eog

MOST NOTEWORTHY: Diebold, EOG Resources and Barnes & Noble were today's noteworthy downgrades:

• Jefferies downgraded shares of Diebold (NYSE: DBD) to Hold from Buy on valuation following United Tech's (NYSE: UTX) offer, as they do not see enough upside over the near-term to maintain a Buy rating.
• Oppenheimer cut EOG Resources (NYSE: EOG) to Underperform from Perform on valuation, as they think the 20% run-up post analyst meeting was unjustified.
• Barnes & Noble (NYSE: BKS) was lowered to Underweight from Neutral at JP Morgan, as they believe Street SSS expectations are too high given slowing sales and secular margin pressure.

OTHER DOWNGRADES:

• Lehman downgraded ConocoPhillips (NYSE: COP) to Equal Weight from Overweight. Credit Suisse downgraded Deerfield Triarc Capital (NYSE: DFR) to Neutral from Outperform.
• Best Buy (NYSE: BBY) was downgraded to Neutral from Buy at Banc of America.

MOST NOTEWORTHY: The energy & petroleum sector, BP PLC, BG Group, Check Point and ValueClick were today's noteworthy upgrades:

• Bernstein upgraded Talisman Energy Inc (NYSE: TLM) to Outperform from Market Perform on valuation and potential exploration success in Vietnam and raised Anadarko Petroleum Corporation (NYSE: APC), Devon Energy Corporation (NYSE: DVN) and EOG Resources Inc (NYSE: EOG) to Market Perform from Underperform on improving gas fundamentals.
• Bernstein also upgraded shares of BP PLC (NYSE: BP) and BG Group (NYSE: BRG) to Outperform from Market Perform.
• Check Point Software Technologies (NASDAQ: CHKP) was upgraded to Outperform from Market Perform at Friedman Billings, citing checks that indicate a strong product cycle for the company's beefed up VPN/firewall product portfolio.
• ValueClick (NASDAQ: VCLK) was upgraded at Citigroup to Buy from Hold on valuation, as they believe the recent correction provides a compelling entry point.

OTHER UPGRADES:

• Merrill Lynch upgraded shares of Alcoa Inc (NYSE: AA), Alumina Ltd (NYSE: AWC) and Century Aluminum Company (NASDAQ: CENX) to Buy from Neutral and shares of Southern Copper Corporation (NYSE: PCU) to Neutral from Sell.
• JP Morgan upgraded shares of Tempur Pedic International (NYSE: TPX) to Overweight from Neutral.
  
• Infineon Technologies (NYSE: IFX) was upgraded to Outperform from Neutral at Credit Suisse.

After falling sharply from the peak in mid-July through late last week, the S&P 500 index has staged a notable recovery. During the past five days (through approximately 11:30 this morning), the benchmark has gained 1.28%.

Yet despite the recent turnaround, financials continue to lag. The group (which has an equivalent exchange-traded fund, or ETF (NYSE: XLF) ) is down 0.55%, and of the 20 worst-performing index members over the five-day span, 11 are linked to banking or other financial services (see below).

Given the way problems stemming from the subprime meltdown have continued to spread, the fact that financial shares have not even held their own at a time when investors are reportedly "snapping up bargains" is a troubling sign.

Stock	5-day % return (through 11:30 am)
XTO Energy Inc	-3.53
Analog Devices	-3.73
Bank NY Mellon	-3.82	*
Broadcom Corp-A	-3.98
Jabil Circuit	-4.37
Capital One	-4.47	*
M&T Bank Corp	-4.50	*
Janus Capital	-4.72	*
Ambac Finl Group	-4.74	*
J.C. Penney Co	-4.97
First Horizon	-5.24	*
Wash Mutual Inc	-5.29	*
Natl City Corp	-5.63	*
Eog Resources	-5.83
Northern Trust	-5.92	*
Moody's Corp	-7.04	*
MBIA Inc	-7.97	*
Kohl's Corp	-8.14
Monster Worldwide	-8.19

(* = banking or financial services-related)

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle.

