Analyst upgrades:

• Merriman upgraded shares of Netezza (NYSE: NZ) to Buy from Neutral following the company's solid Q2 results as they believe it is well-positioned for strong operating results heading into 2H09.
  
• JP Morgan raised Cabot (NYS: CBT) to Overweight from Neutral. The firm expects 2009 to be a better year given lower raw material costs and higher contract prices.
  
• JP Morgan also upgraded Royal Ahold (OTC: AHONY) to Overweight from Neutral on valuation.
  
• Liberty International (OTC: LBYIY) was upgraded to Hold from Sell at Deutsche Bank.
  
• BMO Capital upgraded Royal Bank (NYSE: RY) to Market Perform from Underperform and Bank of Montreal (NYSE: BMO) to Outperform from Market Perform.

Analyst downgrades:

• Jefferies downgraded shares of Constellation Energy (NYSE: CEG) to Underperform on Hold on concerns the company will come under increasing pressure to issue equity. The firm lowered its target to $60 from $71.
• Thomas Weisel downgraded Williams-Sonoma (NYSE: WSM) to Market Weight from Overweight citing continued macro pressures.
  
• Wachovia has concerns that Kayne Anderson's (NYSE: KED) book value will be pressured by its investment in ProPetro Services, trading losses associated with SemGroup, and negative developments at Quest Midstream. The firm cut shares of Kayne to Market Perform from Outperform.
• Energy Conversion (NASDAQ: ENER) was downgraded to Neutral from Buy at Piper.
  
• Deutsche Bank cut International Paper (NYSE: IP) and Domtar (NYSE: UFS) to Hold from Buy.
  
• H&E Equipment (NASDAQ: HEES) was lowered at Credit Suisse to Neutral from Outperform.

Analyst initiations:

• Morgan Stanley yesterday initiated Elan Corp (NYSE: ELN) with an Overweight rating. The firm sees a low-probability of a Tysabri withdrawal.
  
• ThinkPanmure views On Semiconductor (NASDAQ: ONNN) as a nice turnaround story with opportunities for shares gains in notebooks and consumer gaming platforms. Shares were initiated with a Buy rating and $14 target.
• Petrohawk Energy (NYSE: HK) was assumed with an Outperform rating at Morgan Keegan.
  
• Regency Energy (NASDAQ: RGNC) was initiated at Merrill Lynch with a Neutral rating.

MOST NOTEWORTHY: Genzyme, Dean Foods and Key Energy Services were today's noteworthy upgrades:

• Citigroup upgraded shares of Genzyme (NASDAQ: GENZ) to Buy from Hold as it sees EPS upside in 2008 and 2009 from the company's three upcoming product launches and improving operating margins. Citigroup raised its target to $91 from $80.
  
• JP Morgan upgraded Dean Foods (NYSE: DF) to Overweight from Neutral citing valuation and expectations for dairy costs to decline.
  
• Banc of America upgraded shares of Key Energy Services (NYSE: KEG) to Buy from Neutral to reflect the company's increasing pricing power and projected margin expansion for well services and growth opportunities in the shale plays. The firm raised its target price to $22 from $18.

OTHER UPGRADES:

• Domtar (NYSE: UFS) was raised to Outperform from Sector Perform at RBC Capital.
  
• Gladstone (NASDAQ: GOOD) was upgraded to Outperform from Neutral at Baird.
  
• JP Morgan upgraded Macy's (NYSE: M) to Neutral from Underweight.
  
• Goldman upgraded Rexam (OTC: REXMY) to Buy from Neutral.

In a world where we write emails instead of memos, read newspapers online, and reuse office paper as much as possible, it's little wonder that the market for paper isn't thriving like it used to. This is particularly true for uncoated free-sheet paper (UFS), the kind generally used in business settings. Demand for UFS has fallen more than 15% since 2000. So why then is Goldman Sachs rating Domtar Corporation (NYSE: UFS), a company that derives much of its business from UFS sales and manufacturing, a buy?

In a tough market, Domtar has taken an interesting approach to the fact that demand for its product is decreasing: It has cut back on its operations and increased its prices. The plan is to make Domtar the lowest cost producer of UFS in North America, in an attempt to stay competitive with companies like International Paper (NYSE: IP), who have the advantage of operating in traditionally lower cost countries in South America.

MOST NOTEWORTHY: Banco Santander, Acorda Therapeutics, Agruim, Annaly Capital and ImmunoGen were today's noteworthy upgrades:

• UBS upgraded shares of Banco Santander (NYSE: STD) to Buy from Neutral as they expect the acquisition of ABN Amro Holding NV (NYSE: ABN) assets in Brazil and Italy to boost earnings in 2008 and 2009.
  
