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.

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• 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.

• 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.

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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.

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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.

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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.

"This basic mix of businesses has powered the share price over the years. You can pull up a long-term stock chart and see a steady upward line. It's utility business is solid, but it's also boring too -- so I'm going to get right to the good stuff. The good stuff is 770,000 acres of land sitting on top of Devonian shale.

"Drilling for natural gas in Devonian shale used to be unprofitable. That explains those long years of inactivity (NFG sat on this land for about 70 years). Things are different now. Management is aware these days of the potential value of the company's Devonian shale, long a dormant asset.

"For starters, NFG has a joint venture with EOG Resources to drill the shale acreage. The company has also commissioned a third-party study that will provide an estimate for the unproven reserves lying below its Appalachian acreage. We should get a full update on this asset by the end of 2007. That's a nice catalyst for the stock price. It means we shouldn't have to wait around long for results.

"So what might the shale asset be worth? First, there is a sum-of-the-parts valuation on the integrated utility business, excluding the shale. Using average market multiples for these assets, I get at a ballpark figure of about $49 per share. Since the stock trades for less than that today, we're in OK shape there.

"Another simpler method is to say NFG is worth 17 times earnings, which is about the average of what its peers trade for. The estimate for the year ending September 2008 is $2.60. That gives you a figure of about $44. Basically, I cut the valuation a number of ways and I keep getting numbers in the ballpark of $40-50 per share for the business, excluding the Devonian shale asset.

"Essentially, you are paying for an integrated gas utility business -- which, as far as I can tell, is fairly valued in the market today. The kicker is that you're getting any upside from the Devonian shale asset for free. So what's the shale worth?

"Range Resources is one company that is aggressively buying Devonian shale acreage, right around where NFG is. The investment bank Morgan Stanley put the value of Range's shale acreage at $5,500 per acre -- and that was using some conservative assumptions.

"If you apply that $5,500 figure to NFG's 770,000 acres, you get $49 per share of additional value. It's not exactly comparable, but it is close. And NFG's property could be worth more. Take that $49 and add it to the $49 I got above and you get a $98 stock price -- a double from today's price."

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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.

Says Adrian, "I like EOG because management has managed to increase production year by year through the drill bit. Its balance sheet is super strong (10% debt to assets), resisting the constant call to spend the money on an expensive acquisition." Overall, he says, "In terms of quality, it's at the top."

Daniel Frishberg, editor of TheMoneyMan.com Gold & Oil Portfolio, says, "The bloodbath in the oil and gas market may be coming to an end."

While admitting that investing in this sector is akin to catching a falling knife, he has taken a new position in Precision Drilling Trust (PDS NYSE), an open-ended investment trust that provides drilling and oilfield services in Canada.

To Daniel, the biggest attraction of Precision is its 10% dividend. He explains, "Owning PDS lets us benefit from Canadian currency appreciation, potentially raising natural gas prices and low tax rates on dividend distributions."

He has also taken a position in XTO Energy (NYSE:XTO), which explores for oil and gas in the US. He notes the stock has fallen along with energy prices, "even though they had hedged their business at much higher gas prices."

S.R. Nunnally in Dynamic Market Alert points out that a decline in gas prices in the summer and rebound during colder months is the normal seasonal pattern. Nunnally notes, "My favorite natural gas play - National Fuel Gas Co. (NYSE: NFG) - is at the bottom of its uptrend; I'm expecting a bounce as natural gas prices begin their rise into winter."

Neil Macneale has just added a position in natural gas to his 2-for-1 newsletter, but not based on any attempt to time the market or forecast the direction of gas prices. Rather, he has a unique approach to investing; each month he chooses a single buy candidate from among those stocks that have announced a stock split.

His latest such buy is Crosstex (NASDAQ: XTXI). The company is involved in "behind the scenes" work in the natural gas sector, collecting, purifying, and transporting natural gas from the wellhead to larger utilities and industrial customers. Says Macneale, "The company will have revenue whether the price of gas is up or down."

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