Analyst Upgrades

• Exxon Mobil (XOM), Netflix (NFLX), Noble Corp. (NE), Pioneer Natural (PXD) and Noble Energy (NBL) to buy from neutral at Goldman.
• Cenovus Energy (CVE) to conviction buy from neutral and Atwood Oceanics (ATW) to neutral from sell at Goldman as well.
• Southern Company (SO) to buy from hold at Citigroup.
• Chevron (CVX) to buy from neutral at BofA/Merrill.
• Ryder (R), Entergy (ETR) and Seaspan (SSW) to buy from hold at Jefferies.
• Gerdau (GGB), Crown Castle (CCI) and American Tower (AMT) to buy from neutral at UBS.
• Aon (AON) and Willis Group (WSH) to buy from neutral at Janney Capital.
• Ryland Group (RYL) to buy from neutral at Ticonderoga.

The DJIA poked its nose well above 12,000 this morning and may indeed close above that mark when today's session ends. There was a bit of encouraging housing news to offset a weak unemployment number, but stocks were more interesting to traders today than either oil or commodities. Crude oil traded off by about -$1.70 and closed below $86/barrel. Gold also fell today, to below $1,320.

Here are the numbers for late afternoon trading today:

Dow Jones: 11,989.83 +4.39 (0.04%)
S&P 500: 1,299.54 +2.91 (0.22%)
Nasdaq: 2,755.28 +15.78 (0.58%)

Oil rose above $90 per barrel on Wednesday, and the average U.S. price for unleaded regular topped $3 per gallon. Moreover, with the U.S. economic recovery likely to strengthen in 2011, and will strong emerging market GDP growth gobbling up more barrels of oil, both oil and gasoline prices are likely to rise further next year.

That's good news for investors in most oil stocks, but bad news for U.S. consumers, particularly motorists. However, the view from here argues that one should not dabble in the futures market to try to hedge against rising oil prices. The price of oil is influenced by more than 10 variables, and unless you're prepared to lose up to $500 per day, you're probably going to be at a trading disadvantage.

Murphy Oil Corporation (MUR) which I first wrote about on April 29, 2009, at a price of $47.80, has tried the patience of investors over the past 12 months.

The stock recently held support at $50 and accelerated to about $60, but is now showing signs of a familiar range-bound pattern, hence it's probably best to exit shares at this stage, and take the roughly $12 gain.

Murphy Oil Corporation (MUR) is probably the second most disappointing oil/oil services play in this market, after always-tough-sledding-ahead Frontline Ltd. (FRO). While some might think this is a good time to get out, I believe that since this is the oil sector, patience will rule the day (for now). Murphy, which I first wrote about on April 29, 2009 at a price of $47.80, is likely to continue its drive higher.

Refiner (85% of revenue) Murphy is well-positioned to capitalize on the rebound in U.S. gasoline sales as U.S. job growth finally resumes. The problem is, few institutions are biting at Murphy's projected $4.77 FY2010 EPS. And that leads to one of two conclusions: 1) MUR is undervalued or 2) institutions know something that typical investors don't, hence the consternation about this stock.

Just call Murphy Oil (MUR) a classic low-profile play, which is why I'm reiterating my Buy rating for the company, first recommended on April 29, 2009 at a price of $47.80. If you bought MUR in April, you're up about 27%.

Murphy reported Q3 EPS of 98 cents, roughly in-line with the First Call Q3 EPS estimate of 99 cents, and course Wall Street sold the stock, but just view that pull-back as a Buy opportunity. The reason? The argument here is that the refining sector (85% of Murphy's revenue) is just about at its weakest point, with U.S. gasoline demand likely to rebound in 2010 (although demand growth will be lower than during the previous economic expansion, due to higher gasoline/diesel prices). Murphy operates about 1,150 gas stations in the U.S.

I'm reiterating my Buy rating for Murphy Oil (NYSE: MUR), first recommended on April 29, 2009 at a price of $47.80. If you bought then, you're up about 20%.

Murphy Oil remains the not-so-little-engine that could: Q2 upstream oil/natural gas production increased 18%, the company is on-track for 25-30% production growth in FY2009, and solid, double-digit gains in FY2010/FY2011.

The Obama administration's admirable goal to create a more self-reliant, energy-independent nation and the impact of efforts to first limit, then eliminate global warming from fossil fuels opens the door to alternative energy source development.

