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- NEW YORK, Sept 14 (Reuters) - Equity funds took in a net $1.66 billion in the week ended Sept. 13, extending the trend of the prior week, when inflows totaled $2 billion, TrimTabs Investment Research estimated on Thursday.

- Including ETF activity, Equity funds report net cash inflows totaling $2.247 billion in the week ended 9/13/06 with Domestic funds reporting net inflows of $1.981 billion and Non-domestic funds reporting net inflows of $266 million;

- Money Market funds report net cash inflows totaling $4.751 billion;

2) Recent Research Articles - Actionable investment research and commentary, unedited, straight from the pros.

2A) National Security a Safe Play in IT - Zacks Analyst Interview - With Larry Orlowski, Sep 11, 2006:

2B) (DECK) - Six analysts have raised their numbers for this year, while five have done so for next year:

2C) (HP) - Amazingly, Year-to-year growth has exceeded 140% in seven straight quarters:

2D) (CAE) - succeeded in beating the Street's earnings estimate on five occasions by an average 32.6%:

3) Viewing the Market: Financial analysts / journalists comment on the current stock market and future direction.

3A) Pop Goes the Bubble...Bottom in the Fall...Watch the Downside...The Next Move

THE VIEW FROM MY SEAT

Pop Goes the Bubble...Bottom in the Fall...Watch the Downside...The Next Move

Sit down, strap yourself in, and hold on, the next few weeks could get rough for the market. As we head into a historically weak period (September— October), I do not want you to underestimate the risks we are facing. The last time we were faced with a similar situation was in 2000, right at the cusp of the last recession. The great Roman historian Thucydides wrote that “as long as human nature remains the same, history will remain the same. A slightly more updated version, attributed to a famous speculator of the 1920s, Jessie Livermore, said, “As long as human nature remains the same, the markets will remain the same."

History has shown us the way investors react during different points of the economic cycle. The heaviest selling usually comes when investors get wind of a contraction in the economy. They sell first and ask questions later. I am reading the economic reports that cross my desk and I am starting to become concerned. The talking heads in the media are debating whether the economy is going into a “soft landing' or if we are facing a “hard recession."

The jury is still out, but the economic reports I saw in August and the way the trend is heading tells me that we could be heading into some very rough and choppy waters. When the gross domestic product (GDP) growth rate dropped to 2.5% in the second quarter, we crossed over into a very scary area. The “r” word (recession) is now being bandied about and fear is starting to creep into the market. If investors reach the point where they believe a recession is likely, the next questions they will ask are how long and how deep it will be. Selling will start slowly at first, and then the market will become frenzied as the perceived recession leads to even more selling.

The evidence is becoming overwhelming that the GDP is likely to be under 1% in the third quarter— it will perhaps even be negative. The rate of change in the growth pattern of the money supply is also concerning me. In August the Fed has been rapidly draining liquidity out of the monetary system, which basically means it is tightening (not loosening) interest rates. I would bet dollars to doughnuts that we will have disappointments du jour and investors will be heading for the exits. A tight interest— rate environment has already played havoc with the housing market.

Pop Goes the Bubble

For the past three years, housing has been the main engine of U.S. economic growth. It has been estimated that 30 percent of all jobs created since the end of the last recession in 2001— over 1.4 million— have been in sectors related to the housing market. The party is officially over. Home sales data for both existing and new homes “freaked out” the economists. The great pontificators of economic data expected a drop of only 0.9 percent in homes sales. Instead, all 39 economists got it wrong; the sales drop was much greater than they expected— it came in at 4.1percent for the month of July. The drop was not centered in one geographic area but was widespread throughout the country.

Out in the West, home sales were down 6.4 percent. But new— home sales reported the biggest drop since 1994, down more than 21percent.The six— month sales average of new home sales has fallen eight months in a row. In the past year, sales are down 42.9 percent in the Northeast, down 35.4 percent in the Midwest, down 23.4 percent in the West, and down 12.4 down in the South. Sales in the Midwest have fallen to their lowest pace in nine years. Fears are mounting that the “orderly” housing slowdown predicted by the Fed will become a full— blown crash, similar to what we saw happen in the “tech” bubble.

The housing meltdown could shave points off the GDP ,as well as put more people on the unemployment line. For the last few months the bond market has been telling us that it expects to see a recession. The Fed funds rate continues to hover higher than the 10— year Treasury bond — the sign of an inverted yield curve the harbinger of recessions. The stock market, however ,is putting a positive spin on all this data. Investors are banking on the Fed riding in to rescue the economy and begin an economic expansion once again.

From my seat, I can’t spin this in a positive way. The Fed is still contracting the money supply and has left open the possibility it may continue to tighten it. The money supply growth rate is also dropping sharply. My research is telling me that we should brace for a big disappointment in corporate earnings. Once the institutions see it my way, they will start hitting the sell button without missing a beat. At the end of the day I do think the Fed will save the market, but not until the stock market feels a little pain.

Bottom in the Fall

One big saving grace the stock market has is that we are in a mid— term election year. Historically the stock market tends to peak in the spring, bounce about in the summer, and bottom out in the fall. It is out of these mid— term election— year lows that some of the best buying opportunities are born. I researched what type of bounce the stock market makes during mid— term election years, and the findings put a smile on my face.

