Merrill upgraded shares of General Motors (NYSE: GM) and Ford (NYSE: F) to Neutral from Underperform on expectations for fundamentals to improve in 2009.
Citigroup upgraded Chubb (NYSE: CB) and Travelers Group (NYSE: TRV) to Buy from Hold as they expect the company to benefit from the AIG (NYSE: AIG) fallout. The firm raised Chubb's target to $57 from $56 and Travelers Group's target to $51.50 from $49.50.
Credit Suisse upgraded shares of SAP AG (NYSE: SAP) to Outperform from Neutral as they believe margin expansion can drive higher profitability.
JetBlue (NASDAQ: JBLU) was upgraded to Buy from Hold at Argus.
NetLogic (NASDAQ: NETL) was upgraded to Buy from Neutral at Piper.
Analyst downgrades:
JP Morgan downgraded Eli Lilly (NYSE: LLY) to Underweight from Neutral citing the company's early stage pipeline and generic competition.
Merrill downgraded Unilever (NYSE: UL) to Neutral from Buy as they believe the incoming CEO is unlikely to bring a major restructuring or split up the company.
The editor of Dow Theory Forecasts says, "While stocks in the equipment and services group tend to move with oil prices in the near term, their profits depend more on exploration spending than on commodity prices."
"Concerns about slowing demand for crude oil and re?ned products both in the U.S. and overseas have many investors worried. But investors in the equipment and services group should not panic.
"Most producers continue to spend aggressively. And U.S. crude-oil inventories remain well below the average for this time of year, with fewer than 20 days of supply in storage.
"Demand for offshore-drilling services remains strong, giving Transocean excellent growth potential. Consensus estimates project per-share profits will rise 69% in 2008 and 15% in 2009. Transocean, the world's largest offshore drilling contractor, operates in every major drilling region.
"A combination of tight global rig supplies and the ongoing discovery of new offshore reserves have driven rig lease rates higher and kept Transocean's fleet busy. The company's largest, most expensive rigs are 95% sold out for 2009, and the backlog is growing.
TheStreet.com's Jim Cramer says lots of companies now thrive with crude up here.
Oil's not a tax on everything -- it's a tax on the consumer. That's what I come down to when I see the charts this weekend and ponder what's happening in so much of industrial America.
Company after company that I examine -- the new techs, as I call them -- actually benefit from higher oil prices. Or they can pass them on with ease, because of the worldwide demand being so strong.
Take all of the companies involved with making a Boeing (NYSE: BA) (Cramer's Take): Boeing itself, Alcoa (NYSE: AA) (Cramer's Take), Honeywell (NYSE: HON) (Cramer's Take) and Precision Castparts (NYSE: PCP) (Cramer's Take) being good examples. Each of these is necessary because the new Dreamliner burns lots less fuel, and with fuel the biggest airline cost, it stands to reason that higher energy prices make the plane more desirable even at a higher price point.
With the national average of unleaded regular gasoline above $3.15 and oil's recent price surge not fully felt by refiners yet, there's a good chance gasoline will hit $4 per gallon this summer in the United States, particularly if driving patterns mirror previous summers.
What's a good way to cope with the above? Turn it your advantage, to the extent possible, at both ends. Accordingly, here are a few tactics for investors and consumers in the $4 gasoline era.
It goes without saying that every defensive stock category is being tested in this market.
Moreover, while no sector is 100% bullet-proof from a market that seems to look for an excuse to decline another 200 points, the oil and oil services sector has fared reasonably well, and in this category Oceaneering International (NYSE: OII) is worth a review.
Oceaneering is an advanced technology company servicing the oil and gas industry, among others. It focuses on providing underwater drilling support, construction, inspection and repair services to oil/gas companies.
As one might estimate, OII's fortunes are tied to the strength of oil/natural gas prices and with prices at near-record levels, OII's business is strong and likely to remain so: most analysts see a long, strong, global deepwater oil services cycle.
"The energy sector has been the U.S. stock market's best performer over the past three and five years -- and among the best so far in 2007," says Richard Moroney in his Upside newsletter.
He says, "Shares of energy companies, especially equipment and services concerns, seem unduly cheap -- even if per-barrel oil prices retreat by $10 or $15." Here he looks at Gardner Denver Inc. (NYSE: GDI) and NATCO Group Inc. (NYSE: NTG).
"Over the last three years, spending on capital expenditures has grown at an impressive 28% annual clip. Even if oil and gas prices drop sharply, which seems unlikely given supply and demand forecasts -- capital spending should remain robust.
"Gardner Denver is one of the largest providers of reciprocating pumps used in oil and gas drilling and production. For full-year 2007, management lifted its per-share profit guidance to a range of $3.10 to $3.18, up from the $2.49 earned in 2006. Gardner Denver, positioned to exceed consensus profit estimates, is a Best Buy.
