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MOST NOTEWORTHY:

• Deutsche Bank believes the worst is over for Motorola (NYSE: MOT) and expects an improvement in growth over the next several quarters, upgrading shares to Buy from Hold.

• CIBC upgraded shares of SanDisk (NASDAQ: SNDK) to Sector Outperformer from Sector Performer following checks that indicate NAND supply is being allocated, visibility is improving, and SanDisk positioning is strengthening.

• Pali Capital raised Time Warner (NYSE: TWX) shares to Buy from Neutral as they believe the "valuation has become too attractive to ignore."

• JP Morgan upgraded Schering-Plough (NYSE: SGP) and GlaxoSmithKline (NYSE: GSK) to Neutral from Underweight based on valuation.

• CIBC upgraded Openwave Systems (NASDAQ: OPWV) to Sector Performer from Sector Underperformer believing the Street's expectations are now in line with expectations, limiting downside potential at these levels...

• Merrill upgraded BT Group (NYSE: BT) to Buy from Sell.

• JP Morgan assumed coverage of Arkansas Best (NASDAQ: ABFS) with a Neutral rating, up from an Underweight rating.

• AG Edwards upgraded UnitedHealth (NYSE: UNH) to Buy from Hold.

• Merrill upgraded Dean Foods (NYSE: DF) to Neutral from Sell.

• UBS upgraded Marvell Technology (NASDAQ: MRVL) to Buy from Neutral.

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The markets saw a third day of selling today. While some may attribute it to the lower retail sales numbers, foreign interest rate worries or North Korean missile tests, I think it just may be the summer trading session. The market has been shooting up like crazy recently and it is time it takes a breather. Summer time has also been a historical rough time for the market as it makes very little in gains. Last summer is a good example of this. Just because the Dow dropped in the beginning of June last year doesn't mean it has to drop in the beginning of June this year; but it is food for thought.

The NYSE had volume of 2.5 billion shares with a paltry 279 shares advancing while 3058 declined for a loss of 174.07 points to close at 9,720.94. On the NASDAQ, 1.4 billion shares traded, 669 advanced and 2,372 declined for a loss of 45.8 to 2,541.38.

Netflix (NASDAQ: NFLX) rose $1.33 (6%) to $23.93. PAN AMERICAN SILVER CORP (NASDAQ: PAAS) fell $1.65 (-6%) to $26.75. Arkansas Best Corporation (NASDAQ: ABFS) fell $2.37 (-6%) to $39.24. MasterCard Incorporated (NYSE: MA) fell $7.61 (-5%) to $139.41. Shuffle Master (NASDAQ: SHFL) fell $2.10 (-11%) to $17.51.

With the bearish activity over the last couple of sessions put have been much more active. In options there were 7.5 million puts and 6.7 million calls traded for a put/call open interest ratio of 1.12. QualComm (NASDAQ: QCOM) saw heavy volume on the June 45 calls (AAOFI) with over 57,000 options trading after lawsuit issues. Yahoo (NASDAQ: YHOO) saw heavy volume on the January 08 40 calls (VYHAH) with over 57,000 options trading and the January 09 30 calls (YHQAF) moved 56,000 options trading. Apple (NASDAQ: AAPL) saw heavy volume on the June 130 (APVFF) with over 54,100 options trading.

Kevin Kersten is an Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and or controls a diversified portfolios of long and short positions that may include holdings in companies he writes about.

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Most of the major long-haul trucking companies have reported quarterly earnings by now, and the news has been about as welcome as a state trooper with a ticket quota to meet. All trucking companies were affected by the same negative factors for the winter quarter:

1. Slowing economy, with particular weakness in the housing and auto sales sectors, resulting in weakening demand for the past eight months.

2. Excess capacity, though not necessarily excess drivers, as many companies bought new truck engines prior to the deadline for more fuel efficient (and expensive) and less polluting engines.

3. Soaring fuel costs, up 17 cents per gallon in March alone, with no end in sight for the next several quarters.

4. Wretched weather for days on end in many parts of the country.

Despite what might initially appear to be a uniformly negative scenario, the long-haul trucking sector is more fragmented than investors may realize, so results were NOT NEGATIVE across the board. In many cases, revenues were up, but then again, so were operating expenses. The degree to which senior management can control costs and utilize existing equipment effectively often made the difference.

The winner clearly is Heartland Express Inc. (NASDAQ: HTLD) which returned positive numbers across its business units. Operating revenue was up 6.2% to $143.3 million from 1Q 2006. Net income was up 14.3% to $22.6 million. Diluted EPS was up 15% to $0.23. Cash flow improved by $33.8 million. The company remains debt free with $700 million in assets. Despite the very difficult business environment, Heartland Express purchases 35 new tractors and 100 new trailers during 1Q 2007. In keeping with its 15 consecutive quarters of paying a dividend, Heartland paid out a dividend of $0.2 per share. Heartland just seems to be better at logistics and operations than its competitors, most of whom lost money in one of more business business units. Heartland Express stock closed recently at $16.53, down $0.37.

