Joy Global Leading with Strength

We are maintaining our Buy recommendation on Joy Global (JOYG). The global coal market appears strong as supply and demand fundamentals should keep prices elevated for the next several years. This will be a benefit to Joy as it is the world's leading manufacturer of mining machinery in the world.

Sales and bookings were impressive in Q3 reflecting producer's positive long-term outlook for coal prices. Joy's industry leading operating margins look to improve on the back of several cost cutting and capacity expansion initiatives that will be felt as early as 2009.

However we are lowering our target price from $84.00 to $71.00 per share due contraction of our valuation multiples. Although already an industry leader in operating margins, the growth and cost initiatives put in place will pave the way for higher revenues, margins and profitability. For these reasons we believe JOYG should trade at a premium to its peers.

Photronics Continues to Fall

Photronics (PLAB) is an OEM (original equipment manufacturer) of photomasks used by the semiconductor manufacturing industry in the fabrication of IC devices and LCD displays. In the July quarter, the top and bottom-line results were in line with the company's preannouncement.

Since foundries build in their own photomasks in the larger geometries, the more advanced nodes are that much more important. The company has strong technical development capabilities, and is experiencing growth in its 130nm and 90nm product lines. In the near term, this growth will not outshine a maturing legacy product and soft markets. Consequently, we rate shares of PLAB a Sell.

Despite the share price dropping approximately 61% off the 52-week high, the successful completion of an equity offering and the continued pay-down of debt, we prefer to be on the sidelines until the Flat Panel Display markets pick up. Consequently, we rate the shares of PLAB a Sell rating and taking our price target down to $1.50 from $5.00.

Martha Stewart Brand Growing

We are maintaining our Buy on shares of Martha Stewart Omnimedia (MSO). MSO shares have declined 12% since we recommended them on August 11, versus a 23% decline in the S&P 500. Despite the potential for a protracted recession, we think MSO can meet or exceed our EPS estimates, driven by top-line growth and margin expansion in the merchandising segment.

The company continues to execute on its original strategy of leveraging its Martha Stewart brand across all business segments, signing a slew of high-margin merchandising deals since 2006 -- including a recent deal with Wal-Mart (WMT) -- and repositioning its website away from on-line commerce to an interactive, ad-generating aggregator of content.

Martha Stewart Living Omnimedia, Inc., founded in 1996 by Martha Stewart, is a leading creator of original how-to content and related products for homemakers and other consumers. The company supplies creative domestic solutions through its published materials, including magazines, books, television programs, and the Internet. It markets the solutions primarily to homemakers between the ages 25 and 54.

Kellogg Hold Rec Maintained

Headquartered in Battle Creek, Michigan, Kellogg Company (K), manufactures and markets ready-to-eat cereals and convenience foods (including cookies, crackers, toaster pastries, cereal bars, and frozen waffles). The company is the world's leading producer and distributor of cereal with its products manufactured in 18 countries and marketed across 180 countries.

By focusing on brand building and profitability, Kellogg is reporting consistent sales and earnings growth, reducing debt, and repurchasing shares. However, the recent commodity inflation is pressuring margins and the trend is expected to continue at least through 2008.

The Hold rating is maintained. During the last five years, a period of relatively stable and modest earnings growth, Kellogg's stock has traded in a narrow P/E range of 16.6 to 21.7. The stock is currently trading at a P/E multiple of 18.2. Given that cash flow has been increasing consistently and EPS have exhibited modest growth, the stock is expected to trade at the top-end of the historical valuation range.

Red Robin Flying South

Red Robin Gourmet Burgers (RRGB) is a casual dining restaurant chain that serves burgers (52% of food sales in 2007) made from beef, turkey, chicken, veggie patties, fish, pork or pot roast as well as salads, sandwiches and other entrees. At the end of 2007, the company owned and operated 249 restaurants and franchised 135.

Despite the 26.2% drop in RRGB's share price since we downgraded the shares to Sell on August 18 (versus an 18.6% drop in the S&P500), we believe the stock will continue to under-perform both the larger market and the restaurant industry. Red Robin's traffic began declining long before the onset of rising gas prices in October 2007 began choking business in the casual dining sector.

Moreover, 2009 consensus EPS estimates are 12% higher than ours, and we think our estimate may prove aggressive if the economic slowdown is deeper or more protracted than we currently anticipate. Although RRGB shares appear cheap relative to its peers, we think there is more downside price potential if the company misses consensus EPS estimates.

Cirrus Logic a Buy at These Prices

Based in Austin, TX, Cirrus Logic, Inc. (CRUS) offers high-performance analog, mixed signal and digital processing integrated circuits. The company outsources wafer fabrication, assembly and testing operations to external foundries and concentrates its efforts on R&D (research and development).

Cirrus Logic's Industrial Division has a significant component of very profitable revenue from oil exploration companies. The company's oil-based revenue depends more on exploration activity than on oil production. Crude oil prices have decline significantly from their high. However, this may not last as the balance of supply and demand is in close balance.

Our recommendation remains a BUY but given the current stock market valuation and the uncerain economic environment, we have reduced our target price from $8 to $6.50 a share. Based on a P/E ratio of 20, our estimate of the growth in EPS of 20% and our $0.33 estimate of 2009 earnings, our price target is $6.50.

Safeway Upgraded on Valuation

We are upgrading Safeway (SWY), a major food and drug retailer in North America, shares from Hold to Buy. The recent sell-off in its shares has created a buying opportunity, in our view.

Despite business going pretty much as expected, SWY shares are down 19% in the last two months and 30% in the last year. Safeway shares have sold off because of risks associated with the difficult macro-environment that has consumers trading down to cheaper alternatives, as well as the credit crisis that has impacted the entire stock market.

In our view, SWY shares have declined to a level that is attractive on a valuation basis, even if a weak macro-environment persists throughout 2009. As a result, our six-month target price is $28, or about 11.5x our 2009 EPS estimate.

PACCAR Downshifts Ahead

PACCAR Inc. (PCAR) is a designer, manufacturer and customer support provider of premium light-, medium- and heavy-duty trucks. The company is benefiting from rising prices and increasing market share, along with strong growth in Mexico and Australia.

However, a strong Class 8 market downturn in the US leads us to rate the stock a Hold with a target of $35.00. PACCAR is the third-largest manufacturer of Class 6-8 heavy-duty trucks (with capacity of more than 15 metric tons) in the world after Volvo and Daimler (DAI).

The company also provides customer support for its products with the supply of aftermarket parts, finance and leasing services. Currently, the stock is valued at 10.2x our 2008 earnings of $3.26.