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- NEW YORK -(Dow Jones)- Stock mutual funds saw an inflow of $1.09 billion during the week ended Wednesday, compared with an inflow of $3.78 billion during the previous week, according to TrimTabs Investment Research estimates.

- Including ETF activity, Equity funds report net cash inflows totaling $835 million in the week ended 9/27/06 with Domestic funds reporting net inflows of $307 million and Non-domestic funds reporting net inflows of $528 million;

- Money Market funds report net cash outflows totaling -$7.716 billion;

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

2A) (NAT) - Consensus estimates for this quarter soared 55.7% to 95 cents over the past 30 days:

2C) Donald Rowe, Wall Street Digest newsletter - Prepare for the Next Great Bull Market:

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

3A) Shareholder-friendly Companies

Paul Tracy, editor of the StreetAuthority Market Advisor newsletter, says investors don't have to fall victim to corporate excesses and accounting blow-ups. There are plenty of warning signs to look for and plenty of specific ways to identify highly-transparent, shareholder-friendly firms. Read about a few of the features this expert looks for in evaluating a company's shareholder friendliness.

FEATURE ARTICLE from September 1

It's hard to imagine that Dennis Kozlowski used to be regarded as one of America's most successful and highly respected chief executive officers. Kozlowski was once widely credited for Tyco International's (TYC) tremendous growth spurt in the 1990s.

Now, Tyco's ex-CEO is one of the world's best-recognized symbols of corporate greed and the devastating impact it can have on shareholders' investments. He has been sentenced to prison for misappropriating as much as $400 million from Tyco in his ten years at the helm. Among his more flamboyant expenditures: a $1 million birthday party in Sardinia for his wife and a $30 million New York apartment complete with $6,000 shower curtains, all largely paid for by Tyco. The ultimate losers in all of this extravagant spending were Tyco's owners -- the shareholders. Tyco stock plummeted as much as -80% off of its 2002 highs as news of the scandal broke.

Fortunately, managers and executives that commit misappropriations on the scale of Dennis Kozlowski are the exception rather than the rule. But just because there's no outright fraud or illegal acts doesn't mean a company's management team is being a proper, responsible steward of shareholder funds.

For instance, excessive pay packages aren't necessarily illegal, even for companies that are losing money or missing their profitability targets. The same is true of stock-option grants to managers or company-financed corporate jet use. In most cases, such expensive perks do very little to enhance shareholder value.

Take the recent options expensing scandal as an example. For years, companies did not have to legally report the options they issued to managers as an expense on their income statement. However, these options were a form of compensation. If the company's stock did well, managers would exercise the options and be issued shares, thus increasing the company's outstanding share count. That, of course, is the opposite of a share buyback and has the effect of diluting the value of a firm's existing shares.

And of course, poor accounting and financial transparency can be devastating for shareholders. Companies that only disclose the bare minimum during quarterly earnings releases tend to see more surprises and volatility in their stock; due to the lack of information, investors and analysts find it difficult to accurately evaluate their corporate prospects.

The use of aggressive, misleading accounting tricks to boost returns can lead to disastrous stock performance. Enron went bankrupt after revealing more than a billion dollars in losses held in off-balance sheet financing vehicles. However, some savvy investors were not at all surprised by Enron's corporate meltdown. In the years leading up to that announcement, many analysts had complained about the poor quality and lack of transparency in the company's releases. And more recently, shares of both Fannie Mae (FNM) and American International (AIG) swooned after those two companies announced accounting irregularities on a smaller scale.

Shareholder-Friendly Policies Lead to Outstanding Results

Fortunately, the concept of corporate stewardship cuts both ways -- companies with a history of aligning their interests with those of shareholders routinely outperform their peers. In addition, firms with highly transparent accounting policies and solid, complete disclosure are less likely to generate negative surprises for shareholders. And finally, companies that perform shareholder-friendly policies like stock buybacks and dividend distributions can directly enhance shareholder value.

