Premarket Analysis for 10/6 - Upgrades/Downgrades, Gappers, Actionable Calls

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From Briefing.com

Periodicals Wrap-Up for Monday, October 6th
WALL STREET JOURNAL: Given its mix of assets, the Wall Street Journal’s “Heard on the Street” said that Disney (DIS) deserves to trade at a premium, but is instead down 7% amid fears of a recession. The company is hoping to overcome dipping attendance at its theme parts, which accounts for about 30% of its revenue, with cheaper deals for families…The Wall Street Journal reported that J. Christopher Flowers said his fund, private-equity firm J.C. Flowers & Co, marked down the value of $6.5B worth of investments by 30%, people familiar with the fund said, an unrealized loss of nearly $2B…REUTERS: According to sources familiar with the situation, Reuters reported that Eli Lilly (LLY) is set to buy ImClone Systems (IMCL) for about $6.1B, which values ImClone at $70 per share…The regulator of the two mortgage finance companies, James Lockhart, said Fannie Mae (FNM) and Freddie Mac (FRE) might sell some troubled assets to the Treasury, but a decision has not been made, Reuters reported…ALL THINGS DIGITAL: Yahoo (YHOO) and Google (GOOG) agreed to postpone their online search collaboration so the Justice Department can have more time to evaluate the deal, All Things Digital reported…VALLEYWAG: According to Valleywag, rumors are swirling that eBay (EBAY) will begin announcing layoffs as early as this week…

Asian Markets Wrap-Up for Monday, October 6
Asian stocks retreated as most markets fell…JAPAN: The Nikkei 225 Stock Average dropped 465.05, or 4.3%, to 10,473.09, while the broader Topix was down 48.92, or 4.7%, to 999.05. Mitsubishi UFJ Financial Group (MTU) slid 9.2% to Y806. Resona Holdings sank 9.5% to Y119,800. Chiba Bank plunged 13%, to Y473. Nintendo (NTDOY) tumbled 8% to Y33,800. Sony Corp. (SNE) lost 6.6% to Y2,810. Nippon Steel fell 7.8% to Y319. JFE Holdings dropped 7.2% to Y2,625. Sumitomo Metal Mining Co. was down 7.1% to Y853. Nippon Mining Holdings slipped 7% to Y348…CHINA: The CSI 300 Index retreated 114.96, or 5.1%, to 2,128.70. Shenhua dropped 10% to 24.65 yuan. Datong Coalargest dropped 10% to 15.29 yuan. Yanzhou Coal Mining Co. (YZC) dropped 10% to 11.59 yuan. Shanxi Coking Co.dropped 10% to 6.60 yuan. PetroChina (PTR) lost 5.1 percent to 12.19 yuan. China Oilfield Services was down 10% to 13.92 yuan. Offshore Oil Engineering Co. fell 8.3% to 14.47 yuan. Haitong Securities Co. jumped 10% to 23.67 yuan. Baoshan Iron & Steel Co. sank 8.8% to 6.63 yuan. Aluminum Corp. of China (ACH) was down 0.66 yuan, or 7.1%, to 8.61…AUSTRALIA: The S&P/ASX 200 Index declined 3.3% to 4,540.40. BHP Billiton (BHP) lost 9.3% to 1,077 pence. Rio Tinto Group (RTP) slid 5% to A$84.48. Felix Resources plunged 16% to A$13.76. Gloucester Coal dropped 14% to A$5.52. National Australia Bank (NABZY) slipped 2.3% to A$25.55. Newcrest Mining (NCMGY) was down A$1.15, or 4.2%, to A$26.44…AROUND ASIA: In Hong Kong, the Hang Seng Index retreated 878.64, or 5%, to 16,803.76. Gome Electrical Appliances Holdings dropped 24% to HK$1.56. Foxconn International Holdings sank 12% to HK$3.64. Construction Bank was down 7.3% to HK$4.45. Bank of Communications Co., lost 7% to HK$6.23. Cheung Kong fell 6.7% to HK$78.55. Sun Hung Kai Properties (SUHJY) sank 4.1% to HK$71. China Mengniu Dairy Co. was up 44 cents, or 5.1%, to HK$9.09.

Chinese oppose BHP-Rio Tinto merger-FT
Zhang Xiaogang, the chairman of the China Iron and Steel Association and Ansteel, has criticized the proposed $170B merger between BHP Billiton (BHP) and Rio Tinto (RTP), the Financial Times reports, saying that the merger would be “terrible” for global competition. He believes the combination should be rejected by anti-trust regulators.

