It goes without saying that the rails are a preferred sector in this neck of the investing woods, hence I'm reiterating my buy rating for Canadian Pacific Railway (CP), first recommended on May 1, 2009 at a price of $37.47. If you bought CP in May, you're up about 33%.

The upturn in commodity shipments (potash, coal) has not materialized as soon as forecast, but look for the pace to quicken heading into 2010. Meanwhile, increases in efficiency add to the positive story.

It goes without saying that I favor the rails. In a highway-congested, high-energy-cost nation, the rails are looking very attractive, from a goods transport standpoint.

And that's why I'm Reiterating my Buy rating for Canadian Pacific Railway (NYSE: CP), first recommended on May 1, 2009 at a price of $37.47. If you purchase then, you're up a cool 35% with CP - not bad, for an 'un-sexy' sector.

Analyst upgrades:

• Natixis expects Alcatel-Lucent's (NYSE: ALU) results to improve in 2H09, driven by the CDMA segment and completion of Lucent integration. Shares were upgraded to Buy from Reduce.
• RBC Capital upgraded Canadian Pacific (NYSE: CP) to Outperform from Sector Perform and raised its target to $67 from $49. The firm expects a return to "normalized" operating environment driven by Potash and MetCoal.
• Credit Suisse upgraded Affiliated Managers Group (NYSE: AMG) to Outperform from Neutral and raised its target to $69 from $64. The firm cites valuation, potential upside from 2H09 deals, and expectations for positive 2H09 flows for the upgrade.
• Kennametal (NYSE: KMT) coverage was assumed with a Neutral from Underweight at JPMorgan.
• Cardinal Financial (NASDAQ: CFNL) was upgraded to Outperform from Neutral at Baird.
• General Maritime (NYSE: GMR) was upgraded to Outperform from Market Perform at FBR Capital.

Not all values are within the U.S. Some values reside primarily outside the nation -- including Canadian Pacific Railway (NYSE: CP).

In general, analysts see F2009 carloads declining, netting a 0-5% revenue loss. That said, analysts also see an increase in potash shipments; meanwhile, the auto, intermodal, and coal export businesses will continue to struggle this year.

Analyst upgrades:

• Jefferies upgraded Check Point Software (NASDAQ: CHKP) to Buy from Hold as they believe the recently acquired Nokia security appliance business should drive 2009 revenue and EPS meaningfully higher. The firm raised their target price to $27 from $20.
  
• Goldman upgraded Motorola (NYSE: MOT) to Buy from Neutral and added shares to its Conviction Buy List. The firm expects shares to outperform even if phones don't given the overly negative value for the business.
  
• Research in Motion (NASDAQ: RIMM) was upgraded to Outperform from Sector Perform at RBC Capital. The firm cites improving margin visibility and execution, and lowered expectations for the upgrade.
• Ares Capital (NASDAQ: ARCC) was upgraded to Neutral from Underweight at JP Morgan.
  
• Canadian Pacific (NYSE: CP) was raised at Canaccord to Buy from Hold.
  
• Lloyds TSB (NYSE: LYG) was upgraded to Buy from Neutral at UBS.

Analyst downgrades:

• JP Morgan downgraded Venoco (NYSE: VQ) to Underweight from Overweight based on valuation and debt concerns.
  
• UBS downgraded MEMC Electronic (NYSE: WFR) to Neutral from Buy, added shares to the Short-Term Sell List and lowered their target to $14.50 from $20. The firm believes 2009 wafer sales will be much worse than expected.
  
• Deutsche Bank downgraded SINA (NASDAQ: SINA) to Hold from Buy to reflect integration risks from the recent acquisition of Focus Media's digital OOH assets as they see little room for near-term upside.
• Palm (NASDAQ: PALM) was lowered to Neutral from Overweight at JP Morgan.
  
• Polo Ralph Lauren (NYSE: RL) was cut to Sell from Neutral at Goldman.
  
• Telus (NYSE: TU) was downgraded at Banc of America/Merrill to Underperform from Neutral.

Analyst initiations:

• Societe Generale believes HSBC (NYSE: HBC) will need to cut its dividend and raise additional capital in order to strengthen its capital base. Shares were initiated with a Sell rating.
  
• Citigroup initiated United Technologies (NYSE: UTX) with a Hold rating and $55 target. The firm sees downside risk to the company's guidance and believes consensus estimates could be too high.
  
• B. Riley assumed Matrixx Initiatives (NASDAQ: MTXX) with a Buy rating and $22 target. The firm finds shares attractively valued and sees limited downside risk from current levels.
• ASML Holding (NASDAQ: ASML) was initiated at Deutsche Bank with a Hold rating.

