. (NASDAQ: CHINA) , with its resources and connections in China, has excellent deal flow and has been a disciplined, value oriented buyer, and started shares with a Market Outperform and $10.50 target.

• Piper believes Oscient Pharmaceuticals (NASDAQ: OSCI) experienced management team and PCP sales force are competitive advantages and will lead to attractive partners. Piper initiated Oscient Pharmaceuticals with an Outperform rating and $5 target...

OTHER INITIATIONS:

• Raymond James started SAIC (NYSE: SAI) with a Market Perform rating.

• Morgan Keegan initiated Hilltop Holdings (NYSE: HTH) with an Outperform rating.

• Dice Holdings (NYSE: DHX) was initiated with an Overweight rating and $15 target at Morgan Stanley.

• RBC Capital initiated VMware (NYSE: VMW) with a Sector Perform rating and $75 target.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Having just completed the Top Picks report for 2007 – the 24th consecutive year I have surveyed the newsletter advisors for their favorite stocks -- I thought I would share some observations to help readers best use the information in this feature.

And over the next few days, I will post articles to share observations on the stocks and sectors chosen, discuss the participating advisors, and highlight some of last year's top performers to help guide you in assessing this year's report.

I'll begin today by noting some caveats that should be kept in mind by those who are considering buying stocks from among the list of Top Picks. The advisors who have participated in this year's project were asked to submit a favorite speculative and/or conservative stock for the year ahead.

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Popular, Inc. (NASDAQ: BPOP) is the top speculative play for 2007 from Kelley Wright. The editor of Investment Quality Trends notes, "We aren't big risk takers. That being said, Popular is an interesting undervalued idea.

"First the numbers: an A+ S&P Earnings and Dividend Quality Ranking; our designation for spectacular annual dividend growth of at least 10% for the last 12 years; a P/E of 12; and the stock is trading at less than 2 times book. The stock's historically undervalued yield is 3.10%. Based on the current dividend of $0.64, that equates to a price of $21, and the stock is trading around $17.50.

"The customer base for Popular is the fastest growing demographic in North America: Hispanics. Popular has found a way to market and deliver banking and other financial products to this group, which has traditionally not trusted financial institutions because of their negative experiences with banks in their country of origin.

"We believe this will not go unnoticed by larger, more established banks in the B of A genre. Even without a buyout by another institution, the stock just needs to climb back to its undervalued area to return approximately 18% before the dividend. While 2006 was a disappointing year for BPOP shareholders, we believe 2007 should be a turnaround year and shareholder patience will be rewarded."

To see Kelly's favorite conservative investment for 2007, click here.