3 Stock Picks: SLM, TPP, CNO

Sallie Mae Secures Contract -- and an Upgrade

Government-backed student loan provider Sallie Mae (SLM: 10.05, +0.78, +8.41%) received a passing grade from investors, who sent the shares 10% higher in early Monday trading, following a key analyst upgrade and the landing of a crucial government contract.

J.P. Morgan analyst Andrew Wesel gave Sallie Mae's stock an Overweight rating late last week, boosting it from Market Weight on the strength of its shifting business model. He said its transition to servicing loans � collecting payment and interest � and no longer originating loans would boost its earnings and growth.

"We are upgrading SLM on a long-term view that its transition to primarily a loan servicer, as opposed to a lender, will lower interest rate and funding risks, thus improving earnings visibility," he wrote.

The upgrade stemmed from a June 17 announcement that Sallie Mae was selected as one of four companies named by the Department of Education to service loans that it will start issuing in September. Sallie Mae will be joined by Nelnet (NNI: 13.61, +1.31, +10.65%), Great Lakes Education Loan Services and American Educational Services/ Pennsylvania Higher Education Assistance Agency. The quartet will also service Federal Direct Loan Program loans starting this autumn.

Sallie Mae said at the time it could handle more than $100 billion in new volume immediately.

"Winning the contract removes a major uncertainty and confirms our view that the company will be a player in the student lending business for the long term," wrote William Blair & Co. analyst David Long in a June 18 note. "While the company's business model continues to evolve and the new servicing economics are somewhat uncertain, recent developments have been quite positive."

Bottom Line: Buy
As the recent financial collapse shows, it's far better to be on the hook just for collecting loans, rather than making them and being burned by defaults. Recent graduates are likely to be more frugal and better payers than their overextended, house-payment defaulting, personal-bankruptcy-declaring predecessors.

Teppco Shares Propped by Merger Bid

Investors applauded oil exploration and production company Teppco Partners' (TPP: 30.12, +1.43, +4.98%) announcement that it agreed to be acquired by Enterprise Products Partners (EPD: 24.96, -0.33, -1.30%) in a $3.3 billion deal. Teppco's shares rose 5% in early Monday trading. Enterprise shares declined a bit more than 1% at the same time.

Should the deal go through, it would create the largest publicly traded master-limited partnership, a common tax-advantaged structure used by energy pipelines. The combined company would continue as a master-limited partnership, which offers investors the liquidity of a stock with the tax benefits of a limited partnership that returns much of its cash back to investors.

Although falling commodity prices have hit pipeline companies hard in the last several months, Teppco in April rejected a proposal to sell itself to Texas oil magnate Dan Duncan for a reported $2.8 billion.

Enterprise Chief Financial Officer Randy Fowler said on a Monday conference call that adding Teppco will diversify its business into pipelines and storage.

"The combined partnership provides a larger footprint and broader business and geographic diversification with additional avenues to generate incremental cash flow through greater utilization of assets, organic growth opportunities, cost savings and system optimization," he said. "The larger scale translates into more sources of cash flow, one of the credit positives, and greater trading liquidity in our debt and equity securities, which is important to investors."

Oppenheimer & Co. analyst John Cusick wrote earlier this month that broad commodity price fluctuations and a still grim macroeconomic backdrop could keep master-limited partnerships volatile in 2009. Recent rises in crude oil prices, followed by last week's fall below $70 a barrel, are reflected in the stock price fluctuations in both companies.

"Over the near-term we would be a bit cautious in adding significantly to any established positions, but would be buying on any pullbacks or dips," Cusick wrote June 1. "However, long term, we continue to view MLPs as an essential holding for investors with long time horizons and a focus on yield. The capital appreciation is icing on the cake."

Bottom Line: Hold
Mergers often have periods of uncertainty and it's worth waiting for a dip or a rival bid to shift Teppco's prices, rather than buying at the peak of the merger news boost.

Capital Troubles Plague Conseco

In a move to shore up capital, Conseco (CNO: 2.24, -0.16, -6.66%), an insurer that targets the senior market, effectively sold off part of its business, sending shares down more than 6% in early Monday trading.

The company, based in Carmel, Ind., said it would coinsure about 104,000 policies with Wilton Reassurance, in a $57.5 million deal.

"Completing this step is expected to increase Conseco's consolidated risk-based capital ratio by eight percentage points, along with increasing statutory capital," said Conseco CEO Jim Prieur in a prepared statement. "In addition, this transaction will further simplify our administrative operations as we focus on our core insurance businesses."

Alan Rambaldini, a Morningstar analyst, said Conseco has pared other parts of its non-core policy businesses over the last year to boost its capital position.

"They had policies they had acquired a number of years ago, and in exchange for some cash they're taking those polices and giving them to another company, along with assets set aside as reserves for those policies," says Rambaldini.

While the company serves the growing senior market, it's been scrambling to restructure its debts, and its market niche isn't enough to give it a competitive advantage against larger insurers, the analyst says.

Bottom Line: Sell
Another piecemeal deal that can't extricate Conseco from its fundamental troubles may convince investors it's time to cut their losses as the recent three-month rally flags.

6 Stocks to Sell Before Everyone Else Does

June may be the beginning of the summer slowdown for many people. But if you want to take advantage of index funds and other big institutional investors, June brings you an early Christmas present: advance warning of massive sales of unwanted stocks.

Ever year, Russell Investments makes changes to its benchmark indexes, adding some new stocks and taking out ones that no longer make the grade. The indexing giant is probably best known for its small-cap Russell 2000 index, but according to Forbes, institutional investors have $4.2 trillion in assets that are benchmarked to various Russell indexes, with the bulk tied to the large-cap Russell 1000 index.

Falling from glory
Although the process won't be complete until Friday, Russell has already announced some of its prospective additions and deletions from its indexes. As it happens, many well-known companies will have to say goodbye to Russell's broadest measure of the U.S. stock market, the Russell 3000. Many of the deletions are based on market cap, but bigger companies get the boot if their share prices fall below $1 or move to foreign countries. Here are a few of them:

Stock	Market Cap	1-Year Return
Sirius XM (Nasdaq: SIRI)	$1.35 billion	(80.1%)
Blockbuster (NYSE: BBI)	$142.3 million	(70.6%)
Ingersoll-Rand (NYSE: IR)	$6.6 billion	(45.0%)
Capstone Turbine (Nasdaq: CPST)	$160.3 million	(79.6%)
Finisar (Nasdaq: FNSR)	$283.6 million	(55.3%)
Fannie Mae (NYSE: FNM)	$707.0 million	(97.2%)

Sources: Russell Investments, Yahoo Finance.

Meanwhile, some up-and-coming stocks will find their way into the Russell indexes, such as Hemispherx Biopharma (AMEX: HEB).

What it means
The most important thing about major changes to indexes is that because so many institutional investors work hard to match index returns, changes result in a flurry of trading activity during the transition period. With most indexes, though, including the S&P 500 and the Dow Industrials, changes aren't made on a regular basis. Instead, substitutions are made more on an as-needed basis, which limits the opportunity for traders to take advantage of index funds and other index-tracking investors.

The Russell reconstitution, however, is remarkable because of its regularity. Many investors rush to buy shares of newly added companies in an attempt to beat the index funds to the punch. To try to reduce the impact of the changes, Russell lengthens its process to give institutional investors more time to make trades and realign their portfolios to match up with the new lists.

Can you profit from the changes?
Nevertheless, the predictability of the changes imposes a cost on those who follow the index's changes strictly. Past research has concluded that the forced behavior that index changes impose on the funds that follow them costs investors an average of 2 percentage points every year.

A more recent look at this year's stocks suggests that those conclusions continue to be true. According to a Goldman Sachs study, stocks expected to be added this year have outperformed the overall index by 3.4 percentage points between April 1 and May 4. Stocks to be removed, on the other hand, have underperformed by 6.5 percentage points over the same period.

