MOST NOTEWORTHY: Time Warner Telecom, Verigy and Brinker were today's noteworthy initiations:

• Friedman Billings expects Time Warner Telecom (NASDAQ: TWTC) to post free cash flow growth above consensus expectations and believes carrier spending-concerns are overdone. The firm initiated shares with an Outperform rating and $20 target.
  
• Oppenheimer initiated Verigy (NASDAQ: VRGY) with a Perform rating and $23 target, pointing to the company's tough year over year comps as PC unit growth slows in 2008 as well as its exposure to flash memory chips.
  
• Brinker (NYSE: EAT) was assumed with a Neutral rating at Suntrust, as they expect Chili's to continue to be impacted by weak consumer spending.

OTHER INITIATIONS:

• Baird assumed Ulta Salon (NASDAQ: ULTA) with an Outperform rating and $18 target.
  
• Lions Gate (NYSE: LGF) was initiated at Jefferies with a Hold rating and $10-$11 target.
  
• Landstar System (NASDAQ: LSTR) was initiated with a Market Perform rating at Morgan Keegan.

MOST NOTEWORTHY: Dreamworks Animation, Pharmasset and Vertex Pharmaceuticals were today's noteworthy initiations:

• Jefferies initiated Dreamworks Animation (NYSE: DWA) with a Hold rating and $25 target. The firm believes the company needs stronger-than-expected box office performance to drive material share appreciation, which they view as a risky bet given recent non-Shrek film performance, slower DVD sales and a tough economy.
  
• Merriman assumed coverage of Pharmasset (NASDAQ: VRUS) with a Buy rating, as they believe the current share price does not adequately reflect the company's strong clinical data, potential for clinical milestones, or potential for revenue generation. They believe shares could trade to a fair value range of $20-24 in the next 12 months.
  
• Merriman initiated shares of Vertex Pharmaceutials (NASDAQ: VRTX) with a Neutral rating, and recommends investors hold pending a greater understanding of clinical timelines and results for other HCV drug candidates.

OTHER INITIATIONS:

• Merrill Lynch initiated Time Warner Telecom (NASDAQ: TWTC) with a Neutral rating.
  
• UBS initiated Protalix (AMEX: PLX) with a Buy rating and $6 target.
  
• Pacific Growth assumed United Online (NASDAQ: UNTD) and Internet Brands (NASDAQ: INET) with Buy ratings.

MOST NOTEWORTHY: The U.S. clean energy sector, MGI Pharma, Apple and Kosan Biosciences were today's noteworthy initiations:

• Morgan Stanley initiated the U.S. clean energy sector with an Attractive view. The analyst assumed coverage of First Solar (NASDAQ: FSLR), Fuel Tech (NASDAQ: FTEK) and SunPower Corporation (NASDAQ: SPWR) with Overweight ratings and EnerNOC, Inc (NASDAQ: ENOC) with an Underweight rating.
  
• Banc of America started shares of MGI Pharma (NASDAQ: MOGN) with a Buy rating and $45 target, as they expect sales growth in 2008 to be driven by Aquavan, which they view as an underappreciated asset, and potential survival data for Dacogen.
  
• Soleil believes Apple (NASDAQ: AAPL) could nearly double its PC market share to between 5.5% and 6% over the next five years. The firm started shares with a Buy rating and $200 target.
  
• Roth Capital initiated Kosan Biosciences (NASDAQ: KOSN) with a Buy rating and $10 target, as they are positive on the company's Hsp90 program and expect an NDA filing as early as 2009 in the relapsed-refractory settings.

OTHER INITIATIONS:

• KeyBanc Capital initiated CastlePoint Holdings (NASDAQ: CPHL) with a Buy rating and $16 target.
  
• Time Warner Telecom (NASDAQ: TWTC) was started at Cowen with an Outperform rating.
  
• Jefferies resumed coverage of Windstream (WIN) with a Hold rating and $16 target and Embarq Corporation (NYSE: EQ) with a Buy rating and $68 target.

