The McGraw-Hill Companies (NYSE: MHP), a distributor of business information and educational materials which counts Scholastic (NASDAQ: SCHL) as a related stock, issued third-quarter results earlier today. Sales contracted over 8%. Net income on a dollar basis dropped almost 14%. Earnings per diluted share decreased a very unlucky 13% to $1.07. At least expectations were taken out. Earnings.com indicates a beat of two pennies for per-share profit.

The declines are pretty understandable. When you think about McGraw-Hill, you understand fairly quickly that the company's business model is tied closely to the economy. Education markets must be tough given all the budget cuts happening in school systems across the country. Plus, spending by administrators is probably done these days very slowly and carefully.

MOST NOTEWORTHY: IberiaBank, Dynamic Materials and Barr Pharmaceuticals were today's noteworthy upgrades:

• Keefe Bruyette upgraded shares of IberiaBank (NASDAQ: IBKC) to Market Perform from Underperform after the company announced that Pulaski has assumed the insured deposits of ANB Financial of Bentonville, Arkansas.
  
• KeyBanc upgraded Dynamic Materials (NASDAQ: BOOM) to Buy from Hold citing stability in base business, valuation, and the added benefit associated with a European competitor being acquired.
  
• Cowen raised Barr Pharma (NYSE: BRL) to Outperform from Neutral citing the recent pullback.

OTHER UPGRADES:

• Goldman added McGraw-Hill (NASDAQ: MHP) to its Conviction Buy List.
  
• RBC Capital raised RadioShack (NYSE: RSH) to Sector Perform from Underperform.
  
• Sirius Satellite (NASDAQ: SIRI) was upgraded at Merrill Lynch to Neutral from Sell.

MAJOR PAPERS:

• The active ingredient in Baxter International Inc's (NYSE: BAX) generic version of the anticlotting drug heparin, under investigation for four deaths and hundreds of bad reactions, was made in China, the Wall Street Journal reported.
• Structured investment vehicles that provide short term debt to fund the purchases of municipal bonds and student loans are under increasing pressure, according to the Wall Street Journal's "Heard on the Street". Citigroup Incorporated (NYSE: C), JP Morgan Chase & Co (NYSE: JPM) and Merrill Lynch & Co Inc (NYSE: MER) are among the banks that could be affected.

OTHER PAPERS:

• The New York Times reported that Hewlett-Packard Company (NYSE: HPQ) has settled with The New York Times Company (NYSE: NYT) and McGraw Hill Companies Incorporated's (NYSE: MHP) BusinessWeek journalists related to a spying scandal that stemmed from obtaining telephone records. The involved parties did not disclose the amount of the settlement.

WEB SITES:

• Mike Zafirovski, CEO of Nortel Networks Corporation (NYSE: NT), said the company would examine possible opportunities to be taken over "when they arise." Mr. Zafirovski did not comment on rumors of a Motorola Inc (NYSE: MOT) merger, Reuters reported.

For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.

"McGraw-Hill (NYSE: MHP) is my top conservative pick for 2008," says Nathan Slaughter, editor of Half-Priced Stocks. "If you want to beat the market in 2008, then you might start with the one company that actually owns the market, or at least the S&P 500 Index; McGraw holds the keys to the widely used stock barometer, as well as other benchmarks from the ubiquitous Standard & Poor's family.

"From futures contracts to ETFs, there is a staggering $5 trillion of investable assets linked to these indices -- which generate piles of recurring royalty and licensing revenues.

"Elsewhere, the firm is also a leading provider of textbooks and other supplemental learning materials. There are roughly 55 million students enrolled in grades K-12, and state governments currently spend more than $8,500 per student each year -- a total that is forecast to hit $11,000 within the next seven years.

Bloomberg News reports that Connecticut's attorney general has subpoenaed McGraw Hill (NYSE: MHP)'s Standard & Poor's related to an investigation into credit rating.

The legal question is whether S&P issued overly rosy credit ratings on subprime mortgage-backed securities (MBSs) that later lost more than half their value. S&P and its peers were competing for the lucrative ratings fees paid by the investment banks that underwrote the MBSs. And it has been alleged that the winning firms offered the highest ratings.

If the MBSs were indeed the financial equivalent of toxic waste -- then the AAA ratings that S&P and its peers awarded to the MBSs could be thought of as golden wrapping paper. This gold wrap was particularly useful to the investment banks when they visited MBS customers in Europe and Australia.

Rather than get into the details of what was inside the gold-wrapped boxes, these customers simply relied on the assurances of the MBS sales people that the "investment" had been blessed by S&P. No need to dirty themselves with unwrapping the box and exposing the toxic waste within.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned in this post.

Today should be an interesting day for the "independent" ratings agencies. McGraw Hill's (NYSE: MHP) Standard & Poor's and Moody's Corp. (NYSE: MCO) will be speaking on Capitol Hilll today and tomorrow [subscription required].

Critics have become more vocal that the late summer downgrades on mortgage and derivative securities came too late. It goes without saying that the analysis the bond rating agencies were issuing seemed as if none had questioned the numbers given to them without finding the real exposure. The results were so good that S&P canned its ratings agency head. Moody's also made changes, but this was too little too late. If you have been keeping up with this, you'd know shares of both were hit and recently reached new 52-week lows.

Bond rating agencies have been in the soup before over their coverage of great companies like Enron and WorldCom. The difference is, this time they were not just duped by management being hellbent on fraud; this time they just didn't do their job.

But ... congress doesn't even know what it is looking for here, other than getting some air time and making it look like it wants to investigate. The ratings agencies definitely botched it here, but it's likely that nothing of major consequence will happen to them for it.