Identifying 25 “cash cows” - Barron’s
Barron’s set out to identify U.S.-based companies that produce ample amounts of cash. These companies offer little debt, decent earnings growth, healthy profit margins and free cash flow to spare, that could offer both comfort and upside to investors during the market’s storm. The result is a list of familiar names in technology, health care and manufacturing, as well as three oilfield-services companies knocked well off their highs, and, yes, a few healthy financial-services firms. (25 cash cows) MMM, ACN, ALL, MO, AON, AMAT, ADP, BHI, ABX, CME, KO, GD, HPQ, ITW, INTC, MFC, MRK, MSFT, NYX, PFE, SLB, SII, SYK, TROW, TEL.

Weekly additions to the Investors Business Daily-100
The following are additions to the Investors Business Daily-100 list for the week of October 3: Cornell Corrections (CRN), Global Payments (GPN), Chattem (CHTT), McDonalds (MCD), MWI Veterinary Supply (MWIV), Spartan Stores (SPTN), Genzyme (GENZ), FTI Consulting (FCN), Ross Stores (ROST), Flowers Foods (FLO), UMB Financial (UMBF), Genoptix (GXDX), Pinnacle Financial (PNFP), Rock Tenn Co (RKT), SWS Group (SWS), Merit Medical Systems (MMSI), Enersis (ENI), Iris International (IRIS), Covance (CVD), St. Jude Medical (STJ), PSS World Medical (PSSI), Integra Lifesciences (IART), ProAssurance Corp (PRA), Neogen (NEOG), American Medical Systems (AMMD), Steris Corp (STE), Church & Dwight (CHD), Standex Intl. Corp (SXI), Thoratec Laboratories (THOR), Herbalife (HLF), Tower Group (TWGP), Microsemi (MSCC), ITC Holdings Corp. (ITC), Blackrock (BLK), Idexx Laboratories (IDXX), Techne Corp (TECH), Owens & Minor (OMI)

Weekly subtractions from the Investor’s Business Daily-100
The following are subtractions from the Investors Business Daily-100 list for the week of October 3: DXP Enterprises (DXPE), Concur Technologies (CNQR), Kansas City Southern (KSU), Urban Outfitters (URBN), Woodward Governor (WGOV), Aeropostale (ARO), Warnaco Group (WRC), Skilled Healthcare Group (SKH), AngioDynamics (ANGO),Sonosite (SONO), ITT Educational Services (ESI), ll-Vl Inc.(IIVI), Synaptics Inc (SYNA), Whiting Petroleum (WLL), Gartner Inc (IT), Tyler Technologies (TYL), Baker Michael Corp (BKR), PetMed Express (PETS), Hub Group (HUBG), Parexel Intl.(PRXL), CSG Systems (CSGS), LMI Aerospace (LMIA), Arene Resources (ARD), Activision Blizzard (ATVI), LaBarge (LB), Fastenal (FAST), Team Inc (TISI), Gorman Rupp (GRC), Norfolk Southern (NSC), Emcor Group (EME), CSX Corp. (CSX),Northern Trust (NTRS), Lufkin Industries (LUFK), Concho Resources (CXO), New Oriental Education & Techmnology (EDU), Parametric Tech (PMTC) Badger Meter (BMI)

Solar: new issues that an extension of the ITC won’t cure- Barron’s
Technology Trader columnist Eric Savitz says, by the end of last week, the beleaguered solar stocks had become haunted by a couple of new issues that an extension of the ITC won’t cure. First, Savitz points to a research note by analyst Jonathan Hoopes of ThinkPanmure who says, “if economic growth slows, demand for new energy generation will likely slow as well,” reducing the urgency of developing alternative energy sources. Secondly, as the capital markets are struggling, it will be extremely hard for solar players that large-scale alternative-energy projects require a generous supply of capital, to get financing.

The bullish case: Buy low and wait for the bounce-WSJ
“If you want to be bullish, you make the case that inflation comes down, the Fed cuts by 0.50 or 0.75 [percentage points] and you take multiples higher,” says Brian Rauscher at Brown Brothers. Surrounded by bad news optimists today point to the view that the consensus isn’t not always correct, points out the Wall Street Journal. “To get a real rosy scenario, the bailout package works, you get coordinated central-bank rate cuts in an effort to keep the global economy afloat and with the level of valuations and pessimism in the market, that would be enough to fuel an explosive rally,” says Rauscher. “Those are a lot of ‘ifs’ and I think it’s a low probability — but I’ve seen stranger things happen.”