Nevertheless, some index-trackers prefer not to deal with Russell's annual process. Although the iShares Russell 2000 (IWM) tracks Russell's small-cap index, the Vanguard Small-Cap ETF (VB) chooses to follow a different index, the MSCI small-cap index. That helps the Vanguard fund avoid the June madness.

What to do
With so many hedge funds and sophisticated investors trying to take advantage of the short-term impact on stocks affected by the Russell reconstitution, you're unlikely to cash in with a swing trade. However, that doesn't mean you should ignore the process entirely.

If you own shares of companies that are slated to be removed from the index, then you might want to sell shares before the final reconstitution on June 26 in order to avoid the selling pressure resulting from the index changes. Alternatively, if you really think a stock has good long-term prospects, make sure you're prepared for a potential drop on that day -- and don't panic-sell after the fact.

Conversely, if any of the stocks on the prospective list of additions are attractive to you, you might want to buy sooner than later. If being included in the index pushes share prices higher, you'll be glad you didn't wait.

Why Bonds Beat Stocks

A stunning statistic was published recently by financial analyst Robert Arnott. Bonds have been outperforming stocks. That might not be surprising to you -- it's pretty obvious that last year, when the market got clobbered, bonds would outperform stocks.

But I'm not talking about last year. Or even the last decade. I'm talking about 40 years of underperformance. From February 1969 to February 2009, an investor in 20-year Treasuries (consistently rolling to the nearest 20-year bond and reinvesting income) slightly outperformed an S&P 500 investor.

So, after what happened last year, you might be asking yourself why you're bothering with stocks at all. Why risk the stock market's volatility when bonds can offer the same returns?

How statistics lie
This bond outperformance example nicely illustrates Benjamin Disraeli's remark that "there are three kinds of lies: lies, damned lies, and statistics."

It's not that the statistic is false, but that it's completely deceiving. If you look at the 40-year time period, you'll see that interest rates on 20-year Treasuries started at 6.32% in 1969, spiked to 13.72% in 1982, then steadily dropped until in February they averaged 3.83%.

So, this means that bondholders got the best of both worlds. They were receiving high yields for most of the period, and were able to reinvest their interest at similarly high yields. Then at the end of the period, bond prices were high -- higher than at any other point in the period, since bond prices are high when yields are low. So, on top of the high income during most of the period, bondholders had their investment valued at extremely high levels at the end of the 40-year period. Thus, this was an excellent endpoint for Treasuries, allowing holders to reap big capital gains on top of their income.

Not nifty enough
Stocks, on the other hand, are suffering from bad endpoints. In 1969, talk was of the Nifty Fifty, the 50 large-cap growth stocks, like PepsiCo (NYSE: PEP), IBM (NYSE: IBM), Disney (NYSE: DIS), and McDonald's (NYSE: MCD), that many investors thought they could buy and hold, regardless of valuation. By 1972, the Nifty Fifty was trading at a gigantic multiple of 42 times earnings.

What's more, the endpoint of the 40 years is after the biggest stock market crash in 80 years. It's an absolutely atrocious endpoint for comparing the performance of stocks.

So, we're cherry-picking a fantastic period for bonds and a horrendous period for stocks, and discovering that stocks barely underperform. (And it's worth noting that stocks returned 700%, or 5.3% annually during that study period.)

Even with this unusual 40-year period, since 1871, stocks have outperformed bonds by 3.2 percentage points annually. So, just by the long-term numbers, stocks are still a better investment than bonds. It does show, however, that adding bonds to your portfolio can smooth your returns. Even if bonds don't match stocks' long-term returns, they can beat stocks for years or even decades.

A lesson from Buffett
But there's a more important lesson here than the benefits of asset allocation. It's that over the long term, the price you pay for stocks really matters, much more than the particular obsession of the day. In the 1960s and 1970s, the Nifty Fifty seemed unstoppable, but because investors paid too much, returns were mediocre.

But, investors who avoided the overvalued businesses and focused on the cheap ones could do very well. Warren Buffett paid attention to buying assets cheaply. As a result, from 1969 until the end of 2008 -- roughly the same 40-year period -- Berkshire Hathaway compounded its book value at a 20.7% rate.

Of course, Buffett wasn't invested exclusively in stocks. Berkshire owns bonds as well. But, here, too, valuation is critical. Buffett wasn't buying Level 3's (Nasdaq: LVLT) bonds during the Internet bubble in the late 1990s, but waited until they became cheap in 2001.

What to do now
So, while the historical performance of stocks versus bonds is interesting, valuations are what should dictate your investment strategy. Buy whatever's attractively valued.

Right now, that means you should avoid Treasuries and buy stocks. After all, Treasuries are still trading close to all-time highs. Yields really don't have much further to fall, and if inflation takes off, Treasuries could plummet. So, not only is the statistic deceptive, there's a good chance you'll get bitten if you interpret it to mean that you should be buying bonds today.

The stock market, on the other hand, has already crashed, and now looks cheap. Pfizer (NYSE: PFE), which used to trade at 50 times earnings, is now at a 12.5 multiple. Johnson & Johnson (NYSE: JNJ) was trading at a 30 multiple a decade ago. Now, it's at 12. Sure, the economy is in a real mess and some investors are jittery about President Obama's proposed solution to the health-care crisis. But these issues won't last forever, even if many stocks are priced that way.

The Foolish bottom line
So, while it's true that bonds did outperform over a 40-year span, if you look at the underlying causes, it actually supports the idea that today's undervalued stocks should outperform going forward. It's all a matter of buying at the right price. Our Inside Value team sees today as a great time to buy -- we've found many exceptionally cheap stocks. You can read about them with a free trial.

Stryker's Stock Is En Route to Recovery

THE THIGH BONE'S connected to the hip bone, and the hip bone's connected to the backbone. The connections, however, wear out with age, which is bad news for baby boomers but big business for Stryker , a leading maker of hip, knee, spine and other joint replacements, and a likely beneficiary of a coming wave of surgeries in the U.S. and abroad.

The recession has knocked Stryker (SYK: 40.85, -0.31, -0.75%) out of joint, curbing its historic double-digit rate of sales and profit growth. Patients have delayed costly elective surgery, hurting the orthopedic-implant business, while hospitals have reined in spending on beds and stretchers, denting the company's Med Surg Equipment unit. As a result, investors have the opportunity to snap up shares for $40 apiece, nearly 50% below the stock's 2008 high of $75.

Stryker's business -- and its shares -- could rebound sharply in 2010, as the economy recovers and employment perks up. Analysts expect the Kalamazoo, Mich., company to earn $1.2 billion, or $2.96 a share, this year, up just 5% from last year's $2.83. But earnings could rise 12% next year, to $1.3 billion, or $3.31 a share, on sales of $7 billion.

Help could come from any increase in hospital spending, which is likely to be flat to up 5% in 2010, after falling more than 20% this year, according to some analysts. Also, foreign-currency exchange could turn from a headwind to a tailwind toward the end of '09 if the dollar stays weak. Overseas markets account for 35% of Stryker's sales, and the company is pushing to expand in Japan, Africa, the Middle East and other regions.

"As the economic situation stabilizes, a favorable exchange rate and increased health-care spending will be significant upside catalysts for Stryker's growth," says Ronnie Moas, president of Standpoint Research in New York. Moas thinks the stock could trade between 50 and 55 next year.

Founded in 1941 by Dr. Homer Stryker, an orthopedic surgeon, Stryker is the tenth-largest medical-device company in the U.S., and a prominent player in the $38 billion orthopedic-implant market, where it competes with Johnson & Johnson (JNJ: 56.60, +0.33, +0.58%), Zimmer Holdings (ZMH: 43.10, +0.18, +0.41%), Medtronic (MDT: 34.97, +0.25, +0.72%) and others. Last year the orthopedic-implants business contributed 59% of total sales of $6.7 billion, while the Med Surg unit chipped in 41%.

