American Eagle Outfitters, Inc. (NYSE: AEO) Raised to Neutral from Sell at Lazard.
Apple Inc. (NASDAQ: AAPL) Maintained Overweight at JPMorgan; Maintained Outperform at Credit Suisse; Maintained Buy at BofA/ML.
Ariba Inc. (NASDAQ: ARBA) Reiterated Hold at Argus.
BHP Billiton Ltd. (NYSE: BHP) Raised to Buy at Societe Generale.
Casey’s General Stores Inc. (NASDAQ: CASY) Raised to Buy at BofA/ML.
China Unicom (NYSE: CHU) Raised to Outperform at Credit Suisse.
F5 Networks, Inc. (NASDAQ: FFIV) Raised to Buy at Stifel Nicolaus.
Gol Linhas Aereas (NYSE: GOL) named Bear of the Day at Zacks.
Hewlett-Packard Co. (NYSE: HPQ) Cut to Sector Perform at RBC.
Kennametal Inc. (NYSE: KMT) Started as Outperform at Credit Suisse.
Old Dominion Freight Line, Inc. (NASDAQ: ODFL) named Value stock of the day at Zacks.
SAP AG (NYSE: SAP) Started as Buy at RBS.
Shanda Games Limited (NASDAQ: GAME) Raised to Buy at Deutsche Bank.
Silicom, Ltd. (NASDAQ: SILC) named Bull of the Day at Zacks.
Spreadtrum Communications Inc. (NASDAQ: SPRD) Reiterated Buy and Raised target to $25 at BofA/ML.
Synchronoss Technologies, Inc. (NASDAQ: SNCR) Raised to Outperform at Baird.

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JON C. OGG

We have added in the price action and impact of calls, and also added in color on the situation and included more consensus data if relevant.

Alcatel-Lucent (NYSE: ALU) had a rough week as tech stocks in equipment got off to a rough start for this earnings season.  Deutsche Bank cut its rating to Hold from Buy, taking shares from $5.58 to $5.36 on the call, but ultimately taking shares down to a low of $5.00 during the week before it closed out the week at $5.09.  That is nearly 10% lower for the call’s impact all together, and it needs to be considered that this former dog is still up more than 50% in 2011.

American Water Works Company, Inc. (NYSE: AWK) is a company that 24/7 Wall St. has been very positive on for quite some time.  It is one of our Top Stocks To Own For The Decade.  Around $29.50, its consensus target is $31.60 and the highest official target is $38.00. We think $35 is a fair value for 2012, but one call in water came out this week that really highlighted value above and beyond what we and above and beyond what Wall Street thinks… Gabelli highlighted a recent asset swap for the operating efficiencies and rate recognition, yet it gave a private market value foe 2011 of $44 and the report actually gave a $46 private market value for 2012.  This is above and beyond our bullish stance on the greatest water utility in America.

Apple Inc. (NASDAQ: AAPL) is set to report earnings this week, but one of its larger bulls has trimmed shipment, earnings and revenue targets ahead of earnings. Gabelli maintained a “Buy” but lowered estimates under consensus.

Ariba Inc. (NASDAQ: ARBA) was given a very positive research initiation call, but one which did not get off to a good start.  Barclays initiated coverage this last Monday with a “Buy” rating and a $44 price target as the B2B platform leader is expected to gain market share.  Shares went out the prior week at $36.72 and ended up down at $34.31 on the week.  This is not a cheap stock by any real measurement.  The $44 target is now the street-high call and the consensus price target is only $36.70.

CenturyLink Inc. (NYSE: CTL) just announced the closure of its Savvis acquisition and it has already closed on its Qwest acquisition.  The company offers a high yield for investors and at $38.42 it is well under the 52-week high of $46.87.  It also trades at just under 15-times this year’s expected earnings.  Friday came word that this was downgraded to Underperform as the dubious “Bear of the Day” call at Zacks.