U.S. equity futures point to a lower open
U.S. equity futures continue to point to a lower open. At this point the U.S. markets are following the lead of the foreign markets with Asian and European markets down 5% or more. The dollar has reached its best level against the euro in 14 months and oil is down more than 40% from its July high. The next leg of the financial crisis may come from the individual states in the U.S. California has said that it will need $7B in short term funding. Governor Schwarzenegger has said they may ask the federal government for a loan. The Boston Globe reported today that the State of Massachusetts may also seek assistance from the Federal government as the credit markets have dried up.

Fund managers suffer from big, long term, and now unsellable positions-WSJ
Fund managers that eschewed diversification and took very large long term positions on stocks expected big payoffs. In many cases, reports the Wall Street Journal’s “Heard on the Street”, they went too far, they can’t get out, and losses are mounting.

Fed says it ’stands ready’ to foster liquid money market conditions-Bloomberg
Fed expands 28 and 84-day TAF auctions to $150B each-Bloomberg
Fed to pay interest on required and excess reserve balances-Bloomberg

Too many buybacks boost expectations-WSJ
Buybacks for the S&P 500 totaled nearly $1.4T between 2005 and 2007, according to Howard Silverblatt at Standard & Poor’s. That’s 56% more than for the previous six years combined. The Wall Street Journal’s “Heard on the Street” thinks the concept is bloated and needs reined in, and suggest that “it would be better to adopt a transparent payout range, based on a percentage of earnings or cash flow. This would ensure dividends do not disconnect from the business cycle while retaining a degree of flexibility. Buybacks could still be used to distribute exceptional gains, although under current tax laws special dividends would do just as well.”

Discount shoppers are hard to find-WSJ
September retail sales report this week. The results are expected to show significant declines for stores opened for a minimum of a year. And that’s not good news for the upcoming holiday season, reports the Wall Street Journal, which some expect to be the worst in nearly two decades. The financial bailout could change consumer’s minds but that is an unknown. Michael Gould, CEO of Macy’s (M) upscale Bloomingdale’s chain, says: “Let’s be honest. The business is difficult.”

Coal industry set to cash in on tax breaks-WSJ
Tax breaks are helping energy projects. Coal is now also positioned to take advantage of a new law, according to the Wall Street Journal. It allows a tax credit for waste coal recovered and reused to make coke which is used to make steel. Two firms which could benefit are Consol Energy (CNX) and Rentech (RTK), and they have projects in the works to convert coal into transportation fuels.

OSIP volatility Elevated; endpoints do not meet expectations
OSIP is recently down $6.09 to $39.75 in pre-open trading. OSIP & DNA announced a randomized Phase 3 study evaluating Avastin � in combination with Tarceva � in patients with advanced non-small cell lung cancer that did not meet primary endpoints. OSIP October option implied volatility of 65 is above its 26-week average of 54 according to Track Data, suggesting larger price movement.

Research in Motion-RIMM target lowered to $50 from $70 @DBAB
Deutsche Bank lowered their target on concerns that the Blackberry Bold will not ship on time at AT&T (T), causing a potential miss to the quarter. The firm maintains a Sell rating.

Garmin-GRMN downgraded to Underperform from Sector Perform@RBCM
RBC Capital downgraded GRMN citing the weakening consumer environment, increased competition, and pricing pressure. Target to $20 from $40.

ImClone-IMCL could get a counter-offer from BMY@COWN
Cowen said IMCL could get a counter-offer from BMY following LLY’s $70 share cash tender offer and sees little downside to shares.

Analysts Initiation Summary for Monday, October 6th
MOST NOTEWORTHY: BTU International (BTUI) and City National (CYN) were today’s noteworthy initiations: Oppeinheimer initiated BTU International with a Perform rating. The firm prefers to wait on the sidelines due to macro concerns. City National was initiated at JP Morgan with a Neutral rating, as they believe the valuation is full at current levels…OTHER INITIATIONS: UBS initiated AK Steel (AKS) with a Neutral rating. F5 Networks (FFIV) and InterActiveCorp (IACI) were assumed at Lehman with Overweight ratings. Greenhill & Co (GHL) was initiated with a Neutral rating and $80 target at Credit Suisse. :