In 1990, the Russell 2000 index fell more than 30 percent before hitting a bottom in October. From those lows, it rallied more than 59 percent by the end of 1991.In 1994, the stock market peaked in March, fell in the spring, rallied in the summer, and then bottomed in the fourth quarter. It then rallied more than 33 percent in 1995.In 1998, the Russell 2000 once again peaked in the spring and bottomed in October, falling more than 36 percent from its spring peak. It then rallied more than 60 percent into 1999. Four years later, in 2002, after falling over 37 percent, the Russell 2000 bottomed in October and rallied over 72 percent by the end of 2003.

The average gain in the Russell 2000— after bottoming out in October— was 56 percent by the end of December of the following year. I wouldn’t bet against this pattern repeating itself. For 2006,the index peaked in May at 784.On average we
should see a plunge of 30 percent, which would put the index in the 550 area. The index is now at 720,so it would still need to fall about 23 percent to stay true to the historical average. It might seem a bit hard to imagine that it could plunge so much in only six weeks. Yet, if you connect the downtrend line of April, May, and June’s lows, this downtrend line projects to about 540 by the second week of October.

If the Russell 2000 breaks below its monthly middle Bollinger Band lines at 670, watch out below. A confirmed breach of long—term support would suggest that the Russell 2000 could drop to the bottom of its monthly Bollinger Bands, which is still at 570. So a drop of 23 percent is not out of the question by mid— October. That is why I am especially concerned with the downside in the market at this time.

Watch the Downside

The reason that taking care of the downside is so important is because it can take you out of the game rather quickly. Identifying, being prepared for, and the management of risk are my top priority, especially in a deteriorating economic environment. Knowing when to hold back and wait for better values to develop is one of the biggest lessons to learn in investing.

I know it is boring to wait, but consider the fastest animal in the world— the cheetah. It waits patiently for a perfect opportunity to kill by hiding in the brush for up to a week. When the right moment comes and there is no chance it can lose its prey, it makes its move. I don’t consider the odds in our favor by being on the long side of the market as we head into September; that is why I am content to wait in the brush. My objective is to take advantage of market bottoms with our capital intact, and then pick up great values.

Risk is on the forefront of my mind given a plunging housing market, weak seasonality, high crude oil prices, a contraction of the money supply, a deteriorating GDP, grave geopolitical risks, and an overbought market. Now you know why I stay up nights.

Since May, I have had our portfolios holding a large percentage of cash. We haven’t missed much— only some sloppy and choppy market movements. There is a high probability that we could see the third and fourth quarter GDP considerably weaker than what most economists are expecting. I don’t want to be caught holding the bag just before a potential recession becomes obvious and investors scramble to get out of the way as corporate earnings crumble.

The Next Move

The best strategy right now is to hold our cash and wait for events to play out. The period after the Fed stops raising rates—until it actually begins cutting rates— tends to be a dangerous time for the stock market. This is a seasonally weak period in a mid— term election year; typically this is when cycle lows develop. Patience is really a virtue right now. Between now and October ,the economy is heading south and if it is ultimately worse than I am expecting, all hell could break loose.

If we are heading toward a possible recession, international stocks could get hit very hard. This sector got hit the hardest in the first “down leg” and could get smashed again if a worldwide economic contraction is heading our way. The U.S. sectors likely to suffer in a second “down leg” are the commodity and economically sensitive sectors. As the economy slows down, I think transportation stocks will suffer too. Retail stocks are vulnerable if consumers perceive a potential recession is close at hand. The holiday buying season could suffer as people tighten their belts, which will hurt leisure stocks as well.

Residential builders and building— related products such as lumber, cement, tools, and paint, as well as those retail companies that provide building products, will continue to suffer as the air escapes the housing bubble. I want you to
stay the course, use the stops I recommend, and hold on to what could be a very bumpy ride.

Source: StealthStocksOnline.com

MONEYLETTER HOTLINE 9/13/06

Is Oil Our Friend Now?

What a difference a week makes. One week ago the market was selling off because of concern about labor costs and inflation. This week, after a stumbling start, the market rallied sharply on the back of tumbling energy prices that also dragged other commodity prices down with it. Inflation, what inflation? The market needs to sober up. The drop in oil prices is an unmitigated boon. Undoubtedly, we are going to see some benign inflation readings over the rest of this year. They will keep the Fed at rest.

But then there is the slowing economy and profits. Housing may or may not turn down much further, but housing is now a drag. There are substantial auto industry output cuts just ahead. Yes, the consumer will benefit from the sizeable drop in pump prices. But we have seen estimates that say the stimulus from lower oil prices is just about balanced by the cuts in auto output. The U.S. economy is in for a period of moderately sub par growth. Right now our market offers very good value. But its upside potential is not unlimited. Even more attractive value is to be found elsewhere.

There is no change in our recommended allocations.

The Economy – This was a week of Fed speeches. One theme was that the economy is forecast to grow more slowly, at rate we estimate to be 2.5%, through next year. The Fed sees this sub par growth as necessary to lower the inflation rate. Forget any thought of a rate cut unless the slowdown becomes more severe. Stimulus is not an accepted Fed word nowadays.

