Also, BWA has healthy financials with low debt and has further taken initiatives to maintain margins in the challenging North American industry environment.

On February 8, 2008, BWA reaffirmed its 2008 earnings expectation. The company expects to earn $2.85 per share to $3.00 per share for the year. The company also expects to grow annual sales by 8%-10% in 2008, implying sales of $5.75 billion to $5.86 billion. Operating margin is expected to be up from 2007 to 8.5-9%. The company anticipates lower North American industry vehicle production, relatively flat production in Europe, and growth in Asia.

Currently, shares of BWA are trading at 15.6x our 2008 EPS estimate of $2.91. We are rating BWA's stock a Hold, as the impressive slew of new product launches is burdened with high raw material prices. Our cautious approach is reflected in our six-month target price of $50.00, which is derived by using our 2008 EPS estimate, and a forward multiple of 17.2x. 

Northrop Grumman Remains a Buy

Northrop Grumman Corporation (NOC) offers a strong program portfolio positioned to take advantage of high growth areas in the defense budget, an improving balance sheet and an ongoing share repurchase program. Favorable projected revenue, the acquisition of Scaled Composites, diversified revenue and earnings streams with strong growth and discounted relative valuation metrics collectively support our bullish outlook for NOC.

Northrop Grumman is a margin-upside and cash redeployment story, in our view. During 2006, contract acquisitions reached a company record of $38.8 billion and a book-to-bill ratio of nearly 130%. However, in 2007 contract acquisitions reached only $33 billion. Incidentally, lower contract acquisitions were the industry scenario shared by most firms in 2007. Furthermore, the company ended fiscal year 2007 with a record backlog of $64.1 billion, which lays a great foundation for future organic growth.

As of this report, NOC common stock trades at only 13.8x and 13x our 2008 and 2009 EPS estimates, respectively, or in-line with the broader aerospace & defense industry yet at the lower-end of the range of its more comparable defense contractors. However, we remain confident that NOC will continue to reach new historic highs over the next six months with an outperforming total return relative to the broader stock market and the aerospace & defense industry.

Accordingly, we maintain our Buy recommendation on NOC with a six-month target price of $89.75 or 15.7x and 14.7x, respectively, our 2008 and 2009 EPS estimates. Price appreciation to our near-term valuation target, coupled with the company's recently increased $0.37 per share quarterly cash dividend -- which we view as sustainable and secure based upon low projected earnings payouts -- represents annualized total return potential of 31%.

Buy FormFactor After Sell-off

FormFactor (FORM) is the market leader in advanced wafer probe cards used to test semiconductor wafers during the manufacturing process. The combination of a very difficult pricing environment in DRAM and product execution problems have led to the shares being slammed.

The company has a very strong long-term growth profile. The company's technology is leveraged towards leading edge 300mm and sub-110nm nodes, which are ramping quickly throughout the industry. We envision a strong future for FORM, and consequently, are maintaining our BUY rating on the shares.

We feel the stock's sell off was overdone and investors with a time frame of at least two quarters should consider the purchase of the firm's shares. We believe that this stock should command a premium to other back-end semiconductor capital equipment manufacturer companies. Consequently, we are decreasing our price target to $30.00, which corresponds to a P/E multiple of 24.0x.

Post-Selloff, Kenexa Shares a Hold

We believe that Kenexa Corporation (KNXA) is struggling from competitive pressures, its integration of BrassRing, and a weakening market for talent acquisition.