With $2.2 billion of cash and only $20 million of debt, Stryker has one of the strongest balance sheets in the health-care sector. It has generated return on equity of at least 19% for nine straight years, and produces more than $1 billion a year of cash flow. The company has used its cash to buy back stock and pay a dividend -- now 40 cents a share, for a yield of 1%. It also has made small acquisitions and is rolling out new products, including a titanium hip cup and a wireless HDTV operating-room monitor.

Worries that health-care reform will crimp profits are obscuring Stryker's long-term prospects, as are concerns the slowdown in domestic hospital spending could go global. "An [international] capital-equipment slowdown may be the next leg down for Stryker," says Needham analyst Ed Shenkan, who has a Hold rating on the shares.

Moreover, the company has received four "warning letters" from the Food and Drug Administration in the past two years that led in some cases to voluntary product recalls. The letters, the latest received in May, alleged, among other things, improper quality and compliance issues at company facilities, including the sale of products without marketing approval. Stryker also is fending off regulatory investigations into its promotion of a bone-growth protein, and the sale of medical devices overseas.

The company is in the early stages of a three-year plan to spend $200 million to upgrade its quality controls and compliance system. At an analyst meeting in May, Chief Executive Stephen MacMillan, a J&J veteran, said management is making "tremendous progress" in improving quality, but conceded "regulatory overhang in the next 12 months" is the biggest risk facing the company. Stryker officials weren't available to comment.

Stryker's stock could fall to 35 or so in coming quarters if the market loses steam. But investors' concerns largely are baked into the price. Morningstar analyst Julie Stralow says a $40 stock assumes that sales increase only 4%, compounded, through 2013, and that operating margins fall to 18% from 23% now. "The current share price reflects a dire scenario" that is unlikely, says Stralow, who pegs fair value at $72 a share.

Stryker sells for 12 times 2010 estimates, slightly above peers. Back out its $5-plus per share in net cash, and the price/earnings ratio falls to 10. For a company with Stryker's healthy prospects, it doesn't get more out of joint than that.

The Bottom Line
Stryker's stock has fallen 47%, to $40, from its peak. It could rise to the mid-$50s as health-care spending rebounds. Morningstar pegs fair value at $72.

THE THIGH BONE'S connected to the hip bone, and the hip bone's connected to the backbone. The connections, however, wear out with age, which is bad news for baby boomers but big business for Stryker , a leading maker of hip, knee, spine and other joint replacements, and a likely beneficiary of a coming wave of surgeries in the U.S. and abroad.

The recession has knocked Stryker (SYK: 40.85, -0.31, -0.75%) out of joint, curbing its historic double-digit rate of sales and profit growth. Patients have delayed costly elective surgery, hurting the orthopedic-implant business, while hospitals have reined in spending on beds and stretchers, denting the company's Med Surg Equipment unit. As a result, investors have the opportunity to snap up shares for $40 apiece, nearly 50% below the stock's 2008 high of $75.

Stryker's business -- and its shares -- could rebound sharply in 2010, as the economy recovers and employment perks up. Analysts expect the Kalamazoo, Mich., company to earn $1.2 billion, or $2.96 a share, this year, up just 5% from last year's $2.83. But earnings could rise 12% next year, to $1.3 billion, or $3.31 a share, on sales of $7 billion.

Help could come from any increase in hospital spending, which is likely to be flat to up 5% in 2010, after falling more than 20% this year, according to some analysts. Also, foreign-currency exchange could turn from a headwind to a tailwind toward the end of '09 if the dollar stays weak. Overseas markets account for 35% of Stryker's sales, and the company is pushing to expand in Japan, Africa, the Middle East and other regions.

"As the economic situation stabilizes, a favorable exchange rate and increased health-care spending will be significant upside catalysts for Stryker's growth," says Ronnie Moas, president of Standpoint Research in New York. Moas thinks the stock could trade between 50 and 55 next year.

Founded in 1941 by Dr. Homer Stryker, an orthopedic surgeon, Stryker is the tenth-largest medical-device company in the U.S., and a prominent player in the $38 billion orthopedic-implant market, where it competes with Johnson & Johnson (JNJ: 56.60, +0.33, +0.58%), Zimmer Holdings (ZMH: 43.10, +0.18, +0.41%), Medtronic (MDT: 34.97, +0.25, +0.72%) and others. Last year the orthopedic-implants business contributed 59% of total sales of $6.7 billion, while the Med Surg unit chipped in 41%.

With $2.2 billion of cash and only $20 million of debt, Stryker has one of the strongest balance sheets in the health-care sector. It has generated return on equity of at least 19% for nine straight years, and produces more than $1 billion a year of cash flow. The company has used its cash to buy back stock and pay a dividend -- now 40 cents a share, for a yield of 1%. It also has made small acquisitions and is rolling out new products, including a titanium hip cup and a wireless HDTV operating-room monitor.

Worries that health-care reform will crimp profits are obscuring Stryker's long-term prospects, as are concerns the slowdown in domestic hospital spending could go global. "An [international] capital-equipment slowdown may be the next leg down for Stryker," says Needham analyst Ed Shenkan, who has a Hold rating on the shares.

Moreover, the company has received four "warning letters" from the Food and Drug Administration in the past two years that led in some cases to voluntary product recalls. The letters, the latest received in May, alleged, among other things, improper quality and compliance issues at company facilities, including the sale of products without marketing approval. Stryker also is fending off regulatory investigations into its promotion of a bone-growth protein, and the sale of medical devices overseas.

The company is in the early stages of a three-year plan to spend $200 million to upgrade its quality controls and compliance system. At an analyst meeting in May, Chief Executive Stephen MacMillan, a J&J veteran, said management is making "tremendous progress" in improving quality, but conceded "regulatory overhang in the next 12 months" is the biggest risk facing the company. Stryker officials weren't available to comment.

Stryker's stock could fall to 35 or so in coming quarters if the market loses steam. But investors' concerns largely are baked into the price. Morningstar analyst Julie Stralow says a $40 stock assumes that sales increase only 4%, compounded, through 2013, and that operating margins fall to 18% from 23% now. "The current share price reflects a dire scenario" that is unlikely, says Stralow, who pegs fair value at $72 a share.

Stryker sells for 12 times 2010 estimates, slightly above peers. Back out its $5-plus per share in net cash, and the price/earnings ratio falls to 10. For a company with Stryker's healthy prospects, it doesn't get more out of joint than that.

The Bottom Line
Stryker's stock has fallen 47%, to $40, from its peak. It could rise to the mid-$50s as health-care spending rebounds. Morningstar pegs fair value at $72.

Line Blurs Between Growth, Value Stocks

The debate over which style of stock-picking is superior -- value or growth -- has been vigorously contested in the investing world for years. There are numerous studies that show value stocks tend to outperform growth ones over the long haul. But there are also periods when growth offerings have had their time in the spotlight.

Investors who make a choice of one over the other are usually trying to gauge which style the market will favor. They gradually ratchet up one while cutting back on the other until the market changes course. Then, the opposite happens. Making a prediction on the direction of the stock market is never a simple task. Just ask all those investors who got burned when supposedly growthy Internet stocks fell off a cliff at the end of the last decade.

This year, in particular, it's been extremely difficult to judge which style of stocks is the better bet -- and, by proxy, which are the better mutual funds and ETFs to own. As the credit crisis has taken hold of the market, thousands of stocks and funds have been beaten down to tantalizingly low levels. In the process the distinction between growth and value has become one without any real difference. According to Lipper, the Russell 1000 Growth and Value indexes traded at 43.6 and 23.2 price/earnings ratios in early 2002. That gap has since shrunk to 13 and 11.9 multiples. That situation begs the question: Should investors really be worrying about which side of the investing fence they are sitting on?