The Stock Market – The pessimism that gripped Wall Street last week did not prevent this week’s rallies. Lower oil prices are not only good news here, but abroad as well. True, commodity prices tumbled sharply earlier and emerging market stocks fell. But the markets remembered that China and India are not going to slow because of lower oil prices. What did happen, we believe, is that we saw a bout of profit-taking in commodities, not the beginning of a commodity bear market. We continue to favor equities.

Source: Moneyletter.com

Profiled @ $31.57 on 7 August 2006

Overview

Pittsburgh-based Federated Investors, Inc. (FII) is a provider of investment management and related financial services. It is one of the largest investment managers in the United States, managing $210.5B in assets as of June 30, 2006. With 143 mutual funds and separately managed accounts in a wide range of investment strategies, Federated provides comprehensive investment management to nearly 5,500 institutions and intermediaries including corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers. It ranks in the top two percent of money market fund managers in the industry, the top eight percent of fixed-income fund managers and the top seven percent of equity fund managers. Federated sponsors, markets and provides investment advisory, distribution, and administrative services primarily to mutual funds. These funds are offered through banks, broker/dealers, and other financial intermediaries who use them to meet the needs of their customers. These customers include retail investors, corporations, and projects involving retirement schemes. Its website is www.federatedinvestors.com. FII operates on a calendar year basis.

Analysts have identified the following factors for evaluating the investment merits of FII.

Key Positive Arguments

Growth Opportunities

Accretion expected from FII's acquisition of Alliance's cash management business
Focused on augmenting the breadth of its equity offerings
Growing money fund assets
Money market flows will continue to be strong
Money market asset growth and the resulting
operating leverage will drive earnings.

Fundamentals

FII's scale, especially on the institutional side, gives it a competitive advantage.

Key Negative Arguments

Fundamentals

Equity and fixed income funds continue to remain a drag on earnings.
Weak international business
Margins to remain under pressure in the near term.
Continued shift toward lower-margin assets, along with rising costs and lower settlement-related fees will dampen earnings.

Macro Issues

It could be increasingly difficult to make acquisitions.
An unfavorable rate environment with short-term rates rising.

Recent Events

On August 3, 2006, FII filed form 10Q for the second quarter ended June 30, 2006.
On July 27, 2006, FII announced its results of operations for the quarter ended June 30, 2006. It reported earnings of $0.47 per diluted share and a net income of $49.9 million in 2Q06.
On July 17, 2006, FII announced the completion of the acquisition of Cambridge, Mass.-based MDT Advisers, a fast growing $7.1 billion quantitative manager. The company had entered into an agreement to acquire MDT in May 2006.
On June 22, 2006, FII announced a definitive agreement to acquire $93 million of mutual fund assets from Sentinel Asset Management Inc. under which three Federated mutual funds would acquire the assets from three Sentinel mutual funds. The Sentinel transaction represents Federated's fourth planned acquisition of stock or bond fund assets this year.

Revenue

Prior to the 2Q06 earnings release, the Digest average was projecting total revenue growth rate of 8.2% for 06 and 9.9% for 07. Following the release, the Digest average total revenue growth rate decreased to 7.6% for 06 while it increased to 10.4% for 07.

In 2Q06, revenue increased $18.7 million or 9% to $236.4 million compared to $217.7 million in 2Q05. Management attributed the increase to Federated's acquisition of Alliance Capital Management L.P.'s cash management business, organic money market growth and increased equity assets under management. In 2Q06, Federated derived 47% of its revenue from money market assets, 39% from equity assets, 13% from fixed-income assets and 1% from other products.
Revenue in the first half of 2006 increased $55.5 million or 13% to $475.2 million compared to $419.7 million in the first half of 2005. YTD, Federated derived 47% of its revenue from money market assets, 38% from equity assets, 14% from fixed-income assets and 1% from other products.

Margins

Prior to the Q2 earnings release, the Digest average for pretax margin was 33.6% for Q306 and 33.2% for 06. Following the release, the expectations decreased to 31.9% for 3Q06 and to 31.9% for 06.
2Q06 operating expenses increased by $16.8 million or 12% to $160.8 million compared to $144.0 million in 2Q05. In 1H06, operating expenses increased by $8.1 million or 3% to $325.4 million compared to $317.3 million in the same period last year. Increases in operating expenses were affected by higher marketing and distribution expenses associated with the Alliance acquisition and increased compensation and related expenses.
Operating margin in the quarter was 32.4%, up from 31.5% in the preceding quarter, but below last 3 years average of 37.7%.

Management cautioned that it would be challenged to meet its operating margin target of 34% in 2H06, citing market conditions and its ongoing integration of the MDT acquisition, which was completed on July 14, 2006.
One firm expects rising expenses (some related to MDT) to pressure margins, thus limiting upside to the stock in the near term.

Earnings per Share

Prior to the Q2 earnings release, the Digest average EPS estimates for 3Q06 and 06 were $0.49 and $1.91, respectively. Following the release, the EPS expectations decreased to $0.45 for 3Q06 and to $1.81 for 06.