MAJOR PAPERS:

• Amid mounting criticism for its role in the subprime crisis, McGraw Hill Companies Inc (NYSE: MHP) replaced Kathleen Corbet, the president of Standard & Poors, with Deven Sharma, a McGraw Hill senior VP who has been with S&P since the end of last year, reported the Wall Street Journal.
• Barron's Online's "Inside Scoop" column reported that Aeropostale Inc (NYSE: ARO) CFO Michael Cunningham sold $2.1M in stock Monday at an average price of $22.43 per share, according to SEC data.

OTHER PAPERS:

• Indian IT outsourcing companies Infosys Technologies (NASDAQ: INFY) and Wipro Limited (NYSE: WIT) have reportedly both shown interest in buying out the US-based high-end analytics company MarketRx, which is believed to be worth between $150M and $160M, reported the Economic Times.
• The New York Times reported that General Electric Company's (NYSE: GE) NBC Universal has decided not to renew its contract to sell digital downloads of television shows on Apple Inc's (NASDAQ: AAPL) iTunes online store.
• From BusinessWeek's "Inside Wall Street" column:
  
• Coca-Cola Company (NYSE: KO) is making a comeback, thanks to its huge global distribution edge.
  
• Southern Copper Corporation (NYSE: PCU) is a good copper play, as it is undervalued and ignored, especially considering its 6.21% dividend yield.
  
• Ariad Pharmaceuticals (NASDAQ: ARIA) may be one of the more underappreciated and undervalued biotech stocks around.

Barron's published an interview with Sy Jacobs, a fund manager who has spent a good amount of time looking at the mortgage sector.

Jacobs remains bearish on the subprime market, saying although the subprime market makes up only 12% of the total mortgage market, it made up 20% of 2006's mortgage market volume, therefore growing rapidly as a percentage of the entire market. Jacobs also said nearly $700 billion in mortgages reset this year, half of which are subprime.

Also, many of resets this year are for the most fancy of the teaser-rate subprime mortgages issued. One of the most popular loan products at the time being a 3/1 adjustable-rate mortgage, the first three years fixed and adjustable each year thereafter. These products begin resetting this year after 17 interest rate increases by the Fed, according to Jacobs.

Another popular product sold in 2005 was a two-year fixed and 28-year floating rate mortgage. The adjustable component for this subprime mortgage also kicks in 2007. Jacobs makes the point with Freddie Mac halting it purchases of subprime mortgages, already widening spreads could widen even more as few buyers are in the market for these mortgages.

Jacobs has three interesting shorts that will be affected by the collateral damage. Bankrate Inc (NASDAQ: RATE), which seems to be an Internet traffic play, Moody's Corporation (NYSE: MCO) and McGraw Hill Companies Inc (NYSE: MHP), which owns Standard & Poor's.

Jacobs says much of Moody's and S&P's growth has come from the structured finance business such as CDOs and RMBS (residential mortgaged backed securities). Subprime, CDOs and RMBSs, the faster growth business for the two rating agencies, now make up 20% of Moody's and S&P's volume.

With Moody's trading at 25x earnings and S&P at 22x, these stocks are vulnerable to market and earnings contractions as the full impact of the subprime market hits home.

Last week, it appeared Wall Street's trading desks began making markets for subprime mortgages again. The next step, according to Jacabs, is to see what level of bankruptcy occurs as these adjustable-rate products reset.

As we said last week, the subprime business is still a Big Boys market, continue to stay on the sidelines.

Investment commentator Jim Cramer said The McGraw-Hill Companies (NYSE: MHP) may be the only print media company to own tonight on his TV show MAD MONEY. He warned that other media companies are dealing with a decline in newspaper circulation that is secular and will be ongoing and persistent.

In contrast, MHP, which still publishes BusinessWeek, trade magazines and educational texts, is diversifying out of printing now. That makes it more appealing to any fund that wants print exposure, Cramer believes. He said that the same funds, private equity firms and billionaires that are exploring buying The New York Times Company (NYSE:NYT), Tribune Company (NYSE:TRB), and Dow Jones & Company, Inc. (NYSE:DJ) should be looking at MHP.

MHP closed down 0.9% at $66.65, but rose to $67.23 after his touting. Its 52-week trading range is $46.37 to $67.43. Cramer also pointed out that DJ & NYT aren't really public companies because the dual share class structure allows family members to retain much of the control.

Shares of Time Warner (TWX) experienced another positive day, which shareholders may be feeling is becoming quite common. Its shares rose 0.66% (or +$0.11) to $16.87, which is a tad above the DJIA's 0.54% gain and the 0.38% gain in the S&P 500. Even the NASDAQ only rose 0.49%.

It seems the street felt the same way about the fact that Neuf Cegetel's IPO filing in France would maybe be the gold bearer to finally get the AOL France unit sold. If so, then we at least have the beginning of a basis, and even a theoretical proof of concept of perceived demand, that could lead to the pricingand sale of AOL UK and AOL Germany.

Amazon.com's (AMZN) "UnBox" movie and television download service is also one thing that may be a postive for Time Warner since it owns so much of that content. This service is really being deemed expensive and may not be overly successful for Amazon.com at the pricing it wants to offer movie/video downloads, but the incremental costs for Time Warner will likely be so low that any sales it generates will end up on the bottom line. Time Warner's Warner Bros. is part of the consortium that will offer these downloads via Amazon.com.

The Business Week article pointing out that it was bad to borrow money to do a stock buyback was completely ignored. Maybe since McGraw Hill (MHP) owns Business Week it was deemed a personal attack. That of course isn't true, but good to know who owns whom?