Werner Enterprises (NASDAQ: WERN) also reported revenue increases, albeit smaller, just 2% to $492 million. Although Werner is not a primary shipper in the construction and/or auto sectors, it faced considerable pressure from those trucking companies that are, as they faced weakening demand and looked elsewhere for business. EPS declined by 24% to $0.21, which more than offset the good news of the slight revenue increase. Werner is somewhat protected from the weakening demand due to its ability to contract out its trucks and drivers on short-term contracts to help customers meet surge and flex demands. Werner has also branched out into value added logistics services, as well as international shipping. Revenue in this unit was up 24%. Revenue in Werner's brokerage unit was up 32% to $800,000 and the company hopes to grow this unit substantially. Werner is a major creditor of now bankrupt APX Logistics, which owes Werner over $7 million. Werner carries $80 million in debt, but nonetheless purchases 1.5 million shares of its stock at an average price of $19.68. Werner stock closed recently at $19.11, down $0.15.

Con-way Inc. (NYSE: CNW) was a triple downer. Operating income for 1Q 2007 was down 28.5% to $55.7 million. Revenue was down 4% to $1 billion. Net income was down by $13 million to $32 million. Diluted EPS was down over 20% to $0.60. In both truckload division and less-than-truckload division, revenues, operating income and tonnage hauled were down. Operating income decreased by 19.4%. Revenue was down 2% to $682 million. Tonnage decreased by over 2%. There is a bit of a bright spot. Con-way's logistics unit, Menlo Logistics reported an operating income increase of 5.7% to $6.5 million, and net revenue increased by 10% to $104 million, despite the fact that revenue decreased by 8.4%. Optimistically, Con-way is sticking with its previous FY 2007 guidance of diluted EPS in the range of $3.60-$3.90. Con-way bought back over 900,000 of its own shares at a cost of $45 million. The stock closed recently at $54.38, down $0.68. There are certainly less expensive money-losing trucking stocks in which to invest.

Arkansas Best Corporation (NASDAQ: ABFS) reported slight declines in 1Q 2007 revenue, to $422.6 million. But reported a 6% decline in tonnage hauled, 21.6% drop in net income, to $4.8 million, with a corresponding drop in diluted EPS from $0.24 to $0.19. ABFS paid at over $1 million, $0.03 per share, in executive pension benefits. Nice to know that even when money is tight, the rich guys still get paid first. To try to help itself, ABFS has rolled out a Regional Performance Model that tried to provide second-day services to the eastern 2/3 of the US. The company wants to compete over shorter distances by improving its delivery time consistency and pricing. This new business model just recently became fully operational, so revenues from it have yet to match let alone exceed expenses. If successful, it may give ABFS an edge over its shorter-haul competitors. The stock closed recently at $39.60, down $0.51.

J.B.Hunt Transport Services, Inc. (NASDAQ: JBHT) reported a 2% increase in overall revenue to $797 million. Operating income declined 1% to $80 million. The company took on $7 million more in debt, perhaps not the wisest move in a constricting market. 1Q 2007 EPS remained flat at $0.30. But JB Hunt is a fairly segmented trucking business, and some business units recorded gains. Intermodal services had a very positive quarter with revenue up 9% to $354 million, and operating income up 30% to $46.6 million with a major emphasis on shorter-haul customers along the east coast. The Dedicated Contract Services unit also showed some positive action as revenue was up 6% but operating income was down 4%. Whatever small gains were posted were wiped up by declines in the Trucking sector where revenue was down 11% to $214 million due to weakened demand, and operating income plummeted 47% to $11.4 million. The stock closed down $0.60 at $28.37.

Old Dominion Freight Line (NASDAQ: ODFL) reported 9.7% increase in revenue to $320 million, but less than 1% increase in operating income at $13.6 million . EPS was $0.36 compared with $0.35 in 1Q 2006. Old Dominion recently completed the acquisition of Priority Freight Lines, Inc in order to expand its geographic reach, the opposite of the two trucking companies with more positive results. Old Dominion maintains FY 2007 guidance of $2.00-$2.05 per share. The stock closed down $0.88 at $30.56.

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MOST NOTEWORTHY:

• Citigroup upgraded Whirlpool Corp (NYSE: WHR) to Hold from Sell with a $107 target after better-than-expected Q1 results.

• Amazon.com Inc (NASDAQ: AMZN) was upgraded to Market Perform from Underperform at Piper Jaffray, to Hold from Sell at Citigroup, to Neutral from Underperform at Cowen, to Sector Perform from Underperform at Pacific Crest and to Buy from Hold at BWS Financial.