FII reported earnings of $0.47 per diluted share and a net income of $49.9 million in 2Q06. These results include net earnings of $3.3 million or $0.03 per share classified as income from discontinued operations, net of tax, related to the sale of the company's trade-clearing operation. FII's EPS from continuing operations was $0.44 in 2Q06 compared to $0.35 in 2Q05. FII reported YTD 2006 EPS from continuing operations of $0.86 compared to $0.41 in the same period in 2005.

Income from continuing operations was $46.7 million in 2Q06 compared to $38.0 million in 2Q05. In the six months ended June 30, 2006, income from continuing operations was $92.7 million compared to $44.8 million in the same period in 2005. The discontinued operations line item in 2Q06 reflected $3.3 million or $0.03 per share of primarily after-tax gain related to the sale of FII s trade-clearing operation, which the company substantially divested in 2Q06.

Discontinued operations YTD 2006 reflected $6.1 million or $0.06 per share related to the after-tax gain on the sale of the trade-clearing operation ($3.2 million), the reversal of a related deferred tax asset valuation allowance ($1.8 million) and after-tax operating income ($1.1 million) from the trade-clearing operation.

Balance Sheet

FII s total managed assets were $210.5 billion as on June 30, 2006, up $5.8 billion or 3% from $204.7 billion as on June 30, 2005 and down $7.0 billion or 3% from the $217.5 billion reported as on March 31, 2006. Through its mutual funds and separately managed accounts, FII managed $52.2 billion in equity and fixed-income assets as of June 30, 2006, a $1.0 billion or 2% decrease from $53.2 billion as of June 30, 2005. Average managed assets in 2Q06 were $213.9 billion, up $20.8 billion or 11% from $193.1 billion reported in 2Q05 and down $3.6 billion or 2% from $217.5 billion in average managed assets reported in 1Q06. On July 14, 2006, FII increased its total assets under management by $6.7 billion through its acquisition of MDT Advisers.

With the acquisition of MDT Advisers, FII added fundamentally based, quantitatively driven portfolios to its offerings.

One analyst expects a modest impact from the MDT acquisition initially on earnings, but as it feels that FII is adept at sales/marketing, it views the enhanced line-up from the acquisition as a positive.

FII s equity assets were $30.5 billion as on June 30, 2006, up $1.6 billion or 6% from $28.9 billion as on June 30, 2005 and down $1.1 billion or 3%, due in large part to equity market conditions, from $31.6 billion as on March 31, 2006. With the addition of $6.7 billion in equity assets from acquisition of MDT Advisers in July, overall equity assets increased to a record $36.8 billion as of July 25, 2006.

FII s fixed-income assets were $21.7 billion as on June 30, 2006, down $2.7 billion or 11% from $24.4 billion as on June 30, 2005 and down $0.6 billion or 3% from $22.3 billion as on March 31, 2006.

Money market assets in both funds and separate accounts were $158.3 billion as on June 30, 2006, up $6.9 billion or 5% from $151.4 billion as on June 30, 2005 and down $5.3 billion or 3% from $163.6 billion as on March 31, 2006. Money market mutual fund assets were $142.0 billion at the end of 2Q06, up $5.1 billion or 4% from $136.9 billion as on June 30, 2005 and down $4.0 billion or 3% from $146.0 billion as on March 31, 2006. Average money market mutual fund assets were $143.8 billion in 2Q06, up $18.8 billion or 15% from $125.0 billion in 2Q05 and down $2.3 billion or 2% from $146.1 billion in 1Q06.

According to one analyst , FII s money market funds, which account for more than 67% of total assets, do not appear to have capitalized on investors pullback from equities to the safe money market and bond funds during the quarter and suffered net redemptions.

Target Price / Valuation

There has been four price target decrements and one price target increment following the 2Q06 earnings release. Of the 14 analysts, 3 gave positive ratings and 11 gave neutral ratings. Target prices range from $33 (4.52% upside from current price) to $44 (39.37% upside from current price); the average is $37.08 ( from previous report; 17.45% upside from current price).

Risks to the shares include domestic and international capital markets volatility, interest rate movements, distribution pricing pressure, and changes in net flow patterns and investment performance, regulatory risk, industry consolidation, competition, and prolonged outflows in the money market industry.

Capital Structure/Solvency/Cash Flow /Governance/Other

FII s Board of Directors authorized a share repurchase program that allows Federated to buy back as many as 7.5 million additional shares of class B common stock through 2008. During 2Q06, Federated purchased 2.4 million shares of class B common stock for $77.9 million.
FII s Board of Directors declared a quarterly dividend of $0.18 per share. The dividend is payable on Aug. 15, 2006 to shareholders of record as of Aug. 8, 2006.
Management reaffirmed its commitment to paying dividends and also buying back stock at attractive levels to increase shareholder value. Prior to the regulatory issues the company faced with regards to mutual fund timing, FII consistently repurchased stock, which analysts expect to continue going forward.
On May 12, 2006, FII announced its decision to initially acquire a 90% stake in MDT Advisers, a fast growing $7.1 billion quantitative manager with $6.8 billion in separately managed accounts and about $300 million in mutual funds. On July 17, 2006, FII announced the completion of the acquisition of MDT Advisors.
One firm expects more diverse products in the future. It believes that FII s acquisition of equity manager MDT was touted as a chance for the company to further diversify its product offerings. It does not expect cost savings from this acquisition; rather it believes the benefit will come from additional sales through FII s distribution channel.