• Friedman Billings added Acorda Therapeutics (NASDAQ: ACOR) to its Top Picks List, as they have confidence in fampridine-SR's safety profile.
  
• Agrium (NYSE: AGU) was upgraded to Sector Outperformer from Sector Performer at CIBC on valuation, as they believe the outlook for wholesale and retail is robust with all three nutrients at historical high levels.
• Annaly Capital Management (NYSE: NLY) was upgraded to Buy from Neutral at UBS, citing likely further FED cuts, benefits from recent secondary, and BVPS growth.
  
• RBC Capital upgraded shares of ImmunoGen (NASDAQ: IMGN) to Outperform from Sector Perform based on valuation, growing pipeline, valuable technology platform, and potential as an acquisition candidate.

OTHER UPGRADES:

• Soleil upgraded ExpressJet Holdings (NYSE: XJT) to Hold from Sell.
  
• Goldman upgraded Assurant (NYSE: AIZ) to Buy from Neutral.
  
• Merill upgraded Forest Labs (NYSE: FRX) to Buy from Neutral.
  
• Citigroup upgraded Domtar (NYSE: UFS) to Buy from Hold.

MOST NOTEWORTHY: CheckFree (CKFR), Colgate-Palmolive (CL), Wal-Mart (WMT), Thornburg Mortgage (TMA) and Avery Dennison (AVY) were today's noteworthy downgrades:

• Suntrust downgraded CheckFree (NASDAQ: CKFR) to Neutral from Buy based on the Fiserv (FISV) acquisition.

• Colgate-Palmolive (NYSE: CL) was removed from Goldman's Conviction Buy List.

• Wal-Mart (NYSE: WMT) was cut to Neutral from Overweight at JP Morgan.

• Jefferies, RBC Capital, Piper Jaffray, Friedman Billings and Credit Suisse downgraded Thornburg Mortgage (NYSE: TMA) to Underperform based on liquidity concerns.

• Matrix cut Avery Dennison (NYSE: AVY) to Sell from Hold, and said Avery is being affected by the growing price competition in North America and Europe for self-adhesive labels and tabs...

OTHER DOWNGRADES:

• Merrill downgraded Westwood One (NYSE: WON) to Sell from Neutral.

• Morgan Keegan downgraded Haverty Furniture (NYSE: HVT) to Market Perform from Outperform.

• Hambrecht cut Akamai (NASDAQ: AKAM) to Hold from Buy.

• Raymond James downgraded Domtar (NYSE: UFS) to Outperform from Strong Buy.

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

Despite the predictions a few years ago that email would mean the end of paper, the Canadian company Domtar Corp. (NYSE: UFS) has managed to hold on. The paper industry isn't easy -- there are constant concerns about demand, freight costs (paper isn't light), tight margins, pricing issues, and rising energy costs -- but the fact is there will always be a need for paper products, and a company like Domtar has the potential to make steady profits if it handles its risks properly.

Domtar finished its acquisition of Weyerhaeuser Fine Paper back in March, and this deal was part of a larger corporate strategy of growth through acquisition. This is always a risky way to grow, of course, but Domtar has also been investing in technologies to cut costs and integrate its acquisitions, and as this strategy is implemented we may well see Domtar increase its margins as well as its revenues. The company has also closed a number of its less successful factories, cutting overhead costs and personnel costs, and this too will help increase profitability for Domtar.

2006 had a couple very rough quarters for Domtar, but the company delivered solid earnings in the first quarter, and the analysts at Goldman Sachs predict this growth will continue over the next couple years. They like the fact that Domtar has cut costs and also closed factories, and they believe the company has the ability to increase pricing on its "uncoated free sheets" (UCFS) over the coming years. Other analysts are less optimistic given all of the risks mentioned above, and they argue that there isn't the pricing flexibility to enable Domtar to increase its margins.

I like this company, though, for its long-term strategy and I think at the right discount it could prove to be a nice value buy.

Type of Stock: One of the largest paper companies in North America.

Price Target: UFS is currently trading under $9, toward the low end of its range since being listed on the NYSE six months ago. Goldman has predicted this stock will rise above $16. That may be high, but I do think UFS is unlikely to dip much more and may well grow as its cost cutting and acquisitions take effect. Second quarter results will be reported Monday, August 13, so be sure to keep an eye on this one.

Hilary Kramer is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com.