• Elsewhere, Stephens raised Arkansas Best Corp (NASDAQ: ABFS) to Equal Weight from Underweight with a $30 target.

• Bernstein upgraded Capital One Financial (NYSE: COF) to Outperform from Market Perform...

• Key Bank Capital Markets upgraded Cheesecake Factory Inc (NASDAQ: CAKE) to Buy from Hold.

• Alcatel-Lucent (NYSE: ALU) was upgraded to Buy from Neutral at Goldman.

• Stifel upgraded Advance Auto Parts, Inc (NYSE: AAP) to Buy from Hold with a $48 target.

• UBS raised Yamana Gold Inc's (NYSE: AUY) rating to Neutral from Reduce.

• Longbow Research upgraded Parker Hannifin (NYSE: PH) to Buy from Neutral.

• Lehman upgraded American Standard Cos (NYSE: ASD) to Buy from Hold with a $50 target.

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MOST NOTEWORTHY:

• Credit Suisse upgraded Ford Motor Company (NYSE: F) to Neutral from Underperform with an $8 target. The firm thinks Ford has a chance of posting slightly better-than-expected Q1 results, which could be a positive catalyst for shares.

• AG Edwards upgraded AT&T Inc (NYSE: T) to Buy from Hold with a $41 price objective. The firm believes the recent pullback provides investors with a buying opportunity.
  

• Lazard upgraded American Eagle Outfitters Inc (NASDAQ: AEOS) to Buy from Hold with a $34 target on valuation.

• Matrix USA upgraded SanDisk Corp (NASDAQ: SNDK) to Strong buy from Hold to reflect the stock's low valuation and their optimism for new large capacity flash hard drive alternative products leads.

• Stanford upgraded shares of Analogic Corp (NASDAQ: ALOG) to Hold from Sell with a $55 target. The upgrade followed Analogic's better-than-expected Q2 results. Stanford admits they were wrong about the security shipment, as Analogic shipped 18 EXACT units, well above the firm's 5 unit estimate.

• Citigroup upgraded Monster Worldwide (NASDAQ: MNST) to Buy from Hold. to reflect improving margins in its European segment.

• Piper Jaffray upgraded NightHawk Rediology Holdings (NASDAQ: NHWK) to Market Perform from Underperform citing valuation.

• UBS upgraded Bayer AG (NYSE: BAY) to Buy from Neutral on valuation.

• Citigroup believes British Airways ADS (NYSE: BAB) can meet its 10% operating target in 2008 and upgraded shares to Buy from Hold.

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I've been reading the January 2007 issue of Material Handling Management. In this issue, there is a fine article by Tom Andel that discusses the current realities regarding hydrogen fuel cell use in commercial operations utilizing lift truck fleets. The MHM article brings home some truths of just how close we are to finally beginning the replacement of currently accepted methods of providing the energy to operate various industrial equipment. Consumers (and investors), sometimes don't realize that when it comes to heavy duty technology conversions in our day to day world, most often those changes are implemented and perfected on the industrial side well before the consumer side gets its hands on them. Such seems to be the case in the matter of hydrogen fuel cells.

MHM research suggests that while increasing improvements are still being aggressively sought, hydrogen fuel cell technology has reached the point of being completely practical in replacing some of today's current energy provision systems. The single largest hurdle that developers are addressing is in making the technology more economical. With current incentive programs for energy provision change over, it's almost a dead heat between hydrogen fuel cells and current methods in use. Developers have already begun their marketing programs while the scientists and engineers continue to push towards their goals for economical hydrogen deployment absent of outside financial incentives. Their goal is to make hydrogen fuel cell technology a stand alone proposition.

Lift truck manufacturers are operating in concert with fuel cell and battery manufacturers to find winning options in energy provision systems. There are design teams which are focusing on complete battery displacement systems and there are other developers who are seeking a hybrid solution which blends fuel cell utilization with current battery technology. Already, Toyota Motor Corp. (NYSE:TM) has developed a fuel cell lift truck model FCHV-F, which utilizes a "drop in" hydrogen fuel cell module. From all appearances, the module would seem to be shaping up as a total battery replacement.

Engineers are still tackling issues surrounding the control of current flow and the power increases needed for constant heavy lifting. The power delivered by hydrogen fuel cell units seems more suited to continuous loads at lower levels, whereas batteries can quickly deliver heavy power surges with total user control. Based on what I've seen and read it appears to me that fuel cells for now will require an associate battery to assist in delivering the power range and control that lift trucks require. The battery would deliver the current and the fuel cell would work as an on board recharging system. Lift truck fleets would then be freed from the downtimes and dangers of routine daily battery change out.