Analysts Downgrade Summary for Monday, October 6th
MOST NOTEWORTHY: Ecolab (ECL), Coca-Cola (KO) and Heidrick & Struggles (HSII) were today’s noteworthy downgrades: Jefferies downgraded shares of Ecolab to Hold from Buy and lowered its target to $50 from $55 to reflect risks to the company’s earnings outlook from the weakening economy. Coca-Cola was cut to Hold from Buy at Deutsche Bank as they believe the economic slowdown will bring slower volumes. KO’s target was lowered to $56 from $64. Baird downgraded Heidrick & Struggles to Underperform from Neutral citing the impact from the financial markets turmoil and global macro softening. The company’s target was lowered to $23 from $34…OTHER DOWNGRADES: Lonmin Plc (LNMIY) was downgraded to Underperform from Buy at Merrill Lynch. Harris Interactive (HPOL) was cut to Equal Weight from Overweight at Stephens. Lukoil (LUKOY) was lowered to Neutral from Outperform at Credit Suisse.

Analysts Upgrade Summary for Monday, October 6th
MOST NOTEWORTHY: ING Group (ING), Wells Fargo (WFC) and Dollar Tree (DLTR) were today’s noteworthy upgrades: Keefe Bruyette upgraded shares of ING Group to Outperform from Market Perform after upgrading the European insurance sector to Overweight from Neutral due to improved risk management. Keefe Bruyette also upgraded Wells Fargo to Market Perform from Underperform to reflect the company’s national footprint if the Wachovia (WB) deal goes through. JP Morgan upgraded Dollar Tree to Overweight from Neutral citing top line performance, growth profile and valuation, among other reasons…OTHER UPGRADES: Jabil Circuit (JBL) was upgraded to Outperform from Neutral at Credit Suisse. Amylin Pharma (AMLN) was raised to Hold from Sell at Citigroup. Louisiana Pacific (LPX) was upgraded at RBC Capital to Sector Perform from Underperform.

Jim Cramer’s “Mad Money”
On Friday, Cramer said that despite the passage of the federal bailout package, he doesn’t trust this market. He reminded investors to sell into any moments of strength and play defensively as the details of the bailout plan begin to play out. Then Cramer shifted focus to Wachovia (WB) and praised the CEO Bob Steel for working out a deal with Wells Fargo (WFC). Cramer admitted he was wrong when he placed Steel on his “Wall of Shame” list of the worst CEOs on Monday. Filling the empty slot in the Wall of Shame, Cramer added Sen. Harry Reid (D., Nev.) for adding fear to an already fearful market, after a comment he made Wednesday that a major insurance company was preparing for bankruptcy. Cramer said that irresponsible comment caused the stocks of Prudential (PRU), MetLife (MET) and Hartford (HIG) to suffer double-digit percentage drops. Next, Cramer spoke with Henry Termeer, chair/CEO of Genzyme (GENZ). GENZ is down just 3.8% in a turbulent market, since Cramer recommended it on August 12 at $79. GENZ is now high on Cramer’s list as biotech companies often shine during recessions and should fair even better if a Democrat assumes the White House. Termeer noted that Genzyme focuses exclusively on “orphan” drugs, or drugs for rare diseases or diseases where there are no other treatments. Patients often start treatments and stay on them for life, creating a stable earnings for the company. Termeer confirmed that the company does have drugs in late stage testing in cholesterol, MS and renal failure. While Cramer remains bearish on the market as a whole, he’s now beginning to prepare for the situation to improve. He continues to look for value in stocks that have been relentlessly beaten down by seemingly endless hedge fund redemptions. Industrial stocks have been hit especially hard. Evaluated by dividend yield and cash on the balance sheet, Cramer reiterated his recommendation on KBR Inc. (KBR). Two other value stock picks are: Nucor (NUE), with its 3.6% dividend yield. And, Freeport McMoran (FCX), with a 4.4% dividend yield. MAD MAIL: Cramer said he is not recommending any insurance companies, including Manulife (MFC). He also said McDermott (MDR) is too low to sell, but with continued hedge fund selling, he’s still not a buyer of the company yet. LIGHTNING ROUND: (Bullish) SBUX; WMI. (Bearish) CSC; BYD; LVS; WYNN; ERII; EME; GMCR; VSH; MOS; SOV; ZMH.

Fast Money position recap: First Moves: Guy likes NVS, Zach likes long BHP, Joe likes TGT as a buy, Tim likes CCH. Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Karabell Owns (AAPL), (AGU), (BHP), (GOOG), (JPM), (MS), (RIMM); Seymour Owns (AAPL), (INTC), (MER); Terranova Owns (AAPL), (EOG), (FCX), (FTO), (GS), (MA), (NOV), (POT), (X), (VLO)