EOG Resources Inc. (NYSE: EOG) is one of the country's largest oil and natural gas companies in the U.S., headquartered in, you guessed it, Texas. The company's most recent earnings report, for 2Q 2007, is a challenging read. Some numbers are up, some are down. Overall, the numbers are headed in the right direction so that CEO Mark Papa has raised FY guidance for total growth, all of it organic and none by acquisition, from 10% to 11.5%. This is great news considering how challenging 2007 has been for EOG Resources compared to 2006.

1Q 2007 net income dropped by 50% to $216.8 million from 1Q 2006, despite the fact that 1Q 2007 natural gas production increased by 21%. 2Q 2007 net income improved to $306.1 million from 1Q 2007 net income, but was still less than 2Q 2006 net income of $329.6 million. EOG Resources lost a lot of ground with its financial commodity contracts in 2Q 2007. These contracts amounted to $18.6 million for the quarter, compared to $47.3 million in the previous quarter, which was itself hit with a $40 million drop in prices for natural gas. EOG is divesting itself of some of its assets, including its shallow gas holdings in Appalachia, in order to focus on shale gas opportunities that have the potential for greater production, and hence greater return on investment.

Despite price decreases, EOG Resources continues to increase natural gas production quarter over quarter. Total North American natural gas production for the first half of 2007 is up 7% from the same period a year ago. EOG has had significant capital expenditures for a new natural gas processing facility in east Texas, a facility necessitated by increases in natural gas production to compensate for price declines. EOG Resources continues to invest in technology that increases initial natural gas production rates and increases the efficiency of the recovery process so that more natural gas can be produced without the expense of digging additional wells.

The stock has been up and down since opening the year at $60.66. In mid June the stock was trading up 30% at just over $80 per share. Since then the stock has lost ground, closing Friday at $71.58, but is still up about 15% for the year.

Last December, over 100 stocks were featured in our Top Picks for 2007 report. Now, at mid-year, we turn to the 20 advisors whose picks showed the strongest gains to get an update on their previous picks, as well as a new favorite stock for the second half of the year.

Chris Mayer, editor of Capital & Crisis, chose Rosetta Resources (NASDAQ: ROSE) as his favorite stock for 2007, which rose 32% as of 6/1/07. Here is his original recommendation for Rosetta and his current opinion on the stock.

For his new top pick, National Fuel Gas Co. (NYSE: NFG), he says, "I love companies with 'hidden assets,' things that have been lying around gathering dust but suddenly turn into something very valuable. It's like finding an old Mickey Mantle baseball card in Dad's attic.

"One stock that is a hidden asset in the Appalachians is National Fuel Gas. Like an old baseball card, it's been around a long time. NFG incorporated in 1902, though its predecessor companies are much older. It is an integrated gas utility. This means it is involved in every aspect of natural gas, from the bottom of the well to the burner tip.

"NFG has its own exploration and development company, with oil and gas reserves across many states (45% of production is oil). It has a regulated utility serving 727,000 customers in New York and Pennsylvania.

"It owns nearly 3,000 miles of pipeline, along with 32 storage fields. NFG also owns over 100,000 acres of black cherry hardwood in Pennsylvania. Finally, NFG has a small energy broker business with some 25,000 customers.

Although oil continues to take a pounding, trading below $58 a barrel, natural gas has bounced strongly over the past week, up 6% today alone. A number of leading newsletter advisors have been adding natural gas-related stocks to their buy lists in anticipation of a rebound.

The key signal for Adrian Day, editor of The Global Analyst, occurred last week when he saw select natural gas stocks hold up even while gas prices continued to slide. Seeing this divergence, he told his subscribers, "It's now time to buy."

His top pick in the sector is EOG Resources (NYSE: EOG), one of the largest independent gas exploration and production firm in North America. He considers the stock cheap at 10 times earnings and 6 times cash flow.