Altera Corporation (NASDAQ: ALTR) Raised to Outperform as Bull of the Day at Zacks.
Arcelor Mittal (NYSE: MT) Raised to Buy at BofA/ML.
Archer Daniels Midland Inc. (NYSE: ADM) maintained Outperform but cut target to $35 at Credit Suisse.
Ariba Inc. (NASDAQ: ARBA) Started as Overweight at Barclays.
Boston Scientific Corporation (NYSE: BSX) Reiterated Hold but cut estimates at Argus.
CEMEX, S.A.B. de C.V. (NYSE: CX) Cut to Underperform at Credit Suisse.
Cisco Systems Inc. (NASDAQ: CSCO) Reiterated Buy with $24 target at Argus.
Fossil, Inc. (NASDAQ: FOSL) Raised to Overweight at JPMorgan.
Government Properties Income Trust (NYSE: GOV) Cut to Underperform at Wells Fargo.
Honeywell International Inc. (NYSE: HON) Reiterated Buy at BofA/ML.
KLA-Tencor Corporation (NASDAQ: KLAC) Raised to Hold at Citigroup.
Lam Research Corporation (NASDAQ: LRCX) Raised to Buy at Citigroup.
Macy’s, Inc. (NYSE: M) Reiterated Buy as Value at Zacks.
PetMed Express, Inc. (NASDAQ: PETS) Maintained Underperform as Bear of the Day at Zacks.
Teekay Tankers Limited (NYSE: TNK) Cut to Neutral at BofA/ML.
The TJX Companies, Inc. (NYSE: TJX) Raised to Overweight at Barclays.
Whole Foods Market, Inc. (NASDAQ: WFM) Raised to Buy at Goldman Sachs.

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JON C. OGG

American International Group, Inc. (NYSE: AIG) Started as Neutral at Goldman Sachs.
Ariba Inc. (NASDAQ: ARBA) Reiterated Outperform at Credit Suisse.
Cabot Oil & Gas (NYSE: COG) Raised to Buy at Canaccord Genuity.
Carlisle Companies (NYSE: CSL) Reiterated Strong Buy as Value at Zacks.
CBOE Holdings, Inc. (NASDAQ: CBOE) Cut to Sell at Goldman Sachs.
Clorox Corporation (NYSE: CLX) Cut to UNderweight at Morgan Stanley.
Dendreon Corporation (NASDAQ: DNDN) Maintained Buy and $62 target at Needham.
eBay Inc. (NASDAQ: EBAY) Raised to Outperform at Pac-Crest.
Gap Inc. (NYSE: GPS) Cut to Equal-weight at Barclays.
Hitachi Ltd. (NYSE: HIT) Raised to Outperform at Credit Suisse.
Knight Capital Group Inc. (NYSE: KCG) Raised to Buy at Goldman Sachs.
Liberty Global, Inc. (NASDAQ: LBTYA) Raised to Outperform at Bull of the Day at Zacks.
Marvell Technology Group Ltd. (NASDAQ: MRVL) Started as Buy at Auriga.
Microsoft Corporation (NASDAQ: MSFT) Reiterated Hold at Argus.
Onyx Pharmaceuticals Inc. (NASDAQ: ONXX) maintained Buy but cut target to $48 at Canaccord Genuity.
Prudential Financial. Inc. (NYSE: PRU) Reiterated Outperform at Credit Suisse.
QuinStreet, Inc. (NASDAQ: QNST) Cut to Neutral at BofA/ML.
SunPower Corporation (NASDAQ: SPWRA) Cut to Underperform at Needham; Cut to Hold at Jefferies.
Verizon Communications Inc. (NYSE: VZ) Raised to Outperform at Oppenheimer.

