Analyst upgrades:

• Baird upgraded Starwood Hotels (NYSE: HOT), Host Hotels (NYSE: HST) and Marriott (NYSE: MAR) to Outperform from Neutral based on valuation and indications that negative sentiment has reached a bottom.
• Citigroup upgraded Torchmark (NYSE: TMK) to Buy from Hold as they find the valuation attractive and think management can grow earnings and book value in 2009/2010. Despite upgrading, the firm lowered their target price to $37 from $45.
• ASM International (NASDAQ: ASMI) was added to Goldman's Conviction Buy List.
• Credit Suisse (NYSE: CS) was raised to Overweight from Equal Weight at Morgan Stanley.
• Live Nation (NYSE: LYV) was upgraded at Natixis to Buy from Hold.

Analyst upgrades:

• Keefe Bruyette upgraded shares of AllianceBernstein (NYSE: AB) to Outperform from Market Perform as they find AB's risk/reward attractive given its attractive long-term business model. Wachovia upgraded Watson Pharma (NYSE: WPI) and Teva Pharma (NASDAQ: TEVA) to Outperform from Market Perform citing valuations and positive drivers for generics that include patent expirations and market share expansion.
• UBS raised Lloyds TSB Group (NYSE: LYG) to Neutral from Sell on expected pricing power following the HBOS (OTC: HBOOY) acquisition.
• Otter Tail (NASDAQ: OTTR) was upgraded to Outperform from Neutral at Baird.
• GFI Group (NASDAQ: GFIG) was upgraded at Citigroup to Hold from Sell.
• Merrill upgraded Logitech (NASDAQ: LOGI) to Neutral from Underperform.

• JP Morgan downgraded shares of Lloyds TSB Group to Underweight from Neutral on capital concerns and believes the HBOS acquisition is not in the best interest of shareholders.
• Stephens downgraded Universal Truckload (NASDAQ: UACL) to Equal Weight from Overweight on valuation and concerns about a slowdown in the flatbed sector. The firm's target remains $28.

Watson Pharmaceuticals, Inc. (NYSE:WPI) recently announced its acquisition of Andrx Corp., a pharmaceutical company that has many generic offerings. Many have suggested that this is a crucial move for Watson, which has seen its profit margins shrinking over the past year. While Watson will only enjoy about two months of Andrx revenues in 2006, the company hopes the acquisition will give it some economies of scale and improve profitability in the coming years.

Watson is the third largest company in the generic business, and it also has several branded products, particularly for bladder problems, pain relief and anemia. These products haven't been doing as well of late, however, so revenue growth has come primarily from its lineup of generics.

This could be a problem for Watson going forward: while it can continue to offer more generics as patents expire in coming years, competition has driven down pricing in the generic market, which is a big reason why profit margins haven't been so strong lately. There's been talk since election day that the Democratic Congress will push to limit patents and make generics more accessible. While this may help, it may also end up being canceled out if the Dems, as expected, revise the Medicare bill to allow the government to negotiate drug prices for Medicare.

A company like Watson may be hardest hit by these changes. It has to maintain its research and selling costs, but it's not big enough to spread out these costs. (It's main rivals in the generics industry, Teva and Sandoz, Inc. are four times as large.) Nor is it small enough to be content focusing on a few niche markets.

While I think Watson is a solid company, I think the waters are too uncertain to be a safe pick right now.

Type of stock: A medium-sized pharmaceutical company that makes most of its money off generic drugs.

Price Target: At $25, Watson is closer to the low end of its 52-week range. It bottomed out during the summer and has bounced back a bit, but I don't see enough hope in the Andrx acquisition to recommend buying right now.

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

MOST NOTEWORTHY: Cisco (CSCO), and Sonic Solutions (SNIC) top today's modest-sized list of initiations.

• Cisco Systems, Inc. (NASDAQ:CSCO) was upgraded to Buy from Neutral at UBS following the company's strong first-quarter earnings and guidance.
• JP Morgan upgraded Sonic Solutions (NASDAQ:SNIC) to Overweight from Neutral following the weak second-quarter results and light third-quarter guidance. The firm said weak PC demand ahead of the Vista launch has already been priced into shares of Sonic Solutions.

OTHER UPGRADES:

• Watson Pharmaceuticals, Inc. (NYSE:WPI) was reinstated with a Sector Performer rating, up from an Underperformer rating, citing valuation.
• Urban Outfitters, Inc. (NASDAQ:URBN) was upgraded to Buy from Hold at Roth Capital. The firm said expectations for Urban have come down this quarter and that news going forward is likely to be positive, not negative.

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