What are the best energy investments for long-term investors? To answer this question, I surveyed 20 of the nation's leading financial newsletter advisors to find their current favorite ideas in the energy sector.
Interestingly, the advisors see the best opportunities in areas well beyond traditional oil firms; indeed, no one included in this report chose a major integrated oil company. Rather, the advisors have shown a preference for various oil services sectors, non-oil energy sources, and developing alternative technologies.
Others chose companies that make specific products needed by the oil & gas industries such as NATCO Group Inc. (NYSE: NTG), which makes a wide range of oil & gas processing systems; Dresser-Rand Group Inc. (NYSE: DRC), a maker of control systems; Gardner Denver Inc. (NYSE: GDI), which makes compressor and fluid transfer systems; Tenaris (NYSE: TS), a maker of pipes and tublar products and Schlumberger Ltd. (NYSE: SLB), the largest and most diversified of the oil services companies.
I know. These are oil companies. They are not semis or software or hardware. They are technical services companies that allow companies to recoup marginal oil.
They are the ultimate tech plays on $80 oil. They are worth their weight in black gold.
MOST NOTEWORTHY: Bear Stearns (BSC), Citigroup (C), Lehman (LEH), Chicago Bridge & Iron (CBI) and Bed Bath & Beyond (BBBY) were today's noteworthy downgrades:
Merrill downgraded Bear Stearns (NYSE: BSC), Citigroup (NYSE: C) and Lehman Brothers (NYSE: LEH) to Neutral from Buy to reflect greater earnings risk stemming from the slowdown in securitization and mortgage. Merrill also finds it "inevitable" that revenue from underwriting and advising on takeovers will slow.
Stanford downgraded shares of Chicago Bridge & Iron (NYSE: CBI) to Sell from Hold as they believe the premium valuation is unjustified given the Lummus acquisition.
Merrill Lynch cut Bed Bath & Beyond (NASDAQ: BBBY) to Sell from Neutral based on slowing secular growth...
OTHER DOWNGRADES:
Goldman downgraded Zale (NYSE: ZLC) to Sell from Neutral.
Human beings find it necessary to poke their noses into all manner of unfriendly environments, including ocean depths and outer space. Fortunately, there is an outfit in Houston that is adept at helping folks deal with the rigors of operating in such places.
Oceaneering International (NYSE: OII) provides engineered services and products to the offshore oil and gas industry, the defense community and aerospace concerns. Deepwater offerings include oilfield testing systems, underwater drilling support, and construction/repair services. The firm also makes remotely operated diving vessels and robotic systems for use in space.
Oceaneering pleased investors earlier in the month, when it reported Q2 EPS of 86 cents and revenues of $432 million. Analysts had been expecting 71 cents and $377 million. Management also guided Q3 EPS to 80-88 cents (81 cent consensus) and FY07 EPS to $2.95-$3.10 ($2.84 consensus). The news popped the shares out of a late-July/early August "cup" into the mid-August "handle" of a Cup & Handle formation. Now, the price is showing signs of completing the pattern with a bullish rise from the right-hand side of the "handle."
Brokers recommend the shares with four "strong buys," three "buys" and one "hold." Analysts see a 20 percent growth rate, through the next year. The OII Price to Sales ratio (2.45), Sales Growth rate (38.86%) and EPS Growth rate (53.57%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 95 percent of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $27.80 and $70.13. A stop-loss of $56.25 looks good here.
"New leadership often emerging during corrections," says Richard Moroney in Dow Theory Forecasts, who highlights 6 relative strength blue chips.
The advisor explains, "Stocks have retreated sharply and broadly, reflecting concerns that turmoil in the corporate-junk-bond and mortgage-debt markets will spill over to the broader economy – and perhaps halt the boom in takeovers."
Near-term volatility seems likely, he suggests, and a pullback to 12,700 to 13,350 on the Dow Industrials would be consistent with a secondary correction in an ongoing bull market. While holding some cash on the sidelines seems prudent, he advises, his recommended cash position remains at 5% to 10%.
Looking to find the stocks that will qualify as "new leadership" for after this correction, he notes, "A stock's ability to outperform during such pullbacks is a bullish indicator."
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Analyst upgrades:
Analysts had been expecting 71 cents and $377 million. Management also guided Q3 EPS to 80-88 cents (81 cent consensus) and FY07 EPS to $2.95-$3.10 ($2.84 consensus). The news popped the shares out of a late-July/early August "cup" into the mid-August "handle" of a Cup & Handle formation. Now, the price is showing signs of completing the pattern with a bullish rise from the right-hand side of the "handle."
Closing Bell: Stocks slump as AMD, AT&T, GM and Merck decline
Global Q&A: A rocky road, but profits ahead
Could oil go as low as $40?