While you were sleeping, Asian markets followed the U.S. down. Japan's Nikkei lost 9.6% as a real estate investment trust and an insurance company -- Yamoto Life -- filed for bankruptcy. Markets in Hong Kong, Korea, Australia, Singapore and Thailand fell between 6.5% and 8%. In Europe, markets opened down 10%. Fear is rampant with the volatility index (VIX), a measure of fear, closing at an all time high of 63.92.

By chance, there is a meeting of G7 finance ministers in Washington this weekend, and there will be a push to do something by Sunday night. I think it would be a triumph if everyone in the meeting could agree on a common definition of the key problem: the freezing up of short-term lending markets (the TED Spread, a measure of short-term lending risk, hit a record 4.23%), the lack of capital in the global banking system, or investors fleeing the stock market.

Why would this help? Part of the reason that global efforts so far have failed is that there does not appear to be a common understanding of what is wrong and what it will take to fix it. This has been reflected in uncoordinated tactics -- flooding the markets with liquidity, cutting interest rates, guaranteeing money market funds, injecting capital into banks -- in the UK only -- and our DOA $700 billion reverse auction plan.

Once again it's ugly out there today. The Dow Jones Industrial Average dropped below 11,000 for the first time in two years, plunging over 2%. The rest of the U.S. stocks are not far behind with both the Nasdaq composite and the S&P 500 down over 2% as well. It's depressing. But you don't have to look far to see a nicer picture, you just have to look up: up north that is.

The Toronto Stock Exchange has fared much better in what has officially become a U.S. bear market. Over the past year, while the S&P 500 sank over 19%, the S&P/TSX Composite index dropped only 3.4%. Year-to-date, while the S&P 500 declined over 16%, the TSX was barely down 1%. And if you stay away from financials on the TSX, you'd fare even better.

How so, you ask, doesn't the Canadian economy closely follows the U.S.'s? It's mostly true as the U.S. is Canada's biggest trading partner and the Canadian economy is intertwined with that of the U.S. For example, some of the layoffs at GM and Ford plants have occurred in Ontario plants, and Canada's unemployment rate edged up to 6.2% in June due to a drop in full-time jobs.

The thing is, though, that the TSX is heavily weighted in mining and oil & gas companies, sectors that have fared better than techs and financials the past year or so. Getting exposure to the Canadian market is very easy since many stocks also trade on U.S. exchanges, the famous of all may be Research in Motion (NASDAQ: RIMM). But there are others, and some of them, the U.S. investor may want to consider.

Readers of this space know that the railroad sector is one of the preferred sectors. After decades of unconscionable neglect, U.S. railroads are experiencing a resurgence, driven by international trade, commodities transport, and the rail's cost advantage over truck transport.

Further, the revival of the rails is not exclusive to one nation in North America. Canada also is seeing a healthy growth in railroad services and Canadian Pacific (NYSE: CP) is worth a review.

Analysts see 4-6% revenue growth for CP in 2008, in Canadian dollars, with grain, fertilizer and oil sands related shipment gains offsetting declines in forest products.

Another positive: analysts also expect CP to continue to improve rail system efficiency and fluidity, will overall better asset utilization

MOST NOTEWORTHY: Weyerhaeuser, Infineon and Intuit were today's noteworthy downgrades:

• Deutsche Bank downgraded shares of Weyerhaeuser (NYSE: WY) to Hold from Buy following the company's investor day, as they were disappointed that no REIT conversion will occur before 2010. Deutsche lowered their target price to $65 from $95.
  
• Citigroup assumed coverage of IFX (NYSE: IFX) and downgraded the stock to Hold from Buy on valuation following the recent rally.
  
• Merrill Lynch cut Intuit (NASDAQ: INTU) to Underperform from Neutral. The rating changes reflect Merrill's new rating system based on relative recommendations within the sector.

OTHER DOWNGRADES:

• Morgan Stanley lowered ReneSola (NYSE: SOL) to Underweight from Equal Weight.
  
• RBC Capital downgraded Canadian Pacific (NYSE: CP) to Sector Perform from Outperform.
  
• Praxair (NYSE: PX) was downgraded at HSBC to Neutral from Overweight.

RBC downgraded Canadian Pacific (NYSE: CP) to "sector perform" from "outperform," according to Briefing.com. The news service also reports Morgan Stanley downgraded LDK Solar (NYSE: LDK) to "equal weight" from "overweight."

Novartis (NYSE: NVS) was started as "overweight" at JPMorgan, according to 24/7 Wall St. The financial site also reports that Weyerhaeuser (NYSE: WY) was cut to "hold " at Deutsche Bank.

When a major, metropolitan U.S. newspaper discovers a investment trend or a hot sector, count on increased share demand for companies in the sector. When that paper is one of the top three dailies, in this case The Washington Post, count on even more demand.

On Monday, The Washington Post examined the resurgence of the United States' railroad sector, touching on many of the themes discussed here during the past six months, and described why the rails' services are likely to be in demand for many years.