But, as Saudi Arabia reminds us, and the world, barring a breakthrough technology, fossil fuels will remain a major energy source for at least the next thirty to fifty years. In other words, the reign of oil has merely paused, not ended, which is why it's prudent to review Murphy Oil Corporation (NYSE: MUR).

While other earnings may have disappointed last week, the news was good for oil giant ConocoPhilips (NYSE: COP). In what some took as a good sign for big oil, the Houston-based company reported that third quarter net income surged 41% year over year to $3.39 per share, and that revenue also surged 52% to $70 billion. We'll see whether the good news extends to other petroleum giants scheduled to report quarterly results this week.

Analysts surveyed by Thomson Financial are looking for BP (NYSE: BP) profits to have grown 43.2% in the most recent quarter to $2.34 per share on revenue of $109.7 billion, and Chevron Corp. (NYSE: CVX) to post earnings up 39.4% to $3.25 per share on revenue of $86.8 billion. Marathon Oil Corp. (NYSE: MRO), ExxonMobil Corp. (NYSE: XOM), and Royal Dutch Shell (NYSE: RDS.A) likewise are expected to report higher net income of $2.33 per share (sales of $23.4 billion), $2.40 per share (sales of $131.4 billion), and $2.65 per share, respectively. Even Valero Energy Corp. (NYSE: VLO) is expected to post earnings slightly higher to $1.46 per share (sales of $36.4 billion), despite the effects of Hurricane Ike. Among these companies, only BP and Valero beat earnings expectations in the previous quarter. Not surprisingly, analysts on average recommend buying all except Valero, and shares of all of these companies have recently hit 52-week lows.

This post is part of our Big Company, Small Town series, featuring large companies and the small towns in which they are headquartered.

If you like to save money on gas and live near a Wal-Mart in the Southeast and Midwest, chances are you are filling up these days at stations operated by Murphy Oil Corp. (NYSE: MUR), which is headquartered in the small town of El Dorado, Arkansas.

Those Murphy USA gas stations, located in parking lots of Wal-Mart Stores (NYSE: WMT), are just a small part of Murphy's many energy-related businesses. Murphy Oil is a giant, publicly-traded oil and natural gas exploration and production company with operations as far afield as Malaysia and Ecuador. Much of its U.S. drilling and refining is done off the shores of Louisiana, and some of that equipment was damaged during Hurricane Katrina. Sales in 2007 were more than $18 billion and the stock is up 60% in the past year. The company was recently ranked No. 134 in the Fortune 500 (to put that in perspective, Google is ranked 150 and Nike 153).

Corporate headquarters to all this (as well as a timber company that was spun off from Murphy in 1996), is El Dorado, population of 20,000. A boom town in the 1920s when oil was discovered, El Dorado has a colorful history and currently boasts summertime reenactments of a Wild West style gun fight on the courthouse steps, as well as a historic "haunted" theater. The town participated in the federal "Mainstreet" program, which provides grants for restoring historic downtowns, suggesting that the downtown was once in rough shape, but has since been prettied up.

Murphy Oil (NYSE: MUR), a global oil and gas exploration and production company with refining and marketing operations, will report Q4 EPS on January 31. MUR overall option implied volatility of 40 is above its 26-week average of 33 according to Track Data, suggesting larger price fluctuations.

Ultra Petroleum (NYSE: UPL) is an independent, exploration and production company with gas operations focused in the Green River Basin of southwest Wyoming. Natural Gas Futures are down 2.35% to 7.805 according to Bloomberg. UPL overall option implied volatility of 39 is above its 26-week average of 35 according to Track Data, suggesting larger price risk.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

MOST NOTEWORTHY: Eli Lilly (LLY) and L-3 Communications (LLL) were the only notable downgrades today:

• HSBC downgraded Eli Lilly & Co. (NYSE:LLY) to Neutral from Overweight.
• Following the loss of the Army Linguist contract, Credit Suisse downgraded L-3 Communications Hldgs Inc. (NYSE:LLL) to Neutral from Outperform with an $83 target.

OTHER DOWNGRADES:

• Cooper Companies Inc. (NYSE:COO) was downgraded to Underweight from Neutral, with a $42 target at Prudential; they believe another reduction in 2007 guidance is likely and, additionally, the company is likely to lose additional market share in the Toric market.
• Credit Suisse, seeing potential risk to production targets at Murphy Oil Corp. (NYSE:MUR), downgraded the company to Underperform from Neutral.
• RBC Capital Markets downgraded Sovereign Bancorp Inc. (NYSE:SOV) to Underperform from Sector Perform based on valuation.

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