Semtech Corporation (SMTC) is a fabless supplier of analog and mixed signal semiconductor devices. Management has been diversifying the product portfolio, introducing new high-margin products and broadening the customer base. July quarter revenue was in-line with consensus estimates, while the EPS exceeded.Forward guidance is for a 0-4% revenue increase in the October quarter. With backlog increasing again in Q2, we do not expect results to fall short of guidance. Both revenue growth and margin expansion are expected as new product platforms gain traction. We are reiterating our BUY rating on Semtech Corp. shares. Although the macro situation in the U.S. was expected to impact consumer spending, the consumer segment grew very strongly in the last quarter, and management expects continued growth in Q3. We expect the shares to trade higher within the next six months. Consequently, we are reiterating our $20 price target (21.1x ...

drugstore.com (DSCM) reported in-line results for the third quarter, but management was cautious with its fourth quarter outlook due to the slowdown in e-commerce activity that began in September. Despite its cautious guidance, we think investors should look past the near-term results and focus on the company strategy to achieve profitable sales growth over the long term. Its strategy includes increasing share in the over-the-counter market, growing its international business, entering new partnership arrangements, and expanding into higher margin product lines. drugstore.com believes that it can double its total sales and increase its gross profit margin to 30% by 2013. If those targets are achieved, we estimate that drugstore.com can produce earnings per share of at least $0.30. Due to the company's potential for strong long-term earnings growth, we rate drugstore.com a Buy with a $3.00 target price.Read the full analyst ...

Acusphere, Inc. (ACUS) recently signed a definitive agreement with Cephalon, Inc. (CEPH) whereby Acusphere raised $20M in cash ($5M upfront and $15M in a senior secured convertible loan). In return for their money, Cephalon has licensed AI-525, a preclinical injectable celecoxib for post-op pain and the right to potentially license Imagify, a billion-dollar product for the detection of coronary artery disease.We are very pleased with the deal, especially in this environment. We regard it as a testament to the potential of Imagify. With the cash position now secure, all eyes turn to the FDA’s cardio-renal advisory panel meeting in December 2008. A positive review at that time should send the shares significantly higher.We also note that should Cephalon decide to license Imagify, Acusphere was able to maintain a significant portion of the economics. The deal entitles Acusphere to a sizable approval milestone of …

As the economy deteriorates, one of the first casualties will be corporate profits.  Earnings estimates have been falling very fast for 2009.  Recently estimate cuts for 2009 have been running at about 8x the number of estimate increases.  P/E-based valuations become tricky in such an environment -- you are shooting at a moving target.  One way around this is to focus on the low (or most pessimistic) estimate, rather than on the mean estimate.  Assume that everyone else will move to where the biggest pessimist is now. This is not to say that the most pessimistic analyst today can't be too optimistic, but at least he will be closer than most. On this basis, there are some very compelling values out there. 

Below we present a list of the cheapest S&P 500 companies based on 2009 low estimates.  Since I simply do not trust the numbers, I have excluded from

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Stoneridge, Inc. (SRI) designs and manufactures engineered electrical and electronic components, modules, and systems for the automotive, medium and heavy-duty truck as well as agricultural vehicle markets.

In third quarter, net sales increased $5.6 million, or 3.2%, to $178.4 million, compared with $172.8 million for the third quarter of 2007. The increase in net sales was primarily attributable to new electronics programs sales in North America, improvement in the company's European electronics business and the impact of foreign currency translation.

The sales increase was partially offset by rapid deterioration in the North American passenger car and light truck markets. Net loss for the third quarter was $0.4 million, or $(0.02) per diluted share, compared with net income of $2.6 million, or $0.11 per diluted share, in the third quarter of 2007.

Stoneridge is aggressively cutting costs and benefiting from the growth of the commercial vehicle market. Increased use of electronics in

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deCODE genetics, Inc. (DCGN) is a biopharmaceutical company that uses genetics to develop drugs, diagnostics, and pharmacogenetics for the healthcare industry.

