Credit Suisse analyst Mark Connelly says he’s raising his sector weighting for paper and forest products to overweight from underweight.

1. He upgraded Smurfit-Stone Container (SSCC) and Temple-Inland (TIN)  citing a more attractive risk/reward balance.

a.  Connelly thinks several paper grades will see further declines in demand, but fundamentals in most grades should bottom out this fall.

2. Among the grades, he says uncoated free-sheet has been most resilient in the face of falling demand, and Domtar (UFS) remains the best positioned stock in that group despite a lack of near-term catalyst.

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Friedman Billings analyst James Kumpel recommends Kindred Healthcare (KND)

a. company has made it through to the end of the tunnel with the lifting of reimbursement pressures, landlord tensions, and restructuring challenges.

b. company’s operating leverage will work in its favor in the second half of 2008 and 2009, given very conservative malpractice expense assumptions, improving productivity in contract rehab business, and improving quality mix in skilled nursing facilities.

c. company is well positioned to beat modest expectations over the rest of the year, and that 2009 EPS views may well increase as 2008 results demonstrate earnings power of all three business units performing well simultaneously.

d. price target to 36

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