MOST NOTEWORTHY:

• Baird upgraded Blackboard (NASDAQ:BBBB) to Outperform from Neutral based on two new state-wide deals with New Mexico and North Carolina, K-12 growth, and up-selling and cross-selling opportunities. The firm raised Blackboard's target to $45 from $38.
  
• Wachovia raised Starwood Hotels (NYSE:HOT) to Outperform from Market Perform citing valuation, high international exposure, and secure capital structure and dividend.
  
• Citigroup upgraded shares of ACE Ltd (NYSE:ACE) to Buy from Neutral on valuation, as they believe additional selling from the company's redomestication to Switzerland will be offset by short covering. They view the recent weakness as an attractive buying opportunity and raised their target to $63 from $58.

• UBS upgraded Microchip (NASDAQ:MCHP) and Linear Tech (NASDAQ:LLTC) to Buy from Neutral.
  
• Marshall & Ilsley (NYSE:MI) was raised to Market Perform from Underperform at Keefe Bruyette.
  
• Comcast (NASDAQ:CMCSA) was upgraded to Buy from Neutral at Goldman.

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MOST NOTEWORTHY:

• UBS believes it is increasingly likely that Wachovia Bank (NYSE: WB) will need to raise capital. The firm said the company may need to raise $5B in equity and cuts its dividend to 1c, which will save $3B annually. UBS cut shares to Neutral from Buy and lowered its 2008 EPS estimate to ($1.98).
  
• Morgan Stanley downgraded shares of Deutsche Bank (NYSE: DB) to Underweight from Equal Weight as they believe DB may have to increase its tier 1 ratio, which could lead to dividend cuts or asset sales.
  
• Deutsche Bank downgraded Pearson (NYSE: PSO) to Sell from Hold as they believe the weak funding environment for Education will slow earnings growth.

• UBS lowered Thomson Reuters (NASDAQ: TRIN) to Sell from Neutral.
  
• Starwood Hotels (NYSE: HOT) and Gaylord Entertainment (NYSE: GET) were downgraded to Sell from Neutral at Goldman Sachs.

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Starwood (NYSE: HOT) was downgraded to Sell at Goldman Sachs.

Goldman says: "due to valuation and given that we expect fundamentals to start deteriorating in both the higher end segments of the lodging industry as well as international markets."

HOT overall option implied volatility of 55 is above its 26-week average of 45 according to Track Data, suggesting larger price movement.

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

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The earnings season was officially launched last night with Alcoa Inc. (NYSE: AA) reporting better than expected numbers, and tomorrow we are going to see another big name, Marriott International (NYSE: MAR) report its second quarter numbers.

The company is due to report its current earnings prior to the market open, and going into tomorrow's report analysts are looking to see the company show 49 cents per share on $3.15 billion in revenues. The housing slump over the past year has definitely been hurting hotel operators, so it will be interesting to see what kind of quarter Marriott is able to show to its investors.

The last time the hotel chain released its quarterly numbers was back on April 17, when it matched analyst estimates for its first quarter with 33 cents per share. The stock made a brief rally following the release, but over the past month has been in a solid downward trend.

There are definitely some signs on the wall that shareholders could be in store for some more bad news come tomorrow morning. Last month the company revealed that it was lowering its estimate on second quarter growth in North American revenue per available room (revpar) to around 2%. This was lowered from a previous estimate of between 3 and 5%. At that time, the company also forecast that we would not see any improvements in revpar during the second half of this year.

There are, however, some varying takes on what to expect from the company this time around. JPMorgan (NYSE: JPM) has stated that they expect to hear about slowdowns in leisure transient and corporate demand. On June 30 the firm lowered its estimate on the company to $34 from $47.

Last month the stock was downgraded by Wachovia (NYSE: WB) to a "market weight" from an "overweight." Wachovia stated that it sees a lack of catalysts in the industry to boost leisure demand, and noted a slowdown in discretionary spending.