Another brokerage firm sees a number of financial and strategic benefits from the deal: immediately accretive to GAAP/cash EPS; enhances retail platform, which to date has been a struggling unit; balances and diversifies AUM mix; should accelerate organic growth; and reduces execution risk. However, another brokerage firm believes that the deal is neither transformational nor story changing; and definitely not a panacea for FII's weak equity flows.

Potentially Severe Problems

There are none other than those discussed in other sections of this report.

Long-Term Growth

Over the last five years, Federated enjoyed solid organic growth, and assets have roughly doubled. One analyst expects FII to continue to build scale in the money market segment both organically as well as through acquisitions. In the long term, for Federated to be truly leveraged to an improving equities operating climate, it needs to build a more pronounced presence in this asset class. The analyst noted that the firm is focused on expanding the breadth of its equity offerings.

Management indicated conversations were active with various money market platforms, and felt there is increasing pressure for money market consolidation. Over the past several years, Federated has made small acquisitions that tend to focus on either leveraging the scale of its money market platform, or expand into new asset classes. Management cited acquisition preferences around best-of-breed management teams and roll-up deals, and the company would be enthusiastically open to opportunities to acquire additional AUM. The company also feels that the $400 billion in AUM mark is achievable over the next five years, a growth rate that would likely require acquisitions at a level beyond the $376 million acquired in this quarter. However, management cautioned that the company would not pay up for the sake of hitting this target. One analyst believes Federated is most likely interested in buying money market mutual fund assets from players that lack meaningful scale. Furthermore, it is also interested in buying equity assets or rolling up small firms that manage equity assets. Such a strategy could be helpful since it has very limited equity products to sell considering its current equity performance. Some particular styles that the analyst believes may be of interest to management include international equity products and value equity products.

Federated s advantages include size, scale, and long-standing relationships with select customers. One analyst believes that retail investors and institutional clients will tend to flow back into money market assets, as the absolute yield earned rises. Additionally, institutions will also add to money market funds once the rates earned in funds are more competitive against yields available from investing directly in short duration securities (i.e. when the Fed hikes are at or near the end).

Another firm expects the wait-time for the Fed pause to decline in the coming months, helping in better visibility on a recovery in the core institutional cash management business.

This is not a research report. Readers of this report should not take investment action based on the contents of this report. This report represents Zacks analysts understanding of the investment issues that professional investors consider when evaluating the investment attractiveness of the subject company. This report is not a recommendation to buy, sell, or hold the stock of the subject company, nor is it a valuation of the stock of the company nor is it a forecast of future earnings, sales or stock performance of the company. Zacks employees, affiliates, officers and directors may have long or short positions in the stock of the subject company and may trade at any time in the stock or related derivatives without notice.

Content Courtesy: Zacks Investment Research www.zacks.com

Profiled @ $87.12 on 17 August 2006

Overview

Headquartered in Aliso Viejo, California, Fluor Corporation (FLR or the Company) provides engineering, procurement, construction, and maintenance services through a number of subsidiaries. The Company also performs operations and maintenance activities for major industrial clients. Fluor serves a diverse set of industries ranging from oil and gas to power, industrial clients and to the U.S. government. The Company has five principal operating segments: Oil and Gas, Industrial and Infrastructure, Government, Global Services and Power. Fluor Constructors International, Inc., which is organized and operates separately from its business segments, provides unionized management, construction and management services in the United States and Canada, both independently and as a subcontractor on projects to its segments. Its website is: www.fluor.com

Key investment considerations as identified by analysts are as follows:

Key Positive Arguments

Compelling Fundamentals: Fluor is a leader in providing engineering, procurement, construction, and maintenance (EPCM) services to its clients in five business segments & all industries served have been performing well.

Competitive Advantage: Fluor has taken a number of steps to improve its risk management processes and procedures, reducing its risk profile and increasing earnings visibility.

Growth Opportunities: The Company is looking to complement organic growth with strategic, niche acquisitions to effectively penetrate certain sectors and/or expand existing service offerings.

Other: Market strength is expected to drive revenues and margins higher. The Oil & Gas, Government, Power and Global Services segments are currently reporting operating profit growth, and these segments are expected to provide significant new opportunities in 2006-07. Moreover, capacity limits in the industry are expected to help profitability, as projects receive higher margins.
Key Negative Arguments

Cyclical nature of the construction business: The Company is dependent on new construction for a portion of its revenue streams. Should new construction of commercial or industrial buildings slow, this could have a negative impact on growth assumptions and earnings estimates.

Acquisitions: If the Company is unable to find any acquisition targets in its price range or overpay for an acquisition, results could be negatively impacted.

Outstanding Litigation: FLR is in the midst of several arbitrations related to project costs, a breach of a construction contract, construction delays, contract modifications, and asbestos-related claims. Although past resolutions have not had any substantial effect on operations or cash flow, future results could vary.