"I have tilted portfolios one way or the other in the past," says J.D. Steinhilber, founder of AgileInvesting in Nashville. "But I am not doing so currently. In a market environment like this where everything has fallen so much I would be hesitant to say certain sectors are likely to recover before others."

We have always stuck to elementary definitions when it comes to describing the differences between value and growth stocks. On the one hand, value stocks usually have a low price/earnings ratio and a share price that's trading at a deep discount to its normal range or a specific target estimate. Growth stocks, though, usually change hands at pricey multiples and at rich prices because investors bet they will grow faster than the rest of the market.

The problem in 2008, though, is that the two groups aren't sticking to the script. A perfect example of this is technology, an industry that's a traditional bellwether for growth investing. According to Morningstar, Hewlett-Packard (HPQ: 37.61, -0.51, -1.33%) is trading at a slight discount to the S&P 500 despite a relatively healthy growth outlook for the printer and PC maker. Microsoft (MSFT: 23.35, -0.44, -1.84%) has become a top holding in the well-regarded T. Rowe Price Value fund (TRVLX). Meanwhile, American Century Growth (TWCGX) has a decent helping of energy stocks in its portfolio (at least at its last filing date). Value investors can argue that sector has traditionally been one of their favorites, long before it took off the last few years. A similar situation is playing out in financials, where dozens of growth and value managers alike are buying the same stocks in anticipation of a rebound.

What's more, the stock market hasn't discriminated this year. It's whacked all kinds of stocks and funds, regardless of what style or company size they may be labeled with. It's hard to argue in favor of growth or value when both are down more than 40% this year. Investors are losing money either way.

But what about 2009 or 2010? One of the attributes you will hear about growth sectors like tech or health care is that they tend to do well during slow-growth periods. That's because investors seek out stocks whose earnings are (potentially) growing at a faster pace than their contemporaries. In the ensuing buying frenzy the share prices increase. Again, we aren't so sure that scenario will play out this time around. The U.S. is dealing with a financial system in tatters, a battered housing industry, a new presidential administration, two wars and the tailspin of its automobile industry. In that kind of an environment it's tough to predict which stocks come out unscathed.

Advisors, though, say the best protection is to keep your portfolio simple, don't make any knee-jerk reactions or Hail Marys on risky stocks and, most important, stay diversified. If you're investing using ETFs, make sure you do homework on the construction of the underlying indexes.

"The traditional distinctions blur when you get into these different indexes because it all depends on the methodology," says Steinhilber, who uses ETFs extensively at his investment shop. "Everything has been destroyed to a certain degree. [It's best for investors] to clean up their portfolios, keep expenses low and look for opportunities."

Two of the gold standards for growth and value investing are the individual sleeves of the Russell 1000. The iShares Russell 1000 Growth (IWF: 41.15, +0.04, +0.09%) and the iShares Russell 1000 Value (IWD: 47.25, -0.17, -0.35%) are the ETFs based on those slices. Together, the funds hold almost $20 billion in assets.

A new option we're keeping our eye on comes from WisdomTree. This ETF provider recently filed with the SEC to launch WisdomTree LargeCap Growth (potential ticker: ROI). WisdomTree is known for its indexes based on dividends. This fund, though, will take a little bit of a different tact. Instead of solely focusing on those payments, it will eventually own about 300 companies based on a mix of annual earnings per share growth, annual sales per share growth, annual book value per share growth and annual stock price growth. Companies will be weighted based on their earnings over the most recent four quarters. If successful, the fund could put a twist on the old growth vs. value debate.

Maybe the best way to stay above the fray, though, is to keep a toe in both camps. Indeed, to benefit from a growth or value rebound, all you need to do is be exposed to both styles. To help you make that decision, below we list details on two popular value ETFs and two popular growth ETFs, their costs, their holdings and their returns year to date.

 

Funds Making Money in the World's Riskiest Markets

Rob Lutts, president of Cabot Money Management in Salem, Mass., routinely travels to Pacific Rim countries like Vietnam and Singapore ― so-called emerging markets ― in search of undervalued stocks. He's become so comfortable with investing outside the U.S. that as much as 30% of his aggressive growth portfolios are exposed to overseas markets like these.

"I am not trying to replicate the returns of some index," says Lutts. "I want to grow my clients' money."

Considering that the average emerging market fund lost 55.5% last year (the plain vanilla S&P 500 index fund lost 37.3%), Lutts' heavy weighting may sound surprising. To some, however, the move is prescient. As investors take their money off the sidelines they are investing in both U.S . equities and international ones. According to Lipper, the average emerging markets fund is up 33.3% this year. Such a performance is reminiscent of the category's pre-2008 levels when investors flocked to investments in countries like China and India.

Of course, it's hard to tell if the latest run will continue. SmartMoney.com decided to focus on emerging market offerings this week to see which funds are pulling ahead of the pack. There are 464 funds and share classes in our database that focus on emerging markets like China, India, Russia or regions like Latin America. We disqualified 401 for charging a sales load. We then searched for funds that had low fees and above-average three- and five-year track records. In addition, the funds needed to have a year-to-date return that exceeded the average international offering. In the end, we were left with just two funds.

Investing in emerging markets come with risks ― and rewards. In a good year, the typical emerging market fund can easily outpace their U.S.-based counterparts. That was certainly the case in 2006 and 2007 when China funds gained over 50% both years.

But there are plenty of stumbling blocks that can puncture that performance. Liquidity ― the idea that investors can build a position and then sell it when they want ― is often a problem especially in smaller emerging economies.

These markets can also be volatile as the hot money tends to exit as quickly as it enters. And investors must also consider geopolitical risks, like those playing out in Iran or North Korea.

All those concerns make picking the proper investment vehicle a difficult task. Lutts prefers to buy the shares of individual companies he comes across during his travels. Baidu.com (BIDU: 301.18, +8.03, +2.73%), the Google-like search engine company based in China, is one of his favorites.

But if individual stock-picking seems too risky, another way to play emerging markets is to invest in an ETF geared toward a particular country. The iShares exchange traded fund family has made it easy to either bet on regions or individual countries. For example, the iShares Turkey (TUR: 37.54, +0.12, +0.32%), South Africa (EZA: 46.20, +0.51, +1.11%), Brazil (EWZ: 53.61, +0.39, +0.73%) and Taiwan (EWT: 10.06, -0.08, -0.78%) funds each focus on those respective countries. Investors should just be mindful that ETFs such as these still come with a lot of volatility.

"We are allocating more money to emerging markets," says Robert Phillips, managing partner of Spectrum Management Group in Indianapolis. But, he warns: "It doesn't take a lot of money flows to influence prices."

Another option is an index fund. Vanguard Emerging Markets Stock fund (VEIEX) owns stocks in about two dozen emerging markets. Its largest holding is China Mobile. An alternative to an index fund is to pay for a managed offering in order to gain access to a manager who knows the ins and outs of overseas investing. We've included both types of funds in the table below.

The Criteria: The funds that made our list this week are classified in Lipper's emerging markets category. They are open to new money, require a minimum investment under $5,000 and charge an annual expense ratio less than 1.5%. Their three- and five-year track records put them in the top 40% of that category. In addition, they also had to beat the year-to-date performance of the typical international fund, which, according to Lipper, stands at 14.2% through Thursday. As usual, we did not include load funds.