3Q08 revenue of $12 million was less than our estimate of $16 million. As of September 30, 2008, the company had $17.7 million in deferred revenue that will be recognized over future reporting periods. The period-on-period increase in revenue for the third quarter was driven principally by growth in the company's genomic services business, which includes the company's diagnostics, deCODEme(TM) personal genome analysis, and contract genotyping businesses.

Operating loss for the third quarter 2008 was $11.3 million, compared to $22.2 million for the third quarter 2007. Net loss for the quarter ending September 30, 2008 was $17.9 million, compared to $24.2 million for the third quarter 2007. In addition to operating loss, net loss figures for the periods presented include interest expense and, in the 2008 periods, unrealized loss resulting

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We maintain our Hold recommendation for Telephone & Data Systems Inc. (TDS), following the release of recent quarterly results. Although the management has reduced its 2008 outlook for revenue and subscriber additions, it continues with share repurchase initiatives.

TDS is focusing on improving profitability through network technology upgrades, strengthening its brand image and expansion of network coverage through acquisitions. Although recent quarterly results were above of our expectations, we are not yet convinced that the company can sustain the earnings momentum in future reporting periods, principally due to higher expenses for wireless infrastructure upgrades and promotional campaigns.

TDS is trading at 9.1x estimated earnings for 2008, which is at a discount to both the S&P 500 and the industry group (wireline/integrated telecom service providers) average. On the basis of enterprise value (EV) to estimated 2008 EBITDA, the stock is also trading at a discount to its industry peer group.

We believe

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A favorable macro backdrop helped Exxon Mobil Corp. (XOM) achieve impressive year-over-year earnings growth in the third quarter, offsetting the effects of production declines and hurricanes.

Upstream income jumped 48% to $9.35 billion on the back of high realized crude oil and natural gas prices. We believe that despite recent volatility in the commodity and credit markets, the fundamentals of Exxon's business remain strong. As such, our Buy recommendation remains unchanged, though we have lowered our estimates to reflect a lower commodity-price deck.

Exxon Mobil shares have outperformed the peer group as well as the broader equity markets in the current market turmoil owing to its status as a defensive play in turbulent times. Historically, the stock has traded at a premium to its super-major peers, reflecting its industry-leading returns, financial strength, and a highly regarded management team. Our new $100 price objective, reduced from $105 before, reflects a 2009

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American Axle (AXL) is a leading supplier of driveline systems, modules and components for the light vehicle market. The company makes axles, driveshafts and chassis components for light trucks, sports utility vehicles (SUVs), and passenger cars.On October 16, American Axle announced that it plans to invest $40 million to build its first plant in Thailand as part of its drive to expand production in Asia. The 120,000 square feet plant, located on the Hemaraj industrial estate in the eastern province of Rayong, will begin production in April 2010.Weak SUV demand is greatly affecting American Axle's sales. Furthermore, high commodity costs and pricing pressure as well as production cuts by OEMs (original equipment manufacturers) such as General Motors (GM) remain causes for concern. Thus, we rate the stock a Sell and set a six-month target price of $1.50.Read the full analyst ...

As a result of large non-U.S. revenue base, IBM (IBM) has been better insulated from recent weakness in the U.S. economy than many of its peers. We believe that IBM is a defensive play in the current environment, as the company derives a significant portion of its revenue from international sales. Further, we are encouraged with IBM's focus on more profitable businesses, such as software and services, and exit of low-margin businesses. Moreover, the company has focused on driving its bottom line through cost-cutting efforts.Shares of IBM are currently trading at 10.2x our 2009 earnings per share estimate of $8.94, which represents a discount to the industry mean and median. Given the size and diversified businesses of IBM, we expect that the shares will always trade at a discount to the industry, which includes a number of less profitable, but rapidly growing companies. ...