International presence: More than a third of FLR s projected backlog is derived from facilities to be constructed in other countries. Any change in foreign government policies, regulations, and/or geopolitical environment could affect future revenue and/or backlog.

Foreign currency fluctuation risk: Any fluctuations in currency values and exchange rates could affect revenue and costs and subsequent overall profitability in case of foreign contracts.

Note: The Companys fiscal year ends December 31; all fiscal year references coincide with the calendar year end.

Recent Event

On August 7, 2006 the Company reported its 2Q06 earnings. Highlights are as follows:
Revenue reported was $3,456 million as compared to $2,919 million in 2Q05, up 18.4% YoY. EPS reported was $0.74 as compared to the earnings loss of $0.19 in 2Q05, up 489.5% YoY.
Revenue

In 2Q06, the Company reported revenues of $3.456 billion, an increase of 18.4% year over year, up from $2.919 billion in 2Q05. Analysts note that new awards in 2Q06 were $5.7 billion, with substantial new bookings in all segments except Power. Consolidated backlog rose to $18.0 billion, which increased 15% YoY and 17.5% sequentially. Approximately 29% of total backlog is made up of fixed-price contracts and 64% of the backlog is from international projects.

Outlook: Management noted that results in 2Q06 were strong but contributions from the Government segment (for their contingency response work for FEMA), reconstruction work in Iraq, and the nearly-complete Fernald project are likely to be materially lower in 3Q06.

The Company operates through five major segments:

Oil and Gas: The segment reported revenues of $1.3 billion as compared to $1.2 billion in 2Q05, up 7.3% YoY. New awards totaled $2.6 billion, up 117% YoY and 47% sequentially and were well diversified among upstream, downstream, and petrochemical projects, according to analysts. The largest award in the reported quarter was for an LNG project in Qatar, totaling over $1 billion to develop infrastructure for 6 new LNG trains. Backlog at the end of the quarter was $8.35 billion, up 40% YoY.

Industrial and Infrastructure: The segment reported revenue of $749 million, up 34.3% from $557.9 million posted a year ago. The increase in revenue was attributed to increased mining projects. New awards in the quarter totaled $2.27 billion, were up 500% YoY, attributable to overall improvements, including projects in infrastructure, general manufacturing, transportation, mining and life sciences. In 2Q06, FLR booked the San Francisco Bay Bridge project worth $717 million and a large EPS contract in Puerto Rico for a pharmaceutical plant. Other significant EPC contracts in the quarter included a copper mine in Chile and a mineral mine in Madagascar. Backlog for the quarter was $5.4 billion, up 20% YoY.

Government Services: The segment reported 2Q06 revenues of $816.2 million, up from $647.2 million a year ago, attributed to FEMA hurricane recovery work, reconstruction work in Iraq and the Fernald government cleanup project. The Company expects a significant drop in revenue from each of these sources in 2H06, as work in Iraq winds down, and the Fernald and FEMA projects are completed. New awards totaled $443 million in the quarter, up 27% from $350 million a year ago. Backlog was down 40% to $700 million from $1,165 million, reflecting high revenue burn in the first half of 2006.

Global Services: Revenue grew 26% during the reported quarter to $483.5 million from $382.8 million a year ago. New awards totaled $280 million, down 63% from $748 million a year ago. The largest award in the quarter was a renewal contract for maintenance work for TXU at several facilities, while other wins were seen as broadly diversified across the power, oil and gas, and industrial markets. Organic growth opportunities continue to support backlog growth. However, the lower book-to-burn ratio decreased backlog 19% to $2.5 billion.

Power: The segment reported $105.9 million in revenue as compared to $119 million in 2Q05, down 11% YoY. Strong front end engineering work continues to be awarded with larger field construction work for coal fired power plants to be recorded in future quarters. One analyst believes that strong front end activity awards and limited competition position FLR to be a prime beneficiary of the power cycle.

Margin

Margin details are as follows:

Gross Margin: 2Q06 gross margin of 4.7% expanded 153 basis points year over year but fell sequentially, attributable to higher than expected 1Q06 profitability from hurricane-recovery-related FEMA work as well as a winding down of the Fernald project. Corporate G&A increased on an absolute basis and as a percentage of revenue to $54.3 million or 1.6% of sales, attributed to $8.8 million headquarters reallocation expense, $3.4 million for FAS123R adoption, $3.3 million in higher compensation costs and a $3.6 million impairment charge on an investment. One analyst expects G&A to be down in 2007 on a YoY basis.

Oil and Gas: Operating margin was 5.9%, up 180 basis points as compared to the year-ago period. One analyst believes the second quarter of FY06 saw a continuation of the trend in which the lower-margin impact from FLR s work on mega projects is offset by a ramp in project starts where front-end engineering and design (FEED) work generally carries higher margins than the later-stage procurement and construction functions. Management indicated that this trend is likely to continue given the majority of new awards during the second quarter were for FEED work.