Readers of this space know that the preference here is for large cap companies, with demonstrated business models, and favorable long-term factors, that have the resources to ride-out short-term economic downturns, including recessions.

And in this category a railroad stock represent a prudent addition to a portfolio, for investors who can tolerate moderate risk.

Pick a railroad. Virtually any railroad. Odds are, you will do fine, long-term, as the nation continues to re-discover the valuable asset - - the national treasury, really - - of its railroads. (More on that latter topic, in a future blog.)

Here are the railroad plays, ranked by risk, with the top stock, BNI, being the lowest risk. A stop/loss, if one were to buy the stock, is also listed:

The revival of the rails is not exclusive to the United States. Canada is seeing a healthy growth in railroad services, and Canadian Pacific (NYSE: CP) is worth an evaluation.

Analysts see 5.7% revenue growth for CP in 2008, in Canadian dollars, with grain, fertilizer and oil sands-related shipment gains offsetting declines in forest products.

Also of note: Analysts also expect CP to continue to improve rail system efficiency and fluidity, and overall asset utilization.

The above positives, combined with CP's strong free cash flow and modest pricing power, make the company an acceptance investment for moderate-risk investors. CP's modest p/e of 13 also tips the risk/return ratio to the purchase side of the scale. The Reuters F2007/F2008 EPS consensus estimates for CP are C$4.27/C$4.78. [Note: Currency figures are in Canadian dollars].

The risks? Like other rails, Canadian Pacific is vulnerable to the economic cycle, hence a slowdown in the global and/or U.S./Canadian economies will hurt CP's results.

Stock Analysis: Canadian Pacific is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from CP's shares. Sell / Stop Loss for the shares in this company: $44.

MOST NOTEWORTHY: Sonus Networks, Kenexa, Canadian Pacific, Applied Materials and Powerwave Tech were today's noteworthy upgrades:

• Merriman upgraded Sonus Networks (NASDAQ: SONS) to Neutral from Sell following its win at BT Group (NYSE: BT) for its ASX platform, which the firm believes endorses the company's technology.
  
• Cantor upgraded Kenexa (NASDAQ: KNXA) to Buy from Hold. The firm finds the stock being 40%+ off due to the 3Q weak earnings report as quite an overreaction and believes there is more than enough upside to advise buying shares. Management announced a 2M share buyback program.
  
• Shares of Canadian Pacific (NYSE: CP) was upgraded to Sector Outperformer from Sector Performer at CIBC, as they believe the strong Canadian Dollar and the delay in STB approval of the DM&E acquisition is priced into shares.
  
• Applied Materials (NASDAQ: AMAT) was upgraded to Outperform from Neutral at JP Morgan and to Buy from Hold at Citigroup; Citigroup expects capex revisions to start to reverse in mid-08 and views solar as a free option.
  
• Piper Jaffray raised its rating on Powerwave Technologies (NASDAQ: PWAV) to Outperform from Market Perform on valuation and seasonally strong Q4 capex trends.

OTHER UPGRADES:

• eBay (NASDAQ: EBAY) was upgraded to Outperform from Market Perform at Piper Jaffray.
  
• Morgan Joseph upgraded Perini (NYSE: PCR) to Buy from Hold and Shuffle Master (SHFL) to Hold from Sell.
  
• Goldman upgraded China Petroleum & Chemical Corp (NYSE: SNP) to Buy from Neutral.

Before the bell: Futures indicate a down day ahead

After deciding last week to end its deal with Apple Inc. (NASDAQ: AAPL) iTunes store, where NBC Universal shows had accounted for 30% of the videos sold there, the General Electric Co. (NYSE: GE) unit yesterday announced Amazon.com Inc.'s (NASDAQ: AMZN) digital download service Amazon Unbox will now carry its shows.

Following Merrill Lynch's improved outlook on long-term metal prices, several companies' rating was also changed. BHP Billiton (NYSE: BHP) and Rio Tinto (NYSE: RTP) earnings are expected to improve and Alcoa Inc. (NYSE: AA) was upgraded to Buy. AA shares are up 1.5% in premarket trading.

Canadian Pacific Railway (NYSE: CP) announced it has agreed to buy Dakota, Minnesota & Eastern Railroad Corporation for at least $1.5 billion in cash.

Guess Inc. (NYSE: GES) shares declined over 7% in after-hours trading yesterday after the clothing retailer reported financial results, posting an 81.5% jump in quarterly profit. While the company raised its 2008 outlook, it wasn't as much as investors had wanted and they punished the stock.

Palm Inc. (NASDAQ: PALM) announced in its official blog it has decided to pull the Foleo mobile companion product. "This decision will require us to take a limited charge of less than $10 million dollars to our earnings."

Yahoo! Inc. (NASDAQ: YHOO) has struck a deal to buy BlueLithium, the fifth-largest U.S. online ad network, for $300 million in cash.