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JON C. OGG

Applied Signal Technology, Inc. (NASDAQ: APSG) Cut to Hold at Stifel Nicolaus.
ArcelorMittal (NYSE: MT) Cut to Neutral at UBS.
Ariba Inc. (NASDAQ: ARBA) Raised to Buy at Roth Capital.
ARM Holdings plc (NASDAQL: ARMH) Started as Sell at Societe Generale.
Atwood Oceanics, Inc. (NYSE: ATW) Cut to Market Perform at Wells Fargo.
Central European Distribution Corp. (NASDAQ: CEDC) Started as Buy at Goldman Sachs.
Ciena Corp. (NASDAQ: CIEN) Raised to Overweight at Barclays.
Cirrus Logic Inc. (NASDAQ: CRUS) Raised to Buy at Jefferies.
Financial Engines, Inc. (NASDAQ: FNGN) Started as Buy at Needham.
Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) Raised to Buy at BofA/ML.
Massey Energy Co. (NYSE: MEE) Cut to Market Perform at FBR.
Public Storage (NYSE: PSA) Raised to Buy at UBS.
SanDisk Corporation (NASDAQ: SNDK) Raised to Outperform at Baird.
Solarfun Power Holdings Co., Ltd. (NASDAQ: SOLF) Raised to Buy at Auriga.
Teradyne Inc. (NYSE: TER) Raised to Buy at Citi.

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JON C. OGG

Amazon.com Inc. (NASDAQ: AMZN) Cut to Neutral at Susquehanna.
Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) Raised to Market Perform at BMO.
Ariba Inc. (NASDAQ: ARBA) Cut to Hold at Roth Capital.
Halliburton Co. (NYSE: HAL) Raised to Outperform at Macquarie.
JA Solar Holdings Co., Ltd. (NASDAQ: JASO) Started as Buy at Goldman Sachs.
JinkoSolar Holding Co. (NYSE: JKS) Started as Buy at Auriga.
ReneSola Ltd. (NYSE: SOL) Cut to Sell at Goldman Sachs.
Research in Motion Ltd. (NASDAQ: RIMM) Raised to Outperform at Raymond James.
Suntech Power Holdings Co. Ltd. (NYSE: STP) Started as Sell at Goldman Sachs.
Superior Well Services, Inc. (NASDAQ: SWSI) Raised to Outperform at Macquarie.

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JON C. OGG

Aircastle Ltd. (NYSE: AYR) Started as Outperform at Wells Fargo.
Ariba Inc. (NASDAQ: ARBA) Raised to Overweight at JPMorgan.
Affymax, Inc. (NASDAQ: AFFY) Cut to Market Weight at Thomas Weisel.
American Italian Pasta Co. (NASDAQ: AIPC) Cut to Neutral at Janney; Cut to Hold at BB&T Capital.
Big Lots Inc. (NYSE: BIG) Cut to Neutral at JPMorgan.
Biovail Corporation (NYSE: BVF) Cut to Neutral at Piper Jaffray.
Entergy Corporation (NYSE: ETR) Cut to Neutral at Citigroup.
FMC Technologies, Inc. (NYSE: FTI) Raised to Buy at Citigroup.
Lincare Holdings Inc. (NASDAQ: LNCR) Raised to Buy at Deutsche Bank.
National Oilwell Varco, Inc. (NYSE: NOV) Cut to Hold at Citigroup.
Ryanair Holdings plc (NASDAQ: RYAAY) Cut to Neutral at JPMorgan.

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JON C. OGG

Direxion just announced a reverse split for another ETF yesterday, but not its two financial triple-leverage ETFs.  Direxion Daily Financial Bull 3X Shares (NYSE: FAS) is now back down close to $8.00 per share, yet it trades 250 million shares on an average day.  The Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) is barely above $5.00 and trades more than 200 million shares on an average day.  So between the FAS and FAZ, you have an average of more than 450 million shares, and at today’s prices that is close to $3 billion worth of nominal value.