On the other side of the aisle, Lehman Brothers (NYSE: LEH) is more optimistic on the company and is willing to overlook the weak revpar outlook we have been given. According to Lehman analyst Felicia Hendrix, Marriott is able to overcome lower revpar, and that the lower figures should not have much effect on the company's overall results. Deutsche Bank (NYSE: DB) is also a bit more optimistic, and feels as though the company has a better risk/reward ratio than competitors such as Starwood Hotels (NYSE: HOT)

With the stock trading near four year lows, shareholders could definitely use a little good news from the company tomorrow morning. Will they get it? Well, your guess is as good as mine.

What are your predictions? Will Marriott hit its number? Will we start to see the tide shifting for the company and the stock moving higher over the remainder of the year? Let us hear what you are looking to see from Marriott both tomorrow and over the rest of 2008.

Let's close by taking a closer look at a 12 month chart on the stock so you can get a better picture of what shareholders have been dealing with:

Join us tomorrow morning when we will have results and market reaction to the company's earnings report.

Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.

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MSNBC reports that Starbucks (NASDAQ: SBUX) is closing 600 stores. The closings could eliminate as many as 12,000 jobs -- this is 7 percent of Starbucks' global workforce.

The move isn't that surprising given Starbucks' recent weaker-than-hoped sales. But, still, it is a big change from its famous strategy of opening stores lots of stores, many in close proximity to each other. "Starbucks, known for sometimes going so far as to open stores across the street from one another, has recently acknowledged that it may have lost some of its luster during a long period of rapid store openings and expansion into everything from breakfast sandwiches to movie promotions," writes senior writer Allison Linn.

Starbucks will take an after tax write-down of between $328 million and $348 million related to the store closings. But because of tax benefits, it expects to see total cash outflow of about $100 million. Starbucks stock is up 6.5% in after hours trading.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Starbucks securities.

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Interstate Hotels & Resorts (NYSE: IHR) is an independent hotelier, operating a portfolio of 220 hospitality properties in the US, Canada, Mexico and Europe. Altogether, it has approximately 46,000 rooms under management. The firm owns seven of the properties it operates and has ownership interests in 47 more. It has contracts to manage 16 additional facilities, currently in the planning stage. Interstate manages hotels represented by more than 30 franchise and brand affiliations. Marriott International (NYSE: MAR) is a major competitor. Starwood Hotels & Resorts Worldwide (NYSE: HOT) and the Blackstone Group (NYSE: BX) are clients.

The firm pleased investors late last month, when it reported Q4 EPS of 33 cents and revenues of $213.9 million. Analysts had been looking for 24 cents and $205 million. Management also guided FY08 EPS to 30-38 cents, versus Street consensus of 24 cents.

The stock popped into a bullish "flag" consolidation pattern on the news. Prices frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.

Brokers recommend the issue with one "strong buy", one "buy" and one "underperform". Analysts see a 22% growth rate, through the next year. The IHR Price to Sales ratio (0.19), Price to Cash Flow ratio (7.63) and EPS Growth rate (17.86%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 68% of the outstanding shares. Over the past 52 weeks, the stock has traded between $3.27 and $6.42. A stop-loss of $4.00 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in any of the stocks mentioned above.

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Starwood (NYSE: HOT) is recently up $1.54 to $49.08 on renewed buyout chatter.

HOT announced on November 9, 2007 an expanded share repurchase authorization by $1 billion and increased is annual dividend 7%.

HOT has a market cap of $8.9 billion with long term debt of $3.5 billion.

HOT March 55 calls have traded 38 times on transaction volume of 2,002 contracts above its open interest of 1,176 contracts. HOT option implied volatility of 43 is above its 26-week average of 39 according to Track Data, suggesting larger risk.

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

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Starwood (NYSE: HOT) is hosting a meeting with sell side community at 7:45 a.m. Eastern time today.

Sam Zell reported a 7.72% stake in HOT on Feb. 4.

Smith Barney says: "We view as a strong vote of confidence in HOT's underlying fundamentals (and asset value) by a sophisticated real estate investor."

HOT overall option implied volatility of 40 is near its 26-week average according to Track Data, suggesting non-directional risk.