Spanning the Globe

Ticker	Name	Assets ($ Millions)	YTD Return (%)	3-Year Average Annual Return (%)	5-Year Average Annual Return (%)	Expense Ratio (%)	Minimum Initial Investment
Source: Lipper Note: Data as of June 25, 2009
PRLAX	T. Rowe Price Latin America	1955.2	47.43	10.41	27.01	1.22	$2,500
VEIEX	Vanguard Emerging Markets Stock Index	5414.7	33.83	4.43	14.08	0.32	$3,000

Recipe

Fund Type = Emerging Markets *
Annualized 3-Year Return (%) = Display Only
Rank in Classification (%) (3 year performance) <= 40
Annualized 5-Year Return (%) = Display Only
Rank in Classification (%) (5 year performance) <= 40
Expense Ratio <= 1.5%
Load Fund (type) = No Load
Minimum Initial Investment <= $5,000
Open to New Investors = Yes
Total Net Assets ($ millions) >= 50
Year-to-Date Return (%) >= 14.2%

Shooting a Hole in the Outlook for Gun Stocks

When the Democrats swept into Washington in November, gun fanciers scrambled for 15-round pistols and tactical rifles equipped with grenade launchers, flash suppressors and bayonets -- in fear the new administration would reinstate a ban on the sale of such weapons. Gun makers Smith & Wesson Holding (SWHC: 5.15, -0.27, -4.98%) and Sturm, Ruger (RGR: 11.52, -0.04, -0.34%) have shown great sales gains the past couple of quarters. Their stocks have shot up as much as fourfold. But now the gun industry's leading indicator -- the Federal Bureau of Investigation's monthly count of the instant background checks it runs for gun dealers -- is settling back toward pre-election levels. While November background checks were 42% above the year-earlier level, last month's were up just 15%.

Gun shops corroborate the slowdown. "It was really big around the first of the year," said a Georgia gun dealer (who, like all we found, wanted to remain unnamed). "Now, it's starting to taper back off. It's not near like it was. Everyone is starting to relax."

If the recent sales burst turns out to be just a one-time pop, it won't be the first time...or even the second. Firearm sales spurted in 1993, before the federal assault-weapons ban. Yet within a few years, gun sales returned to the pre-ban trendline. Another rush for guns after 9/11 lasted only about three months.

MOST OF THE TIME, guns are a pretty flat business, with moribund sales and mediocre margins. You might not know it, however, from the recent trajectories of Smith & Wesson or Sturm, Ruger. Shares of the Southport, Conn.-based Ruger arced from 6.50 to near 14, before settling back to a recent 12.75. Smith & Wesson has shot from a pre-election 1.60 to as high as 7.50. Thursday, the Springfield, Mass., company reported a 20% jump in the latest quarter's revenue, and Smith & Wesson shares ended the week at 6. That's about 20-times Wall Street's estimate for current year earnings, more than double the outfit's typical multiple. Both companies are likely to disappoint investors who expect a continuation of post-election business levels. A return to normal for these companies could easily cut their earnings -- and stocks -- by half.

Firearms are a fragmented, competitive industry in which Smith & Wesson and Ruger square off against privately owned rivals like Remington, Sig Sauer and Colt, as well as European names like Heckler & Koch, Beretta and Glock.

Both of the publicly held U.S. companies have endured decades of highs and lows. Smith & Wesson was the lead supplier of handguns to America's police departments until the mid-1980s, when Glock got the drop on it with a line of light and powerful semi-automatics. In recent years, Smith & Wesson has been regaining share among law-enforcement agencies with its own new "military and police" models, and has further extended its brand into "long guns" -- that is, hunting rifles, tactical rifles and shotguns. Revenue grew about 50% in the fiscal year ended April 2007, then another 25% in the April '08 year to reach $296 million. But earnings in the April '08 year amounted to just $9 million, or 22 cents. That was a net margin of only 3.1%. Meanwhile, at Ruger, revenue fell 7%, to $157 million for the year ended December 2007, while profits on operations were all of $2.4 million, or 10 cents a share.

Before Obama's election, 2008 was shaping up to be a pretty lousy year for gun sales. Inventories piled up at gun dealers. The funky economy hurt demand for hunting rifles -- discretionary purchases, these days. Then voters elected a Democratic majority in Congress and a president who was partial to gun control. Bad news for the gun industry, right?

That's not how it's played out. After months of desultory activity at the FBI's National Instant Criminal Background Check System, or NICS, inquiries jumped 42% year-over-year in November, to 1.5 million transactions (which are dealer inquiries, and not necessarily firearm sales). December sales continued to roar, as purchasers grabbed for the kind of semi-automatics whose sale had been forbidden from 1994 to 2004 under the federal assault-weapons ban. These included pistols whose magazines held more than 10 rounds and rifles with two or more military-style features, such as a telescoping stock, pistol grip or flash suppressor. The post-election rush for AR-15 assault rifles was followed in 2009's first months by a run on semi-automatic ammunition. For most of this year, ammo was on back order. Says a Houston gun dealer: "Sales were blowing and going!"

The National Rifle Association reports a 30% rise in membership since November. About 65,000 folks showed up at its conference in Phoenix last month.

Sure enough, the gun-store activity indicated by the FBI's background checks for November and December presaged good quarterly results from Ruger and Smith & Wesson. Ruger's sales in its December 2008 quarter spiked 72% year-over-year to $58 million, and the company exhausted its finished-goods inventory. March period sales came to $64 million, and earnings quadrupled to about $6 million, or 30 cents a share.

At Smith & Wesson, sales for the January 2009 quarter jumped 26%, to $84 million, producing profits of $2.4 million, or five cents a share. The company will detail its results for the April 2009 fiscal year on Monday, but advised investors last week that April quarter sales had risen 20%, to $100 million.

Back in November, investors didn't seem to notice what the NICS background checks were prophesying; gun stocks didn't start moving until late February. By April, Ruger's stock-market value had reached $275 million, while Smith & Wesson's topped $350 million. The companies themselves seemed ambushed by the sudden demand. Ruger's last-reported backlog was more than $136 million, while Smith & Wesson's was $200 million. Those extraordinary levels reinforce the impression made by the NICS numbers charted above, which seem to be tracing the downside of a demand bubble that is reminiscent of the NICS numbers after 9/11.

Neither Smith & Wesson nor Ruger answered our inquiries. But the Houston-area gun dealer corroborated what the FBI numbers suggest: Sales started cooling in May. "It's just not as big as it was a month and a half ago," he says. And that shoots a big hole in the outlook for the stocks.

The Bottom Line
Gun shops and FBI numbers indicate that a post-election rush is subsiding for Smith & Wesson and Sturm, Ruger. Their earnings and stocks could fall back to last year's levels.

5 Stocks Analysts Have Overlooked

Stock opinions are suddenly scarcer on Wall Street. With Bear Stearns and Lehman Brothers laid to rest and remaining investment banks withered, fewer analysts are left to forecast company earnings and issue recommendations on whether to buy shares. The Wall Street Journal reports an epidemic of dropped coverage since September. Since most analyst coverage is favorable ― the number of "buy" calls consistently dwarfs the number of "sells" ― corporate managers worry that dropped coverage could lessen investors' enthusiasm for their shares.

For investors shopping for stocks, the news is mostly good. Screening software can help identify plenty of young companies that are growing nicely through the current recession, but which are largely being ignored by analysts -- at least, for now. Such companies might be among the first to benefit when investment banks replenish their research staffs and go hunting for new stocks to recommend.

The five companies listed below are covered by fewer than five analysts even though they have increased their sales and earnings per share by at least 10% apiece over the past year, and their shares are up nicely year to date.

Global Cash Access Holdings (GCA: 7.33, +0.44, +6.38%) earns generous fees helping casino gamblers get their hands on more cash after they've emptied their wallets. How generous are those fees? While casino partners like MGM Mirage (MGM: 6.69, +0.85, +14.55%) and Las Vegas Sands (LVS: 7.74, +0.37, +5.02%) are watching profits evaporate this year amid a travel downturn, Global Cash is expected to increase its sales by 8% and its profits by 11%. For now, the company makes most of its money operating its patented "3-in-1" cash machines. These prod customers who are denied bank withdrawals the opportunity to try their debit cards and then go for credit card advances, all in one seamless transaction (which, presumably, doesn't feel the least bit like a Central Park mugging). Global Cash also earns smaller amounts by helping casinos determine which gamblers to lend house money to, and by telling casinos which rivals their customers have withdrawn cash from in the past. Eventually, the company hopes to replace cash machines and teller windows with a cashless system whereby gamblers simply enroll their bank accounts and credit cards. Its shares trade at just nine times earnings.