Industrial and Infrastructure: Operating margin of 2.4% was down 1,220 basis points as compared to the previous year's second quarter (which included an unfavorable jury verdict and additional costs on four embassy projects). Operating margin performance was driven by solid project progress and performance. Gross margin was 2.4% as compared to a negative 11.4% posted in the year-ago quarter.

Government Services: Operating margin of 3% was flat relative to the year-ago period as the benefits of FEMA work were seen as offset by $21 million of loss provisions related to two embassy projects and $8 million for higher costs to complete a project in Afghanistan. Management expects margins to be lower in 2H06, attributable to a slowdown of work in Iraq and FEMA disaster relief as well as completion of the Fernald project.

Global Services: Segment gross profit in the reported quarter increased 70% YoY to $39.9 million, attributable to strength in operations and maintenance, equipment services and temporary staffing units. The segment reported operating margin of 8.3% in 2Q06 as compared to 6.1% in 2Q05, up 220 basis points. The operating margin improvement was attributed to hurricane relief support work.

Power: The segment reported operating profit of $2.6 million in 2Q06 as compared $3.1 million, down 16.1% YoY. The operating margin of 2.5% was essentially flat with 2.6% reported in the year-ago quarter. Management stated that it expected projects of coal-fired power generation and scrubber projects to accelerate, and has increased spending to bid on such projects, which puts near-term pressure on operating margins.

Earnings per Share

Net earnings increased to $66.6 million, or $0.74 per share as compared to a loss of $16.4 million, or $0.19 per share in the same period last year. The outperformance was attributed to strong operating results in a variety of end markets including Oil & Gas, Government, Global Services and Industrial & Infrastructure.

2006 forecasts (Total 10) range from $3.17 to $3.35; the average is $3.22. 2007 forecasts (Total 10) range from $3.45 to $4.15; the average is $3.82. 2008 forecasts (Total 2) range from $4.50 to $5.00; the average is $4.75.

Management reiterated earnings guidance for the year to be in the range of $2.90-$3.20 per share.

Target Price/Valuation

The consensus price target from analysts publishing such a number is $103.14 (18.4% upside from the current stock price). The price target ranges from $95.00 to $110.00. A few analysts have not provided target prices. The lowest price target represents 9.0% upside, while the highest price target represents 26.3% upside from the current stock price.

Capital Structure/Solvency/Cash flow/Governance/Other

Cash at the end of the reported quarter was $584.8 million versus $654 million in 1Q06, and cash flow from operations during the first six months of the year was $243.9 million, which was mainly used to meet working capital needs for work related to FEMA.

Total debt was $559.9 million in 2Q06 , up from $481 million at the end of 1Q06. The debt-to-cap ratio decreased from 24.3% in 2Q05 to 23.8% in 2Q06.

Capex was $110.8 million at the end of the reported quarter, of which approximately $29 million was used for building the new headquarters.

On August 3, 2006, the Company declared a quarterly cash dividend of $0.20 per share on the Company s common stock, payable on October 2nd, 2006.

Long-Term Growth

The projected average long-term growth rate is 14.5%, with the highest and the lowest growth rate at 15.0% and 13.0%, respectively.

Fluors recent upturn in capital spending trends in both oil and gas and chemical markets are expected to provide significant cyclical leverage over the next two to four years, according to a number of analysts. Its core competency in oil and gas projects is seen as enabling it to capture significant opportunities over the next several years in upstream projects, LNG terminals, oil sands projects, and clean fuel works. One analyst expects upside in the chemical market, where ethylene capacity expansion is projected at 6% in 2006.

Looking ahead, the Company expects to see a favorable outlook in new projects. With few exceptions, major markets served are in a positive part of their business cycle, and FLR is seen as well-positioned to capitalize on broad-based, strengthening capital spending trends. In FY2006, the Company will begin work on a significant number of new multi-year projects.

Content Courtesy: Zacks Investment Research www.zacks.com

Richard Moroney, editor of the Upside newsletter, put together a list of nine companies that represent attractive picks for investors looking to add some truly cheap stocks to their portfolios. Read this featured expert's updates on a couple of these standout values, a developer and supplier of online casino and poker software as well as a maker of computer-controlled machines for the metalworking industry.

Commentary

A large body of academic research suggests value-related metrics work well with small and midcap stocks, and value metrics feature prominently among the most effective variables in Richard Moroney and his team's Quadrix® rating system. The Quadrix Value score — reflecting a weighted average of such ratios as price/earnings and price/cash flow, along with those ratios relative to historical norms — has been highly effective in real-time use since 2000 and in back-tests to 1980.

Historically, stocks cheap based on several valuation measures have provided especially good returns. The stocks listed below are cheap based on seven of the most effective Quadrix variables and earn Value scores above 91, placing them among the cheapest 9% of the roughly 5,000 U.S.-traded stocks in Moroney and his team's Quadrix universe.

Stocks are usually cheap for a reason, and the ones listed below face likely slowdowns in profit growth over the next year. Most battle in highly cyclical markets against larger rivals, and several face major company- specific risks. Owning just one or two of these stocks is a fairly risky proposition, which is perhaps one reason such stocks have compensated shareholders with above-average returns over the long haul.