MAJOR PAPERS:

• It was revealed yesterday that Terra Firma is among the potential bidders for Ford Motor Company's (NYSE: F) Jaguar and Land Rover brands, reported the Financial Times.
• There is a 40% to 45% risk that a recession will be triggered by the housing market downturn in the U.S., the CEO of Freddie Mac (NYSE: FRE) warned, the Financial Times reported.

OTHER PAPERS:

• From BusinessWeek's "Inside Wall Street" column:
  
• Investors looking for fast growth in the $110 billion business-enterprise telecom market are betting on Time Warner Telecom (NASDAQ: TWTC), which offers broadband connections for data, high-speed Web access, local voice, and long-distance service.
• Plum Creek Timber (NYSE: PCL) is flying high despite the housing slump and market decline driven by the subprime mortgage crisis.
• Universal Electronics Inc (NASDAQ: UEIC), which makes the remote controls for TVs and other appliances, has caught the Street's eye.

WEBSITES:

• Unstrung.com reported that Cisco Systems Inc (NASDAQ: CSCO) is close to buying a WiMax base station company, according to sources, and one possible target is Alvarion (NASDAQ: ALVR).
• Yahoo! (NASDAQ: YHOO) is reportedly going to reduce the amount of money and effort it spends on premium services related to music, games, TV, and movies, reported TechCrunch.com.

Global Crossing Limited (NASDAQ: GLBC), Time Warner Telecom (NASDAQ: TWTC) and Level 3 Communications Inc (NASDAQ: LVLT), had one heck of a rally the past few day, despite horrific market conditions.

Both Global Crossing and Time Warner Telecom reported very strong results. Global Crossing's stock is selling from $22, up from $17.50 earlier this week. Why? The international telecommunications service provider reported a 500 basis-point improvement in its gross margin. This is a company that had some of the lowest gross margins in the telecommunication sector a few years ago. EBITDA came in $4 million ahead of analysts expectations. A good sign for a company that has often missed financial targets.

Jefferies has EBITDA going from $144 million in 2007 to $388 million by 2010. The combination of better industry conditions and recent acquisitions bodes well for the once-bankrupt telecom provider.

Time Warner Telecom also reported strong results earlier this week and should be looked at.

Emerging telecommunications providers got hit pretty hard after Level 3's results came in lite. Level 3 said demand for its services was strong, but messed up getting new customers on the network. Investors were not sure to believe management. From the results of both Global Crossing and Time Warner Telecom, it appears the demand for service from these new service providers is most definitely strong.

MOST NOTEWORTHY: IBM Corp (IBM), Amazon.com, Inc (AMZN), Hewlett-Packard Co (HPQ), Universal Technical Institute (UTI) and 3Com Corp (COMS) were some of today's noteworthy upgrades:

• Goldman upgraded IBM Corp (NYSE: IBM) to Buy from Neutral to reflect the company's valuation creation moves, as the firm believes IBM's accelerated buyback program and pension expense reduction will be accretive to earnings.

• Despite ThinkEquity's belief that the company was faltering, Amazon.com (NASDAQ: AMZN) customers have grown in size and accelerated their purchases. The upgrade to Accumulate from Source of Funds was based on Amazon.com's increase of market share in core categories.

• AG Edwards upgraded Hewlett Packard (NYSE: HPQ) to Buy from Hold based on higher estimates, continued share gains and the evidence that HPQ has continued its cost cutting abilities.

• BMO Capital upgraded shares of Universal Technical Institute (NYSE: UTI) to Market Perform from Underperform following the company's Q1 results.

• 3Com (NASDAQ: COMS) was upgraded to Hold from Sell at Matrix USA based on the company's improving balance sheet ..

OTHER UPGRADES:

• Jefferies upgraded Lionbridge Technologies (NASDAQ: LIOX) to Buy from Hold.

• Bear Stearns raised Time Warner Telecom Inc (NASDAQ: TWTC) to Outperform from Peer Perform.

• Morgan Keegan upgraded Jones Apparel Group, Inc (NYSE: JNY) to Market Perform from Underperform and Bebe Stores, Inc (NASDAQ: BEBE) to Outperform from Market Perform.