Retail has taken a beating over the past year and clothing stores are among the hardest hit. One relatively small chain that operates out of strip malls in low-income neighborhoods is prospering, though. Citi Trends (CTRN: 23.45, +0.48, +2.08%) has just over 350 stores in 22 states and explains in its financial filings that it competes against fellow discounters like TJX (TJX: 30.23, -0.05, -0.16%) and Ross Stores (ROST: 37.93, -0.11, -0.28%) by "appealing to African-American consumers and offering urban apparel products." According to Oppenheimer & Company, its customers demonstrate a "high propensity to purchase apparel." The chain enjoys one of the fastest payback periods in the industry ― new stores earn back their upfront investment in about a year. Citi Trends' growth potential isn't lost on investors. Shares go for 18 times forward earnings. But the company has made a mockery of quarterly earnings estimates of late, topping them by double-digit percentages. It's also debt-free with $3 a share in cash.

America's Car-Mart (CRMT: 20.86, +1.18, +5.99%) sounds like just the sort of company for investors to avoid. However, it's benefitting from the dismal car sales seen at large dealerships over the past year. The company specializes in the low end of the used-car trade in states like Arkansas, Oklahoma and Kentucky. In the company's most recent quarter, sales at longstanding dealerships improved nearly 3% and company profits rose 8%. Management used strong cash flow to pay down debt, which stands at a modest 24% of equity. In addition, stores are requiring higher down payments on car loans vs. a year ago, and late payments and defaults are down. Shares fetch 12 times earnings.

Have a look if you like at the details on these and the other two screen survivors below.

Screen Survivors

Company	Ticker	Industry	Share Price	Price Change YTD (%)	Sales Growth Past Year (%)	Forward P/E
Citi Trends	CTRN	Clothing stores	$23.62	60	13	17.5
AZZ	AZZ	Industrial equipment	32.24	28	29	11.3
America's Car-Mart	CRMT	Used car dealerships	17.66	28	16	12.0
Global Cash Access Holdings	GCA	Credit services	6.71	202	20	9.0
Milti-Fineline Electronix	MFLX	Citcuit board manufacturing	19.94	71	25	13.0

 

Does Carol Bartz Have What Yahoo Needs?

CAROL BARTZ COULD BE YAHOO!'S last, best hope.

After her two predecessors failed in recent years to counter Google 's conquest of Yahoo! 's once-dominant position in Internet search, or to win over investors, new CEO Bartz brings strong software-engineering and management skills to the job. At her previous post atop Autodesk , she remade the business, sharply boosting margins, earnings and revenues and increasing the share price nearly tenfold.

Bartz, 60, is a sharp operator with a sharp tongue. She's famous for dropping the f-word during conference calls with analysts and investors. (She brought down the house at a recent conference with her opening: "Do you want me to say something naughty now?") More important, however, her first major initiatives at Yahoo! suggest where she's headed. She's recruited Timothy Morse, a proven cost-cutter from chip designer Altera, as her chief financial officer. That followed Bartz's slashing Yahoo!'s workforce by about 675 people, or 5%, in April. Coupled with the 1,450 jobs eliminated just before her arrival in January, the total reductions could save $400 million or more a year, by one estimate.

Although she declined to speak one-on-one with Barron's and isn't expected to detail her strategy until her first analyst session in the fall, Bartz is likely to try to improve Yahoo!'s operating efficiency and profitability.

Says John Chambers, chief executive of Cisco Systems, who's known Bartz for about 15 years (she's a member of his board): "She is remarkably direct. She listens and brings an ability to outline a vision and instills confidence and trust and a sense of the future." Chambers recommended her for the spot. "She has a tough hand to play out [at Yahoo!], and if I were to bet on a person to play that hand it would be Carol. She always gets results," he says.

If she does play her hand right, Yahoo! (YHOO: 15.45, +0.77, +5.24%) will be a more tightly focused, profitable and faster-growing business that can either go it alone or sell itself, most likely to previous suitor Microsoft (MSFT: 23.47, +0.13, +0.55%), which has lagged behind both Google (GOOG: 409.29, +3.61, +0.88%) and Yahoo! in its Internet search business.

For investors willing to put down an early bet, Yahoo! shares are cheap. They have the lowest multiple among their large-capitalization peers. The company's enterprise value (market value plus debt) is just 5.7 times its 2009 Ebitda (earnings before interest, taxes, depreciation and amortization), compared with Google at 10.9 times and Amazon (AMZN) at 20.6 times. Citicorp analyst Mark Mahaney, who upgraded his rating of Yahoo! to Buy last week, thinks the shares are worth 21 each, versus 15.61 now, a 35% premium.

As Chambers suggests, Bartz has been dealt a tough hand. Yahoo! has steadily lost market share to Google, whose model of so-called paid search -- or sponsored links to Websites that appear when users type words in the search engine -- has outstripped Yahoo!'s, which relies more on banner ads and video. Repeated attempts to change this operating model haven't helped much.

In February of last year, Microsoft offered 31 a share and later reportedly raised the bid to 33. Yahoo! co-founder and CEO Jerry Yang and his board rejected the bids. That, coupled with the stock market's swoon and Google's continued strength, took the stock down below 10 in November 2008. At about the same time, sharp-elbowed shareholder-activist Carl Icahn started buying shares and began to pressure the company to do something about the stock price.

Yahoo! reported 2008 earnings of $424.3 million, or 29 cents a share, down from $660 million, or 47 cents a share, a year earlier. Last year's revenue hit $7.2 billion, up from $6.97 billion. Analysts expect Yahoo! to earn $498 million in 2009, or 35 cents a share on revenues of about $4.73 billion. Amid all this, Internet advertising has gone very soft as key markets -- such as automotive, financial and real estate -- got hammered. Yahoo! posted a $303.4 million loss in the December quarter of 2008 on revenues of $1.8 billion.

The Street will learn more about Yahoo!'s financial state this Thursday, when Bartz oversees her first annual meeting.

Stocks End Mixed After Fed Holds Steady

The Lowdown

A less-than-stellar economic prognosis from the Federal Reserve left Wall Street nonplussed Tuesday.

Stocks gave up early gains and finished mixed Wednesday after the Federal Reserve held the federal funds rate steady and cited slow but palpable improvements in the economy. The Dow Jones Industrial Average dropped 23 points to 8300. The Nasdaq picked up 27 at 1792, and the S&P 500 climbed 6 to 901.

The Fed surprised few traders when it left the benchmark interest rate at 0.00% to 0.25%. The move was widely expected, as recent economic data have signaled neither a recovery nor heavy price pressures. Still, the Fed was optimistic about the future.

"Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing," the Fed wrote in its statement. "Conditions in financial markets have generally improved in recent months."

The Fed said the housing recovery remains unstable and that rising unemployment is still a concern. The Fed added that it expects inflation "will remain subdued for some time."

The latest housing data supported the Fed's statement. The annual rate of new home sales dipped slightly in May to 342,000, according to a federal report released Wednesday. Economists had been expecting an increase.

In other economic news, demand looks a bit stronger after new data from the Commerce Department showed durable goods orders rose in May. Economists had projected a decline.

Tech stocks were the market's bright spot, as traders cheered fourth-quarter results from Oracle (ORCL: 21.26, +1.39, +6.99%). The software firm topped analysts' estimates and reported record margins.

In finance, Citigroup (C: 3.04, +0.03, +0.99%) said it would lift base pay for some of its employees by as much as 50%, CNBC reported. The change is designed not to increase overall compensation but to shift the model away from bonuses, which critics say promote risky behavior.