This review discusses a portion of the ETFs and ETNs and the ones under discussion today, along with underlying key companies, are Ultra Financials ProShares (NYSE: UYG), Bank of America Corporation (NYSE: BAC), B2B Internet HOLDRs (AMEX: BHH), Ariba, Inc. (NASDAQ: ARBA), Internet Capital Group (NASDAQ: ICGE), Internet Infrastructure HOLDRs (AMEX: IIH), VeriSign Inc. (NASDAQ: VRSN), Akamai Technologies Inc. (NASDAQ: AKAM), United States Natural Gas (NYSE: UNG), United States Oil (NYSE: USO), SPDR Gold Shares (NYSE: GLD), UltraShort S&P500 ProShares (NYSE: SDS), SPDRs (NYSE: SPY), New York Stock Exchange (NYSE: NYX) and the NASDAQ OMX Group Inc. (NASDAQ: NDAQ).

Ultra ETFs…

Ultra Financials ProShares (NYSE: UYG) is another low-priced active ETF.  Its seeks twice the daily performance of the Dow Jones U.S. Financials index, and normally invests 80% of the fund’s assets in financial instruments with economic characteristics that should be twice the return of the index.  With a trading range of $1.37 to $25.03 over the last year, it is easy to see where the volatility can go.  This trades nearly 100 million shares on average, yet its price is $3.65 after a 2.5% gain.

Merrill Lynch HOLDRs

Now that Bank of America Corporation (NYSE: BAC) owns Merrill Lynch, it is time for it to clean house on at least two of the HOLDRs family of ETFs.  HOLDRs are hybrd ETFs that gave investors a chance to individually own shares directly in underlying stocks. Based on how much direct mail was sent out just a year or two ago on the Semiconductor HOLDRs, B of A could save everyone some serious money by not having to send out that proxy and annual report material to holders of each stock. Let alone a headache.

The B2B Internet HOLDRs (AMEX: BHH) is an old legacy ETF that should just go away.  While it trades over 30,000 shares on average, it is deep into penny-stock territory.  Now that its last major constituent was acquired, Ariba, Inc. (NASDAQ: ARBA) and Internet Capital Group (NASDAQ: ICGE) are the only two holdings left.  Maybe this is just for pairs trading on days when Ariba has big news.

Internet Infrastructure HOLDRs (AMEX: IIH) is another one of the old legacy ETFs from the Internet Bubble days that went from active and high priced to micro-cap and generally thin volume.  Of course the 266,000 shares around noon is a slap in the face against the argument today, but this frequently sees less than 10,000 shares.  The page for the weighting also has over 82% of the entire ETF weighting as being only two stocks: VeriSign Inc. (NASDAQ: VRSN) with 55.76% and Akamai Technologies Inc. (NASDAQ: AKAM) having 27.9%.

ETFs and ETNs in Commodities….

There are two funds which track energy commodity prices, and these ETFs have actually been accused of manipulating the price of underlying commodities.  Jim Cramer recently blasted the United States Natural Gas (NYSE: UNG) fund.  He said this one has actually become large enough because it gave traders a chance to buy big enough quantity of natural gas that he thinks the fun ran up prices because it invests almost entirely in near-month natural gas futures contracts.  If that gets $100 million in buy orders for the ETF, that goes directly into the natural gas futures market.

A similar situation was noted earlier this year and last year during the oil boom and bust: the United States Oil (NYSE: USO) ETF is meant to track the spot price of West Texas Intermediate light sweet crude oil.  Yet during the boom and bust of oil, futures traders were able to game the “USO” because of its order flows and high demand followed by an exodus.  Whether or not this one is responsible for running up or running down the commodity is something that will never be proven.  How many speculators told Congress that speculators were not responsible for the run-up in crude last year?  Sometimes the answers are obvious, but are not easy to quantify.

And the beloved gold ETF the SPDR Gold Shares (NYSE: GLD) has good intentions too.  But it goes out and purchases direct bullion and exchange baskets.  This ETF is so large that it is still said to be among the top 10 holders in entire gold reserves.