• Prudential upgraded Alcan Inc (NYSE: AL) to Neutral from Underweight.

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

Stocks that have held up best during this correction are most likely showing us where investor conviction is the strongest.

For example, one area that has held up surprising well is the Internet Protocol transport sector. Companies like Level 3 Communications Inc (NASDAQ: LVLT), Global Crossing Ltd (NADSAQ: GLBC), and Time Warner Telecom Inc (NASDAQ: TWTC) have changed little in price.

In previous corrections, these IP transport stocks would get crushed. However, that is not the case anymore.

This is a sign to stay with these stock and add to your position as the broader market continues to correct. If investors aren't selling these stocks now, it most likely indicates confidence is building in this space.

Additionally, Expedia inc (NASDAQ: EXPE), the online travel giant, has also held up very well, changing little in price during this correction. The stock has traded all over the place in previous corrections. This is a sign that investor confidence is improving here also.

All four stocks mentioned in this blog have good unit volume growth, operate low-cost businesses and appear to have pricing power returning to their industry -- a good combination to make some good money.

After Cisco Systems Inc's (NASDAQ: CSCO) outstanding results, we blogged that another way to play the huge growth in IP traffic was through pure IP service providers such as Level 3 Communications Inc (NASDAQ: LVLT), Global Crossing Limited (NASDAQ: GLBC) and Time Warner Telecom (NASDAQ: TWTC). That day, these stocks rallied big, especially Level 3.

Yesterday, Level 3 reported outstanding results but the stock gave back all the gains made on Wednesday. Why? The company said EBITDA would be down sequentially.

I would use yesterday's price weakness to get into this stock. Level 3 is going to spend a boat load of money in the first quarter to properly integrate Broadwing and the other companies it acquired during 2006. After that, operating results, along with the stock, should be off to the races again.

Sprint Nextel Corporation (NYSE: S) has been one disaster of a merger because it never bit the bullet and spent the money to properly integrate the two companies. Sprint, after years of poor performance, is finally going to do the ugly work. But it might be too late.

The strong underlying trends in Level 3's business are too powerful to ignore. The core IP communications business is growing 25% to 30% per year, its growth rate and operating margins are the best in the industry and it continues to attract better and better customers--the who's who of the Internet era. In addition, Level 3 will substantially improve the debt-to-EBITDA ratio by 2008.

Yesterday's sell off was an overreaction. I would use it as a buying opportunity.

MOST NOTEWORTHY: HSBC Holdings Plc (HBC), Suncor Energy Inc (SU) and Apple Inc (AAPL) topped today's list of downgrades:

• HSBC Holdings Plc (NYSE: HBC) was downgraded to Underweight from Neutral at JP Morgan, as the firm believes the loan loss from the U.S. mortgage business may be 20% worse than expected. They recommend investors to short HBC shares and use any rally to add short positions.
• Suncor Energy Inc (NYSE: SU) was downgraded to Underperform from Market Perform at Freidman Billings, citing fair valuation, higher capital costs and downside potential from crude oil prices.
• Apple Inc (NASDAQ: AAPL) was removed from Goldman Sachs' Conviction Buy List.

OTHER DOWNGRADES:

• Roche Holdings (OTC: RHHBY) was downgraded to Neutral from Buy at UBS.
• Pacer Int'l Inc (NASDAQ: PACR) was downgraded to Neutral from Outperform with a $33 target at Baird after the company's disappointing fourth-quarter report.
• Baird downgraded Host Hotels & Resorts (NYSE: HST) to Neutral from Outperform on valuation.
• Sina Corp (NASDAQ: SINA) was downgraded to Market Perform from Outperform at Piper Jaffray due to valuation after the company's solid quarter.
• JP Morgan downgraded AK Steel Holding Corp (NYSE: AKS) to Neutral from Overweight as they believe an acquisition of the company is not likely imminent given recent insider selling.
• Raymond James downgraded Time Warner Telecom Inc (NASDAQ: TWTC) to Outperform from Strong Buy.
• Oppenheimer downgraded FMC Corp (NYSE: FMC) to Neutral from Buy.
• AG Edwards downgraded Simon Property Group Inc (NYSE: SPG) to Hold from Buy on valuation.