On the Nymex, oil prices were lower after the Energy Department said crude inventories dipped slightly last week. By 5:05 p.m., crude traded at $68.45 a barrel.

World markets were broadly higher. In Asia, Japan's Nikkei picked up 0.4%, and Hong Kong's Hang Seng rose 2.0%. In Europe, the U.K.'s FTSE picked up 1.2%.

Corporate News

• Oracle (ORCL: 21.26, +1.39, +6.99%) posted a 7% drop in fourth-quarter profit, but the firm still topped analysts' estimates on support contract sales. The firm earned $1.89 billion, or 38 cents a share, up from $2.04 billion, or 39 cents a share, in the year-ago period. Excluding one-time charges, the firm earn 46 cents a share, two cents above Wall Street estimates.
• JPMorgan Chase (JPM: 33.46, -0.11, -0.32%) was named the strongest bank in a ranking of financial firms published in The Banker magazine. JPMorgan had ranked fourth strongest last year. Meanwhile, Royal Bank of Scotland (RBS: 11.69, -0.03, -0.25%) posted the largest loss ($59.3 billion) of any bank last year.
• IBM (IBM: 104.15, -0.29, -0.27%) tapped Elias Mendoza to be its new head of mergers and acquisitions, the firm said. Mendoza, who had overseen M&A for IBM in Asia, takes over for David Johnson, who had been wooed away by Dell (DELL: 13.28, +0.30, +2.31%).

The Economy

• The Federal Open Market Committee of the Federal Reserve left  the federal funds rate unchanged at 0.00% to 0.25%. The Fed said the pace of the contraction had slowed and that financial markets had showed signs of improvement since the last policy statement. The Fed also said core inflation appeared likely to remain in check for the foreseeable future. STATEMENT
• Durable goods orders, a measure of demand, rose 1.8% in May, up from a revised April increase of 1.8%, the Commerce Department said. Economists had expected a May decline of 0.9%. REPORT
• The annual rate of new home sales fell to 342,000 in May, down from a revised annual rate of 344,000 in April, the Commerce Department said. For May, economists had expected an increase to an annual rate of 360,000 sales. REPORT
• Crude inventories fell by 3.8 million barrels last week, but they remained above the upper limit of the average range for this point in the year, the Energy Department said

US HOT STOCKS: Jabil, Oracle, Sonic Active In Late Trading

U.S. stocks closed mixed Tuesday. The Dow Jones Industrial Average slipped 16 points to 8323 and the Nasdaq Composite slid 1.3 points to 1765. However, the Standard & Poor's 500 rose 2 points to 895. Among the companies whose shares are trading in the after-hours session are Jabil Circuit Inc. (JBL), Oracle Corp. (ORCL) and Sonic Corp. (SONC).

Jabil Circuit swung to a fiscal third-quarter loss - its fourth in the past six quarters - on lower sales and restructuring charges. But Chief Executive Timothy Main said "end-markets began to stabilize during the quarter." Shares fell 3% to $6.90 in after-hours trading.

Oracle's fiscal fourth-quarter profit declined 7.2% as the stronger dollar continued to weigh on results, but margins improved and revenue, while falling, came in above analysts' estimates. Shares were up as much as 2.8% in recent after-hours trading, but are now trading up 1.9% at $20.24.

Sonic's fiscal third-quarter earnings fell 2.7% as the economic downturn continued to hurt sales, but the restaurant company picked up the pace with its key effort to refranchise its majority-owned stores. In after-hours trading, Sonic shares were up 4.2% at $9.17 as results topped Wall Street estimates.

AeroVironment Inc.'s (AVAV) fiscal fourth-quarter profit fell 9%, as the aircraft manufacturer reported higher revenue offset by lower margins. Shares were up 5.6% to $28.90 in after-hours trading, as the results came in above analyst estimates and AeroVironment - which makes small, pilotless drones for the military - issued a fiscal-year revenue target in line with Wall Street expectations.

Tech Target Inc. (TTGT) said it anticipates its first-quarter revenue will hit the high end of its previous view, which now puts its forecast inline with analysts' latest estimates. The company had previously forecast revenue in the range of $17 million to $18 million. Shares jumped 26% to $5.

   Regular Session Movers:   

Acura Pharmaceuticals Inc. (ACUR, $5.89, -$1.68, -22.19%) said its new drug application for Acurox immediate-release pain tablets is unlikely to be approved by the U.S. Food and Drug Administration's June 30 deadline, raising the possibility Acurox could ultimately be rejected.

Halozyme Therapeutics Inc. (HALO, $6.48, -$1.05, -13.94%) priced 6.2 million shares of common stock at $6.50 a share, a 14% discount from Monday's close. The biopharmaceutical company raised a total of about $40 million after selling one million more shares than anticipated. Halozyme had about 83 million shares outstanding prior to the offering.

Boeing Co. (BA, $43.87, -$3.03, -6.46%) delayed the first flight - and initial delivery - of its new 787 Dreamliner, saying an area within the side-of-body section of the aircraft needs to be reinforced. The Chicago company indicated it will take second-quarter charges related to the delay and said it will be several weeks before the plane maker releases a new flight and delivery schedule. The plane is already two years behind schedule on five schedule delays. Shares of Precision Castparts Corp. (PCP, $75.51, -$1.74, -2.25%) and Spirit AeroSystems Holding Corp. (SPR, $14.13, -$0.88, -5.86%), two companies that make parts for Boeing, dropped as well.

Memory-chip maker Rambus Inc. (RMBS, $14.85, -$2.98, -16.71%) slightly cut its guidance on second-quarter revenue and said it will offer $150 million of convertible senior notes due 2014.

Actuant Corp. (ATU, $12.53, -$1.98, -13.65%) announced plans to offer 9 million shares of Class A stock as the industrial company tries to reduce its debt. The offering will dilute shares outstanding by 16%.

Cytec Industries Inc. (CYT, $16.48, -$1.62, -8.95%) slashed its guidance on 2009 earnings, and continued weak demand led the specialty chemicals and materials company to also predict a "modest" second-quarter loss.

Alvarion Ltd. (ALVR, $4.44, +$0.49, +12.41%) will supply the technology for Aria SpA's nationwide mobile WiMAX broadband wireless network in Italy. Under the deal, Aria, the only telecommunications operator in Italy with a national WiMAX license, will build a network at the 3.5-gigahertz frequency to provide broadband services to all 21 Italian regions using Alvarion equipment.

Shares of Pacific Capital Bancorp (PCBC, $2.65, -$0.66, -19.94%) hit a 17-year intraday low Tuesday amid concerns about the California-based regional bank's ability to raise capital now that it has deferred the interest payments on its trust preferred securities and suspended the dividends on its common and preferred stock.

Republic Airways Holdings Inc. (RJET, $6.00, +$1.90, +46.34%) agreed to acquire fellow regional carrier Midwest Airlines from TPG Capital for $31 million, just 17 months after the private-equity giant paid $452 million. Since then, the airline industry has suffered from record-high fuel prices and now the ongoing slump in ticket demand.

Laboratory Corp. of America Holdings (LH, $65.45, -$0.26, -0.40%) agreed to acquire Monogram Biosciences Inc. (MGRM, $4.52, +$2.84, +169.05%), a maker of products to help guide and improve the treatment of serious diseases, for about $106.7 million, continuing LabCorp's acquisition spree. Under the agreement, expected to close in the third quarter, LabCorp will pay $4.55 for each Monogram share, more than double Monday's closing price of $1.68.

The top executive at Agrium Inc. (AGU, $40.74, +$1.85, +4.76%) said Tuesday he expected the board of takeover target CF Industries Holdings Inc. (CF, $72.88, +$3.56, +5.14%) to engage in talks after CF shareholders tendered 62% of their holdings in support of Agrium's $3.89 billion offer. The four-month battle among three North American fertilizer makers showed no signs of weakening, however, as CF maintained its shareholders do not back the price of an offer from Agrium it claims may be blocked by regulators.