Still, history suggests that holding a diversified basket of small and midcap value stocks is a winning strategy, and the 38 stocks on Moroney and his team's Buy List include 19 with Quadrix Value scores above 80.

The stocks listed below represent attractive picks for investors looking to add some truly cheap stocks to their portfolios.

At the end of June, Canada-based CryptoLogic (CRYP), a developer and supplier of online casino and poker software, had no debt and cash of $127 million, or more than $9 per share. Cash flow and free cash flow have trended higher in recent quarters, reflecting outstanding operating results. Per share earnings jumped 72% on a 43% sales gain in the first half of 2006, and strong growth should continue in the second half.

Hurco (HURC), a maker of computer-controlled machines for the metalworking industry, trades at a modest valuation despite outstanding operating momentum. Helped by strong sales of high-priced models, particularly overseas, revenue jumped 24% in the July quarter. Pretax income surged 70%, though net income was up 32% because of a higher tax rate.

The stock has been pressured by concerns about a possible industry slowdown. But new orders jumped 32% in the July quarter, with strong demand in Europe and Asia. U.S. orders were up only slightly in the July quarter. Hurco is stepping up production at its Taiwan facility to meet rising Chinese demand. It also recently opened a new technical center in Shenzhen, China.

Additional samples of the 9 standout values include:

PW Eagle (PWEI) is a leading extruder of PVC pipe and polyethylene tubing products. The Company operates eight manufacturing facilities in the midwestern and western United States.

Trico Marine Services (TRMA) provides a broad range of marine support services to the oil and gas industry, primarily in the North Sea, Gulf of Mexico, West Africa, Mexico and Brazil. The services provided by the Company's diversified fleet of vessels include the marine transportation of drilling materials, supplies and crews, and support for the construction, installation, maintenance and removal of offshore facilities.

Unit (UNT) is engaged in the land contract drilling of oil and natural gas wells, the development, acquisition and production of oil and natural gas properties, and the marketing of natural gas. Its principal areas of operations are located in the Anadarko and Arkoma Basins, which cover portions of Oklahoma, Texas, Kansas and Arkansas and has additional producing properties located in other states, including but not limited to, New Mexico, Louisiana, North Dakota, Colorado, Wyoming, Montana, Alabama and Mississippi.

6B) Polaris (PII)

Richard Rhodes, editor of The Rhodes Report newsletter, updates investors on world capital markets. Learn what this featured expert has to say about the relationship between Japan and China. Also, take a look at his analysis of the commodity markets. Afterward, discover some of the holdings that currently reside in Rhodes’ Paid-to-Play Portfolio.

WORLD CAPITAL MARKETS ARE “ON THE DEFENSIVE” THIS MORNING:

This after Friday’s good stock market gains amid a very lackluster volume day on the final day of the week most traders were supposed to be back from their summer holidays. Perhaps this week is when they return in earnest, and judging by the moves in the Asian and European shares markets this morning…they don’t like what they see, and are selling quite aggressively. In Asia, Japanese shares dropped -1.8% on lower-than-expected Jul machinery orders; in fact, they dropped by -16.7%...the sharpest amount in nearly 20-years, and it very well could have been in more if the government has kept statistics before April 1987! This says quite a bit given Japan was mired in a deep recession for all intents and purposes for the past 16 years.

Richard Rhodes and his team have noted before that Japan has benefited enormously from China’s moving higher on the world economic stage; but maybe…just maybe – China’s move to raise bank reserve requirements is starting to have the intended effect on investment trends, with Japan showing its ill effects. China sneezes and Japan catches a “cold”. Will other countries show the same ill effects? Time will tell, but Rhodes and his team note that both China and Russia have moved to raise banking reserve requirements…which will decrease the amount of funds available to the fractional lending system, which removes support for lending and investment….and does remove a bullish support from world stock prices at the margin.

Turning to the commodity markets – Rhodes and his team find them being sold “en masse” by the trading rooms around the world; the energy complex led by crude oil is down another $1.00 to $65.30/barrel; while natural gas is down -5.5% to $5.36/ mmBtu. The metals complex is “coming apart”; gold is trading down $17.20 to $600.10/oz; it did manage to trade briefly below $600/oz, and Rhodes’ team suspects it will try and hold this very large and round number. Silver is lower by 44 cents to $11.86/oz. As for the base metals, they are all lower…and sharply lower in the case of copper, aluminum and zinc – losing more than -3.5% in all cases; slowing demand is being called the culprit. And what makes these declines all the more relevant is the fact the US dollar is trading lower, which nearly always lends a bit to the commodity markets. Therefore, Rhodes and his team can only look upon this increase in volatility and prices declines as endemic to “taking risk off the table”, with the stock market soon to follow suit.

Holdings in the “Paid-to-Play” Portfolio include:

Polaris (PII) designs, engineers and manufactures snowmobiles, all terrain vehicles, motorcycles and personal watercraft and markets them, together with related replacement parts, garments and accessories through dealers and distributors. The company's line of all terrain vehicles consist of fourteen models includes general purpose, sport and four-wheel drive utility models. The company produces a full line of snowmobiles, consisting of thirty-three models, ranging from utility and economy models to performance and competition models.

Content Courtesy: Zacks Investment Research

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