Three upgrades . . .


St. Jude Medical ($48; NYSE: STJ) — fresh off a solid June quarter and well-positioned to gain share in fast-growing and lucrative markets — is being added to the Focus List. The maker of medical devices is seeing strong growth in all of its business units. Demand in St. Jude’s most important end markets — cardiac rhythm management and cardiology — has historically remained strong even during economic downturns. A steady stream of new products, in concert with international expansion, should keep both revenue and profits on the rise over the next year. Consensus estimates project per-share-profit growth of 25% this year and 13% next year. St. Jude, already a Buy and a Long-Term Buy, is joining the Focus List.

Cooper Industries ($43; NYSE: CBE) posted strong June-quarter results and raised expectations despite economic weakness that slowed some peers. Sales of electrical products rose a healthy 7% excluding acquisitions and currency gains, lifted by strong demand from industrial, utility, and energy customers. That broad-based strength despite a struggling economy inspires confidence in Cooper’s projections for future growth. In the wake of an increase in company profit guidance for 2008, the consensus has risen. Wall Street now expects 16% profit growth this year and 9% in 2009. Given Cooper’s operating momentum, the 2009 projection seems low. Cooper, already a Long-Term Buy, is being added to the Buy List.

Wireless provider NII Holdings ($57; NASDAQ: NIHD) offers an appealing mix of solid fundamentals (Quadrix® Overall score of 95) and explosive growth. Consensus estimates project per-share-profit growth of at least 30% in each of the next three years. Most large-capitalization U.S. telecoms have poor growth potential, but NII, formerly Nextel International, taps into emerging markets. This U.S.-based company provides wireless service to business customers in Latin America. At 18 times projected year-ahead earnings, the stock isn’t particularly cheap relative to most U.S. telecoms but seems reasonably valued relative to its growth potential. NII is being initiated as a Buy.

. . . Three downgrades

MetLife ($53; NYSE: MET) is being removed from the Buy List. Despite a decline in the Quadrix Overall score, we stuck with MetLife as a Buy because of its modest valuation and history of solid results. But MetLife has lagged its peers since the insurer posted disappointing June-quarter results. Since MetLife lowered its profit guidance in July, the 2008 consensus has fallen by $0.26 per share. The shares still look cheap at nine times the lowered 2008 consensus estimate, but the stock no longer qualifies as one of our top 12-month picks. MetLife is being taken off the Buy List but remains a Long-Term Buy.

In the first half of this year, per-share profits at Laboratory Corp. of America ($70; NYSE: LH) rose 15%, respectable and in line with the consensus, but well below the 25% average for the previous six quarters. In July, LabCorp reduced its profit guidance for 2008, projecting 8% to 11% growth. Weakness in the labor market has reduced demand for some of LabCorp’s tests — in the six months ended June, testing volume rose just 1.4%. While LabCorp still offers solid growth potential and seems reasonably valued, it is no longer among our top 12 to 20 picks. The stock is being dropped from the Focus List but remains a Buy and a Long-Term Buy.

Insurer Assurant ($60; NYSE: AIZ) is being downgraded to Neutral in the wake of disappointing June-quarter results. Per-share earnings from operations were $1.55, up 13% but $0.08 below the consensus. Higher corporate expenses and weak results in health and employee benefits weighed on profits. Uncertain near-term prospects, reflecting increased competition and a tough pricing environment, suggest subscribers should sell Assurant.

Energy roundup
Transocean ($133; NYSE: RIG) said June-quarter operating profits surged 88% to $3.47 per share, 7% above the consensus. Revenue more than doubled to $3.10 billion, aided by acquisitions and high lease rates for deepwater rigs. The overall average day rate jumped 18% to $238,600. Transocean is a Focus List Buy and a Long-Term Buy . . . Exxon Mobil ($78; NYSE: XOM) earned $2.27 per share, up 24% but 10% below the consensus. Revenue rose 40% to $138.07 billion as sharply higher energy prices offset declines in sales volumes and production. Profit margins at the refining and chemical units plunged. Exxon shares may remain under pressure in the near term, but the stock retains its Long-Term Buy rating . . . Chevron’s ($82; NYSE: CVX) per-share profits of $2.90 were up 15% from year-earlier levels but $0.13 below the consensus on 48% revenue growth. Excluding the effect of energy prices on profit-sharing deals, Chevron’s production increased slightly. Key to future growth is a ramp-up in production at several large foreign fields expected to start producing over the next 18 months, including a field in Nigeria that came on line in July. Chevron is a Buy and a Long-Term Buy.

June-quarter earnings
Oshkosh ($17; NYSE: OSK) earned $1.19 per share, down 2% and 13% below the consensus estimate. Including a $175 million write-down at a European garbage-truck business, Oshkosh lost $1.14 per share. Sales rose nearly 7%. Citing weak construction activity in the U.S. and parts of Western Europe, Oshkosh lowered its profit estimate for the year ending September. Trading at less than seven times estimated year-ahead earnings, Buy-rated Oshkosh seems ripe for a rebound . . . Disney ($31; NYSE: DIS) earned $0.62 per share, up 7%. Revenue rose 2% to $9.24 billion. Income from media networks and parks and resorts rose, but studio-entertainment profits plunged 49%. Disney is a Long-Term Buy . . . General Motors ($11; NYSE: GM) reported a staggering quarterly loss of $15.5 billion, or $27.33 per share, on 18% lower revenue. Excluding special items, GM lost $11.21 per share, versus a gain of $2.30 in the year-earlier period. Wall Street expected a loss of $2.62 per share.  GM is rated Underperform . . . Shares of Sprint Nextel ($8; NYSE: S) retreated after the wireless-telecom giant reported mixed results. Quarterly per-share operating earnings of $0.06 were down from $0.25 in the year-earlier period but $0.03 above the consensus estimate. Revenue fell 11% to $9.06 billion, below the consensus. Sprint is rated Underperform.

News digest
Bristol-Myers Squibb ($22; NYSE: BMY) offered to pay $4.5 billion, or $60 per share, for the 83% of ImClone Systems ($64; NASDAQ: IMCL) it does not already own. ImClone shares trade 7% above the offer price, suggesting Wall Street expects a higher bid. Bristol-Myers is rated Neutral.

Manitowoc ($24; NYSE: MTW) shares fell after the company agreed to sell its shipbuilding business for $120 million. Manitowoc is a Focus List Buy and a Long-Term Buy.

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