In an investment sense I would consider hydrogen fuel cells as an excellent long term strategy play. The technology is far enough along for me to believe that it will be fully successful. There are some big players in the game and there is a very hard push forward. Hydrogen fuel cells are real, my friends, and their use should become commonplace in the not so distant future. I see fuel cells as having a significant future in the industrial workplace. The question still remains, will hydrogen fuel cells become practical technology for the automobile? My answer is: I just don't know.

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MOST NOTEWORTHY:

• Wachovia upgraded the trucking sector to Market Weight from Underweight, as they believe the negative sentiment towards the group is starting to bottom, also noting that trucking stocks tend to rally before fundamentals fully bottom. Wachovia upgraded Con-Way Inc (NYSE: CNW) and Covenant Transport 'A' NASDAQ: CVTI) to Outperform from Market Perform, and Arkansas Best (NASDAQ: ABFS), Heartland Express Inc (NASDAQ: HTLD), Werner Enterprises (NASDAQ: WERN), US Xpress Enterprises 'A' (NASDAQ: XPRSA) to Market Perform from Underperform.

• JP Morgan added PepsiCo (NYSE: PEP) to their Focus List, as the firm believes the recent pullback due to concerns over commodities costs and margins is overdone.

• Janco upgraded Electronic Arts (NASDAQ: ERTS) to Buy from Hold with a $69 target, citing valuation.

• Amgen Inc (NASDAQ: AMGN) was upgraded to Outperform from Peer Perform with a $77 target at Bear Stearns; the firm views Amgen's risk/reward as favorable as the most reasonable of CERA's launch scenarios, owned by Roche Holdings AG (OTC: RHHBY), are priced into valuation, and sees significant upside if CERA does not launch.

• Caris upgraded LSI Logic (NYSE: LSI) to Buy from Above Average with a $12 target; they believe investors are underestimating the synergies involved with the Agere Systems (NYSE: AGR) deal. The broker sees upside to earnings estimates and raised their target of LSI Logic to $12 from $11.

• Merrill Lynch upgraded shares of ImClone Systems (NASDAQ: IMCL) to Neutral from Sell, and sees a short-term trading opportunity due to the overly negative sentiment into the upcoming sales figures. The broker thinks Imclone could meet its Erbitux sales estimates despite weak prescription data.

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MOST NOTEWORTHY: Notable companies from today's downgrade list include the New York Stock Exchange (NYX) and Nokia (NOK).

• JP Morgan downgraded the New York Stock Exchange Group Inc. (NYSE:NYX) to Neutral from Overweight based on valuation; they also foresee potential integration issues with Euronext.
• Nokia Corp. (NYSE:NOK) was downgraded to Hold from Add at West LB.

OTHER DOWNGRADES:

• YRC WorldWide Inc. (NASDAQ:YRCW) and Arkansas Best Corp. (NASDAQ:ABFS) were downgraded at Stephens to Underweight from Equal Weight, citing the deteriorating Less-Than-Truckload environment.
• Bear Stearns downgraded 3Com Corporation (NASDAQ:COMS) to Peer Perform from Outperform citing increased execution; Lehman Brothers downgraded 3Coms (COMS) to Underweight from Equal Weight.

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

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MOST NOTEWORTHY: Pfizer (PFE), Anheuser-Busch (BUD) and the Trucking Sector top's today's extensive list of downgrades.

• Pfizer, Inc. (NYSE:PFE) was downgraded by UBS to Neutral from Buy. The firm cited increased risks to the drug-makers' outlook.
• UBS also downgraded Anheuser-Busch Companies, Inc. (NYSE:BUD), citing weaker volumes and pricing expectations for the next six months.
• Wachovia downgraded the Trucking Sector to Underweight from Market Weight citing weakening fundamentals. Within the sector, Wachovia downgraded
  • Arkansas Best Corporation (NASDAQ:ABFS), Heartland Express Inc (NASDAQ:HTLD), Swift Transportation Co, Inc. (NASDAQ:SWFT) and US Xpress Enterprises, Inc. (NAsdAQ:XPRSA) to Underperform from Market Perform,
  • and Knight Transportation, Inc. (NYSE:KNX) to Market Perform from Outperform.

OTHER DOWNGRADES:

• JP Morgan downgraded three International Airline companies on concerns of capacity growth in 2007:
  • Gol Linhas Aereas Inteligentes SA (NYSE:GOL) and TAM SA (NYSE:TAM) to Neutral from Overweight,
  • and Copa Holdings SA (NYSE:CPA) to Underweight from Neutral.
• Citigroup downgraded Kimberly Clark Corp. (NYSE:KMB) to Sell from Hold, citing valuation and near-term earnings concerns.
• Finally, Kaufman Brothers downgraded Electronic Arts, Inc. (NAsdAQ:ERTS) and THQ Inc (NASDAQ:THQI) to Hold from Buy on valuation.

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

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