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

Cisco Systems Inc's (NASDAQ: CSCO) quarter-after-quarter of strong results is due to its focus and domination in developing the best Internet Protocol (IP) networking technology. Are there other ways to invest in IP and profit? Look at the remaining pure IP service providers:

• Level 3 Communications (NASDAQ: LVLT)
• Time Warner Telecom Inc (NASDAQ: TWTC)
• Global Crossing Limited (NASDAQ: GLBC)
• Qwest Communications International Inc(NYSE: Q)

Level 3 still has the most bang for the buck. Also, do not forget about Qwest, which owns an old Baby Bell but also owns a sizable nationwide IP backbone.

Chambers mentioned a number of interesting statistics during Cisco's conference call. Cisco's optical business grew 40% and its sales to service providers jumped 20%. Chambers went as far as to say that there are signs in the enterprise space that look very much like that of the mid 1990s before technology stocks went through the roof.

If Chambers forecast proves to be correct, this most likely means a shortage of pure IP capacity could be on the horizon.

MOST NOTEWORTHY: The Entertainment Sector was the most notable downgrade today, made by Bank of America.

• The Entertainment Sector was downgraded to Market Weight from Overweight from Bank of America, citing valuation, given less upside to their targets. Bank of America did not make any changes to their individual stock ratings and kept News Corp (NYSE: NWS) as their Focus Stock.

OTHER DOWNGRADES:

• Deutsche Bank downgraded Level 3 Communications (NASDAQ: LVLT) to Sell from Hold, citing valuation. The firm recommended investors swap into Time Warner Telecom (NASDAQ: TWTC) instead.

• Prudential downgraded shares of Caremark RX (NYSE: CMX) to Neutral from Overweight. The firm doesn't believe the offer by CVS Corp (NYSE: CVS) for a $2 special dividend and the promise to repurchase 150M shares by the new company benefits Caremark RX shareholders as much as a simple increase in shares or cash from CVS would have.

• Matrix USA downgraded Worthington Industries (NYSE: WOR) to Sell from Hold, citing the slowing demand for steel processing and metal framing.

• CIBC downgraded shares of Commerce Bancorp (NYSE: CBH) to Sector Performer from Outperformer on increased regulatory uncertainty following the company's announcement that it is being investigated by the Office of the Comptroller of the Currency.

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

Time Warner Inc. (NYSE: TWX) closed today at $17.73, up 24 cents, or 1.37%, on 21,296,000 shares traded. It was one of the highest closes for TWX in recent memory, and the highest close since February 17, 2006.

Some key events of the past week:

- Presentations still indicate that the Time Warner Cable separation after the Adelphia acquisition is still on track.

- The company set its earnings date for Wednesday, November 1, 2006. Oddly enough, traders rallied the stock Friday after they set the date as that often creates a "maybe that means there is no warning since they didn't give us a warning" mentality among traders.

- TWX and its affiliates sold over 39 million shares of Time Warner Telecom (TWTC) this week, a much higher number of shares after it had been telegraphed last week.

The expected Time Warner Telecom (TWTC) secondary offering priced at $17.50 for the full share amount and then some. The secondary offering of common stock was apparently raised from 27.5 million shares up to over 33 million shares; but the offering was for even more than that. THE ACTUAL NUMBER OF SHARES IS 39,660,598, which is more than the higher end and more than the over-allotment shares.

So, not only was it a higher number of shares that the market was willing to absorb, but it was at a good price if you consider that TWTC closed up almost 5% yesterday.

This morning, "TWTC" shares are trading up at $18.15 as of the last print, and it has already traded more than 1 million shares in pre-market activity. You can expect this to be one of the most active stocks on NASDAQ today. Once again, Time Warner Inc. (NYSE: TWX) and its affiliate owners were the sellers, so Time Warner Telecom will receive no dollar proceeds from the offering. They will gain this much more independence from the ex-parent, but not the cash.