Boston Scientific Corp. (BSX, $9.51, +$0.27, +2.92%) said its highly anticipated study, called Madit-CRT, met its main goal by showing devices for heart failure called CRT defibrillators were associated with significant reduction in death or heart-failure interventions among patients with milder symptoms, compared with cheaper defibrillators. This could shift more business toward pricier devices while helping a defibrillator market slowed by product troubles in recent years. Rival St. Jude Medical Inc. (STJ, $40.55, +$1.01, +2.55%), which analysts say may benefit more, also climbed on the news.

Used-car retailer America's Car-Mart Inc.'s (CRMT, $19.68, +$2.02, +11.44%) fiscal fourth-quarter profit fell 15% due to a slight decrease in vehicles sold and to falling margins. But shares rose as the earnings topped analysts' expectations.

Credit Suisse cut its stock-investment rating on Bridgepoint Education Inc. (BPI, $14.84, -$1.11, -6.96%) to neutral from outperform, saying although its thesis on the for-profit educator's business prospects and risks hasn't changed, the shares have hit the firm's price target of $15.

CapitalSource Inc. (CSE, $4.30, +$0.27, +6.70%) is on an improving road to recovery, UBS said as it upgraded its investment rating on the shares to buy from neutral. The firm said the specialized commercial finance company has several options to improve balance sheet strength, via further extensions to its debt maturities or equity raising with an IPO of its health-care real estate or a dilutive secondary offering. The firm added a debt extension or pay-down via equity raising should remove bankruptcy risk priced into the stock.

Shares of CardioNet Inc. (BEAT, $15.01, -$0.97, -6.07%) set an all-time low for a second consecutive day - a slump analysts pinned on a lack of near-term catalysts for the maker of outpatient heart-monitoring devices. Analysts said investors are likely moving to the sidelines on uncertainty over the rate that Medicare will reimburse the CardioNet for its lead product, a mobile cardiovascular telemetry system, in 2010.

Commercial Metals Co. (CMC, $14.81, +$0.60, +4.22%) swung to a fiscal third-quarter loss as weak demand and falling prices contributed to the second-straight quarterly loss for the steel manufacturer and recycler. The loss wasn't as bad as analysts were expecting and the company said the fourth quarter looks like it will be similar.

UBS upgraded its investment rating on the shares of ConAgra Foods Inc. (CAG, $19.78, +$0.84, +4.44%) to buy from neutral, noting that heavy input inflation is moderating, as are private-label share gains. The firm said improved product positioning via improvements and greater promotional activity are helping sales.

BMO Capital Markets raised its stock-investment ratings on DCT Industrial Trust (DCT, $3.99, +$0.17, +4.45%) and Duke Realty (DRE, $8.31, +$0.28, +3.49%) to outperform, citing improving balance-sheet prospects for both real estate investment trusts.

Equity LifeStyle Properties Inc. (ELS, $33.74, -$2.83, -7.74%) - operator of manufactured-home communities and properties for vacationers driving recreational vehicles - said it plans to offer four million shares of common stock, which caused shares to slide on fears of dilution. The company currently has about 25.3 million shares outstanding.

Matrixx Initiatives Inc. (MTXX, $4.83, -$0.42, -8.00%) received an informal inquiry from the Securities and Exchange Commission on Friday, according to a document filed Tuesday with the SEC. The SEC is requesting certain documents and information relating to the previously reported warning letter issued to the company by the U.S. Food and Drug Administration. As reported, the FDA said last week that consumers need to stop using certain Zicam cold and allergy products because they can cause permanent loss of smell. Matrixx is the maker of Zicam.

Moody's Investors Service lowered its credit ratings on Mercer International Inc. (MERC, $0.87, -$0.03, -3.33%) to highly speculative territory, and concurrently placed the ratings on watch for additional downgrades, citing upcoming debt obligations and deteriorating results. The Canadian-based pulp and paper manufacturing company faces near-term maturity of two revolvers, due in February and May, but only had $28 million of cash as of March 31, according to Moody's. The credit agency also expects the company to experience negative free cash flow over the next four quarters despite working capital and input cost improvements.

Shipping and logistics company Navios Maritime Holdings Inc. (NM, $4.13, +$0.49, +13.46%) said it agreed to acquire four capesize vessels for about $324.5 million. It also amended the terms of its existing agreements for three new-build capesize vessels. Funding for part of the purchase of all seven vessels will come from an issuance of $165.22 million in mandatory convertible preferred stock, which Chief Executive Angeliki Frangou said will help the company conserve cash while protecting shareholders from "undue dilution."

Office Depot Inc. (ODP, $3.89, +$0.10, +2.64%) said it has received a $350 million investment from private equity firm BC Partners, giving the struggling retailer a cash infusion to help it weather the economic downturn.

Citigroup upgraded its investment rating on the shares of Portugal telephone company Portugal Telecom SGPS S/A (PT, $9.38, +$0.65, +7.45%) to buy from hold to reflect an attractive 9% dividend yield, support from domestic operations, growth in Brazil and easier refinancing.

Smith & Wesson Holding Corp.'s (SWHC, $5.42, -$0.33, -5.74%) fiscal fourth-quarter profit more than doubled, as demand for military and police pistols drove growth in revenue and margins. But shares fell after the company issued a conservative near-term revenue forecast. That provided fodder to investor worries that the 2009 firearms boom may have peaked, Merriman Curhan Ford analyst Eric Wold said.

Shares of Starbucks Corp. (SBUX, $14.16, +$0.45, +3.28%) got an extra shot from Baird, which upgraded its investment rating on the stock to outperform and raised its price target to $17. The firm said its "field research" showed an improvement in category traffic as marketing campaigns go into high gear to fight off new competitors. Coupled with cost savings at the coffee retailer, the risk/reward in shares is improving, Baird added.

Steelcase Inc. (SCS, $5.33, +$0.27, +5.34%) posted break-even results for its fiscal first quarter on an $18 million gain on the value of company-owned life insurance policies, as sales continued to slump at the office-furniture maker. The company also said it will trim a further 200 white-collar jobs and consolidate smaller manufacturing facilities to save about $30 million a year.

Shares of Stratasys Inc. (SSYS, $11.52, -$1.48, -11.38%) - which makes additive fabrication machines for prototyping and manufacturing plastic parts - fell after Piper Jaffray said its research showed that the second quarter remains challenging, as some of the U.S. and European companies that sell its products are seeing weakness. The firm cut its investment rating on the stock to neutral from buy.

Standard & Poor's will replace Tyco Electronics Ltd. (TEL, $18.59, -$0.50, -2.62%) with MetroPCS Communications Inc. (PCS, $14.33, +$0.71, +5.21%) in the S&P 500 index, as the electronic-components maker is in the process of redomesticating to Switzerland. The move abroad makes the company ineligible for continued inclusion in the S&P 500 index, S&P said.

Airlines generally traded lower as the Air Transport Association reported passenger revenue on U.S. airlines declined 26% in May compared with a year ago, the seventh consecutive monthly decline. Revenue dropped due to the recession and impact of the swine flue outbreak. UAL Corp. (UAUA, $3.20, -$0.37, -10.36%), US Airways Group Inc. (LCC, $2.17, -$0.30, -12.15%) and AMR Corp. (AMR, $3.96, -$0.14, -3.41%) all traded lower.

VeriFone Holdings Inc.'s (PAY, $7.21, +$0.31, +4.49%) risks appear to be well understood, Wedbush Morgan said. The firm raised its investment rating on the shares to hold, saying it believes investors "are now more aware of the unique risks from VeriFone's financial reporting, SEC investigation and debt load," and have priced in threats. The firm added VeriFone's large inventory write-downs in the last few periods "have reduced the cost of inventory to an extent that could help boost gross margins for a few quarters." Wedbush also anticipates more non-recurring charges.