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

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Monday October 22

• Halliburton Company (NYSE: HAL) to report Q3 earnings; conference call at 10am
• Apple Inc (NASDAQ: AAPL) to report Q3 earnings; conference call at 5pm
• Texas Instruments Incorporated (NYSE: TXN) to report Q3 earnings; conference call at 5:30pm

• Lockheed Martin Corporation (NYSE: LMT) to report Q3 earnings; conference call at 11am
• Amazon.com Inc (NASDAQ: AMZN) to report Q3 earnings; conference call at 5pm

• Merrill Lynch & Co Inc (NYSE: MER) to report Q3 earnings; conference call at 10am
• The Boeing Company (NYSE: BA) to report Q3 earnings; conference call at 10:30am

• XM Satellite Radio Holdings Inc (NASDAQ: XMSR) to report Q3 earnings; conference call at 10am
• Starwood Hotels & Resorts Worldwide Inc (NYSE: HOT) to report Q3 earnings; conference call at 10:30am

• Countrywide Financial Corporation (NYSE: CFC) to report Q3 earnings; conference call at 12pm
• PDUFA date for Adams Respiratory Therapeutics Inc's (NASDAQ: ARXT) Guaifenesin, a prescription cough treatment
• PDUFA date for Sanofi-Aventis SA's (NYSE: SNY) Taxotere for induction therapy of locally advanced head and neck cancer prior to chemoradiotherapy and surgery

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MOST NOTEWORTHY:

• Goldman Sachs upgraded the U.S. beverage sector, including Coca-Cola (NYSE: KO), Molson Coors Brewing Company (NYSE: TAP), Anheuser Busch Companies (NYSE: BUD), PepsiAmericas Inc (NYSE: PAS) and Coca-Cola Enterprises (NYSE: CCE) to Attractive from Neutral. The firm cited expectations for a stronger 2008, benign commodity cost outlook, better than expected US beer demand, and valuations. Goldman upgraded shares of PepsiCo Inc (NYSE: PEP) to Buy from Neutral citing valuation and improving industry fundamentals.
  
• Bear Stearns upgraded ImClone (NASDAQ: IMCL) to Outperform from Peer Perform citing positive Flex trial results and the new market opportunity for Erbitux.
• Thomas Weisel upgraded Starwood Hotels (NYSE: HOT) and Marriott International (NYSE: MAR) to Market Weight from Underweight based on healthy August trends, credit market may ease concerns over supply growth, and valuations.

• Thornburg Mortgage (NYSE: TMA) was upgraded to Buy from Neutral at UBS.
• Western Digital Corp (NYSE: WDC) was upgraded to Outperform from Peer Perform at Bear Stearns.
• KeyBanc raised Ruby Tuesday (NYSE: RT) to Hold from Underweight.
• Take-Two Interactive Software (NASDAQ: TTWO) was upped to Buy from Hold at Gabelli.

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The market had a correction last week and we saw steep declines. People suddenly ask what is going on? Regardless of whether there is a "reason" for the decline, market commentators will disclose a number of factors with the utmost certainty that they are the cause for the fall.

Markets go up and down and all this analysis is over blown. Ultimately, there is a herd mentality in the market and at times very few people think for themselves. People in the market are like mindless cows at times, blindly following others right off the edge of the cliff.

I am sure there are psychologists and sociologists that have all sorts of explanations for this, but let's talk about animals instead. While I have never been in an honest stampede, I have been in front of a cow that had its mind intently set on going a certain direction. Knowing my weight and the milk cows weight, I have to recommend against ever being in that position. If you are smart you don't get in front of a stampeding cow.

And if you have ever seen one of those nature shows on TV when there is a herd of zebra's running away from the lions. It is always the zebra separated from the group that gets eaten. So the moral of the story is that at times it does not pay to stand out from the group. You are better off just running with the herd and not getting run over.

Now bringing this back to the stock market. There is a herd mentality in the stock market; everyone panics that oil prices are too high; or that suddenly subprime loans too risky or some dictator too dangerous and there is a stampede in the market. The wise market participant runs with the crowd and tries not to get run over so he is alive to play another day. There is no benefit to trying to stop a falling market; rather let it fall and then pick up the pieces after it hits bottom.