This isn't the first time this year that shares have been sold by "TWX," and this may not be the last time. As noted previously, this share sale and the subsequent pricing was actually good for both sides because it allows Time Warner Telecom (TWTC) to become less and less of astep child and it allows Time Warner to go on down the road to focus on and worry about what it needs to focus on.

There are supposed to be at least two telecom investor buyers in this deal that anted up for more than 2 million shares each, although that has yet to be confirmed and it may not ever be confirmed. In secondary offerings there are quite often more suppositions than there are facts, so it may not even be worth trying to figure that detail out.

Deutsche Bank Securities, Lehman Brothers, and J.P. Morgan acted as the underwriters. TWTC traded 3.1 million shares in regular trading yesterday (compared to 1.15 milllion average daily volume), and you can expect quite a lot more volume today as the shorts cover what they needed to cover fom their allocations from hedging and from the natural after-market buying and selling that comes with most secondary offerings.

Tonight we should be getting the awaited pricing of the secondary offering of 27.5 million shares of common stock from Time Warner Telecom (TWTC) that is being sold on behalf of Time Warner Inc. (NYSE: TWX) and affiliates. The offering was announced last Thursday morning before the market open. TWTC stock closed on September 14 at $18.63, which was within striking distance of the $18.93 highs for the last 52 weeks. That same high was essentially the high for a multi-year period.

Since that $18.63 close on "TWTC," the stock has slipped. We noted back than that TWTC would sell off on the announcement, and the shares seem to have tried stabilizing since then. It had a low close of $17.15 yesterday on what was even higher volume than the day the secondary offering was filed and became known. Today the shares of TWTC are up mearly 5% at $17.97, although the pace of the volume is not set to outpace the prior day. I would now bet that the pricing of the deal comes in at $17.60 to $17.80.

Time Warner Inc. (TWX) has risen steadily since the secondary offering, but its rise has been because of the other initiatives going on that should ultimately help TWX shareholders. TWX actually closed down on the day that the TWTC share sale became known. Now that TWX has crossed back over the 200-day moving average, it is acting like it wants to be in a new trading range. Our crystal ball is in the shop for repairs, so it is not possible to say that with 100% certainty. TWX shares are up nearly 4% since that day though.

The important thing to remember is that this share sale of "TWTC" on behalf of "TWX and affiliates" is good in the long-run for both TWX and TWTC. This allows TWTC to become less of a crimped quasi-subsidiary that has to live under old contract terms in a changed world. Plus, it allows TWX to go on down the road focusing on its turnaround plan while capturing some added liquidity to boot.

"TWTC" has signaled in its last annual report that it may ultimately apply for a name change so it can act as more of an independent company. This offering gets the company closer to that as a real possibility and it should be expected that, as Time Warner Inc. ventures through its coming asset spin-off, unit sale(s), and restructuring, Time Warner Telecom will make an effort to make its own name.

Time Warner Telecom Inc. (TWTC) has announced that its principal stockholders commenced an underwritten public offering of 27,500,000 shares of its Class A common stock. They have also earmarked an over-allotment option to purchase up to an additional 4,125,000 shares within 30 days of the underwriting.

All of the shares that are being offered are currently owned by subsidiaries of Time Warner Inc. (TWX) and by Advance Telecom Holdings Corporation and Newhouse Telecom Holdings Corporation. The company will not receive any cash proceeds from the offering.

Deutsche Bank Securities Inc., Lehman Brothers Inc. and J.P. Morgan Securities Inc. are joint bookrunning managers.

Last month Deutsche Bank started TWTC as a Buy rated stock. Lehman has an Outperform rating on the shares. one point of interest is that TWTC sold 19.4 million shares back in March and Morgan Stanley was in that underwriting group, but they are not in this underwriting.

Shares of TWTC ended up $0.11 at $18.63 as of yesterday's close. Its 52-week trading range is $6.84 to $18.93.

What is interesting about this offering is that it actually has a dual function after you look at the share offering.