In commodities, it would seem that FINRA might consider making some of these trade as closed-end funds with limits to size in relation to the entire market of the underlying commodity.  That is not likely to occur, but it is a thought.  If inflation ever gets too heated, don’t be too shocked if and when you see a sudden Congressional press or or a FINRA-led press to stop inflows from making the commodity prices move solely be ETF owners buying more and more.

Two S&P ETFs That Do Work…

The UltraShort S&P500 ProShares (NYSE: SDS) against the SPDRs (NYSE: SPY) is an example of a pair of an inverse ETF and corresponding long ETF that actually work the way these were meant to work.  The SDS trades 45 million shares on average and that is over $2 billion worth of nominal value.  It is technically twice the inverse performance of the S&P 500 Index.  The “Spies” trade about 275 million shares a day, yet the price is nearly $90.00 (one-tenth of S&P).  That is over $24 billion worth of stock in nominal value.  Compare this dollar volume daily to that of the FAS and FAZ.

Other Issues to Consider

There is another notion here to consider, and that is the New York Stock Exchange (NYSE: NYX) and the NASDAQ OMX Group Inc. (NASDAQ: NDAQ).  Both major exchanges have relaxed the old absolute guidelines on the $1.00 rule.  There are many stocks that fell under $1.00 that are just too active in trading volume.  Booting those funds off the exchange because of the numbers of stocks they own and because of the number of shares would be the exchanges intentionally cutting off some of their own trading volume business.  How many operating businesses want to intentionally choke their own business and income streams?  Yep, not many.

It is impossible to say whether or not a reverse split would make a huge difference in the volatility of low-priced ETFs.  You could even make a case that if the prices were adjusted higher via a reverse stock split that the underlying ETFs would see more volatile price moves as each penny is worth less and less on a percentage basis.  For a $5.00 stock, each penny up or down is 0.20% and that is before any commissions are applied.

There are other risks here if ETFs are allowed to grow indefinitely.  Imagine if the entire world decided to trade ETFs rather than ever invest in individual stocks.  This would make the money flows of an ETF determine the direction of a stock.  Imagine if a company was small and attractive, but was not part of any ETF.  That company would be public, yet effectively shut out of the market.

This list of questionable ETF and ETN investment is actually far longer than just these mentioned today.  We will be following up with each of these individually over the next week or two by fund family and/or by asset class.  You can also learn more about these via subscribing to our open email distribution list.

Jon C. Ogg
June 23, 2009

Apple (AAPL) Raised to Overweight at Morgan Stanley.
Ariba (ARBA) Cut to Perform at Oppenheimer.
Avid Tech (AVID) Raised to Overweight at JPMorgan.
Bank of America (BAC) Raised to Market Perform at FBR.
First Solar (FSLR) Cut to Underperform at FBR.
J. Crew (JCG) Cut to Underperform at Needham.
LM Ericsson (ERIC) Raised to Outperform at Bernstein.
Monster Worldwide (MWW) Cut to Underperform at Wachovia.
Qwest (Q) Raised to Overweight at JPMorgan.
Yingli Green Energy (YGE) Raised to Buy at Lazard.

JON C. OGG
May 26, 2009

• Ariba (NASDAQ: ARBA) was raised from Neutral to Outperform at Cowen.
• Juniper Networks (NASDAQ: JNPR) was raisaed from Perform to Outperform at Oppenheimer.
• Netflix (NASDAQ: NFLX) was reaised from Hold to Buy at Stifel Nicolaus.
• Riverbed Technology (NASDAQ: RVBD) was raised from Sell to Neutral at UBS.
• SanDisk (NASDAQ: SNDK) was raised from Underperform to Neutral at Cowen.    

For whatever this is worth, Nortel Networks (NYSE: NT) was downgradedby UBS to neutral from buy.  Shares are down 3% at $1.19 and its52-week trading range is $1.05 to $19.50.  Talk about the world’stardiest research call.

Jon C. Ogg
October 27, 2008