The market is going to go up and down, and if you over analyze things too much it defeats a good market perspective. The Dow opened the year at 12,459 and hit a high at 14,121 a couple of weeks ago. That was gains of 13.3% for the market. Last week it fell and is at 13,467 so it is still up 8.1% for the year. That is a still good year. Take a look at the chart.

So the thing to do is go in and pick up some nice values on depressed stocks. I ran a quick screen on companies that are down in the last week and picked out a couple of solid names that are off more than 10% in the last week. Starwood Hotels (NYSE: HOT), Nucor Corp (NYSE: NUE), Cit Group (NYSE: CIT), Alcoa (NYSE: AA), and Hasbro (NYSE: HAS) are a few names to start off your research.


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

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Now that Blackstone (NYSE: BX) has bought Hilton (NYSE: HLT) for $26 billion, The Wall Street Journal is asking [subscription required] whether Marriott (NYSE: MAR) and Starwood (NYSE: HOT) might be next.

The question is reasonable. Hilton has outperformed the other two companies in the stock market over the last two years, with its shares up 50%. Some of that is due to recent takeover speculation.

Marriott's shares are up only 30% over that period and Starwood's only 15%. All three companies have market caps in the $15 billion to $20 billion range, so none is so large as to be outside the financial ability for a private equity firm to take them over.

But, Starwood may make the easier target. Marriott is still controlled by its founding family while Starwood has had a bit of musical chairs in its executive suite. The company's CEO left in April.

Starwood has had virtually no growth in revenue over that last four quarters, and had low operating income in its last reported quarter. If private equity interests think they can improve that, the company becomes an attractive candidate.

Douglas A. McIntyre is a partner at 24/7 Wall St.

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Hilton (NYSE: HLT) volatility and volume elevated prior to Blackstone paying $26 billion. HLT announced Blackstone Group (NYSE: BX) will acquire all the outstanding common stock of HLT for $47.50 per share. HLT closed at $36.05. I reported near the close of trading on 7/3/07 "option volume & volatility Elevated as HLT rallies 6%." HLT total volume of 32,490 contracts and HLT July option implied volatility of 39 was aggressive, above its 26-week average of 31 according to Track Data, suggesting larger risk.

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

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Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) -- volatility Elevated on renewed Kerkorian speculation. HOT, a leading hotel and leisure company, is frequently mentioned as a private equity break up/recapitalization candidate. Chatter is circulating that Kirk Kerkorian's Tracinda has a mid-$90's offer on the table for HOT. HOT is recently up $0.63 to $70.64. HOT has a market cap of $15 billion with long term debt of $1.8 billion. HOT reported quarterly March 2007 total revenue of $1.4 billion. HOT July option implied volatility of 34 is above its 26-week average of 27 according to Track Data, suggesting larger risk.

Countrywide Financial Corp. (NYSE: CFC) -- volatility not confirming renewed takeover speculation. CFC, the largest U.S. home mortgage lender, is recently up 26 cents to $38.16. CFC July option implied volatility of 36 is near its 26-week average of 34 according to Track Data, suggesting slightly larger price fluctuations.

Option volume leaders today are: Apple Inc. (NASDAQ: AAPL), Freeport McMoran (NYSE: FCX), Goldman Sachs Group (NYSE: GS) and Valero Energy Corp. (NYSE: VLO).

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

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This morning, Lord Browne, former CEO of BP plc (NYSE: BP) resigned from the board of Goldman Sachs Group Inc. (NYSE: GS). Can Lazard Ltd. (NYSE: LAZ) follow Goldman's standard and boot Steve Heyer?

Lord Browne, who had been a Goldman director since its 1999 IPO, left his BP post after it was revealed he had lied to the High Court while trying to get an injunction to cover up details of his private life. After losing his position at BP, Browne probably followed public company board protocol and submitted his resignation to Goldman.

Meanwhile, as I noted Wednesday, Steve Heyer -- who was tossed from his CEO post at Starwood Hotels & Resorts, Inc. (NYSE: HOT) after its board received allegations that Heyer sexually harassed employees -- remains on Lazard's board.

Why can't Lazard follow Goldman's standard? Only Lazard CEO Bruce Wasserstein knows for sure.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the companies mentioned in this post.

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