Analyst Upgrades

• Applied Materials (AMAT) to overweight from neutral at Piper Jaffray.
• Air Products (APD) to buy from hold at Citigroup.
• Youku.com (YOKU) and Pinnacle West (PNW) to buy from neutral at Goldman.
• Stryker (SYK) and Zimmer (ZMH) to buy from neutral at UBS.
• Zions Bancorp (ZION) to outperform from neutral at Macquarie.
• Alnylam (ALNY) to buy from hold at Needham.
• AK Steel (AKS) to buy from hold at KeyBanc.

On Wednesday, Investors pushed call option prices higher in the savings & loan industry and pushed put option prices higher in the electric utilities industry.

Any time the volatility skews above 1.00, it is an indication that calls are more expensive than puts. Typically, when calls are more expensive than puts, it means the demand for calls is greater than the demand for puts because investors believe the stock is going to rise in the future and they want to take advantage of that movement by buying calls.

The opposite is also true. Any time a volatility skews below 1.00, it is an indication that puts are more expensive than calls.

Bullish Volatility Skews

- Hudson City Bancorp, Inc. (HCBK)---part of the Savings & Loans industry---came in at the top with a volatility skew of 1.13. This may come as a surprise as HCBK is down -6.89 percent for the past month.

"If you're a retiree or otherwise focused on income, dig into the holdings that make up our Incredible Dividend Machine; this portfolio is designed to home in on champion dividend payers," says Richard Band.

The editor of Profitable Investing explains, "We're looking for the highest yields available, consistent with safety. Three that currently stand out are Merck (MRK), AT&T (T) and Pinnacle West (PNW).

Before you throw up your hands in frustration, hear me out. For just one example, take Pinnacle West (NYSE: PNW). This Arizona company has two divisions: real estate development and an electric utility. Not surprisingly, the stock has really sunk since the spring as investors started fleeing with the intensifying real estate woes; back in April PNW was trading just above $50, and in early August it was down around $37.

Most trend followers would sell this stock too -- who wants to be involved with any real estate development company? As I see it, however, the company has been excessively punished for its real estate division, and it's currently undervalued when one considers its electricity division. Arizona is a hot place with a growing population, and there's only going to be increasing demand for electrical power to cool the homes and offices of all these people. The company may not return to its previous profit levels, but I think investors have overreacted, and we could see this gain several dollars back. When you add some modest growth to a 5.3% dividend, you could find yourself with a nice little profit.

Type of stock: An Arizona company dealing in real estate and electricity.

Price target: If you can get this below $40, I think you'll see it get up to around $45 over the next year. That's a ten percent gain right there, plus a dividend to make it nearly a 15% gain. Plus if you hold long enough, real estate has to come back sometime. That could be at least a few years though, so you'll need to be patient.