Even better, investors don't have to fall victim to corporate excesses and accounting blow-ups. There are plenty of warning signs to look for and plenty of specific ways to identify highly-transparent, shareholder-friendly firms. Here are a few of the features Paul Tracy and his team look for in evaluating a company's shareholder friendliness:

Insider Ownership -- One of the easiest ways to know if management's interests are aligned with common shareholders is to look for management teams that are also major shareholders. For most companies, look for insiders to own at least 5% of the company's stock. For larger companies, Tracy and his team look for senior management to have equity stakes in the companies they manage that are significant relative to their annual salaries. When analyzing insider ownership, Tracy and his team pay particular attention to holdings owned by the CEO, CFO and COO. Typically, if an officer owns stock worth at least double his/her annual compensation, then this is a positive sign.

Share Buybacks -- Companies that continually buy back stock are directly boosting shareholders' stake in the firm. The effect is not on total earnings, but instead shows up on a company's earnings per share (EPS) -- total earnings divided by total shares outstanding. As a firm repurchases its shares, its existing shareholders own a larger and larger slice of the firm's earnings pie, thereby boosting EPS. This is one of the most shareholder-friendly policies a company can pursue.

Be sure to pay attention not only to a company's announced buyback plans, but also to the actual trend in the share count over time. When companies are buying back shares, the share count should consistently drop over time. Companies with buyback plans that have a stable or rising share count may simply be buying back stock to neutralize the effect of shares issued as compensation for employees.

Low Debt -- Bond and debt holders have first claims on a company's assets in the event of bankruptcy -- bondholders must be paid before shareholders get a dime. Therefore, managers of companies with an excessive amount of outstanding debt may be more focused on paying bondholders and meeting interest payments than on generating value for shareholders.

Perhaps even more importantly, companies with excessive debt loads carry a higher risk of folding when times get tough. The investment landscape is littered with bankrupt companies that took on piles of debt to fund aggressive expansion, only to flounder at the first sign of an economic slowdown. Typically, Tracy and his team prefer companies with debt-to-equity ratios (total debt divided by shareholder's equity) of less than 40%. Management teams that take on excessive debt are playing a high-risk game with your investment dollars.

High Return-on-Equity (ROE) -- Return-on-Equity is one of Warren Buffett's favorite financial ratios. ROE is calculated by dividing net income by shareholder equity. Since shareholder equity is a measure of shareholders' total investment in the firm, ROE is essentially a measure of how much value a company generates for shareholders. Shareholder-friendly firms tend to have higher ROE levels.

As a rule of thumb, Tracy and his team prefer to invest in companies with ROEs of close to 20% or higher. They also examine ROE ratios for several years and focus on companies with consistently high ratios.

Management Compensation -- The salaries of all company directors and senior managers are disclosed in financial statements. There is no hard and fast rule for what constitutes excessive compensation -- evaluating salary packages is somewhat subjective.

Be sure to examine the size of senior managers' salaries relative to the size of the company. Obviously, managers at a firm with $100 million in annual revenues should be earning less than managers at a multi-billion dollar behemoth. Moreover, evaluate compensation relative to performance. Some managers will actually take significant salary cuts when financial performance is poor. Compensation can even be tied to certain performance metrics. The details of managerial compensation packages are often disclosed in annual reports and company filings.

Options Issuance -- Earlier in today's article, Tracy and his team highlighted the potential dilutive effects of options. Issuing options to managers is not as common as it was in the late-1990s. New accounting rules regarding the expensing of options have made it less attractive to issue excessive options packages to employees and top company officers.

Nonetheless, some options or share compensation is not necessarily a bad thing, as management ownership aligns management's interests with shareholders. Just as with overall compensation, there's no hard and fast rule here. Options issuance should be examined relative to a company's size and financial performance. The same is true of shares a company issues directly to managers.

Exceptional Accounting Charges -- Exceptional charges are supposed to be one-time charges to account for unusual events such as legal settlements, inventory write-offs, or insurance deductibles. The idea of a one-time charge is that the expense does not reflect the company's normal course of business and should therefore be excluded from its normal operating results. By contrast, if charges are recurring events, then they should be accounted for as normal expenses.

But some companies take advantage of this accounting rule by regularly announcing "one-time" charges. By doing this, management can obfuscate expenses and make the business appear more profitable than it really is. While this trick can work for a little while, eventually a company's true fundamentals will become apparent. This sets up shareholders for some major negative surprises. As a general rule, you should avoid companies that post frequent one-time charges or sizeable accounting charges that aren't fully explained in financial statements.

Frequent Surprises -- No company meets or exceeds Wall Street expectations in every quarter. But some companies seem to constantly report earnings that are below expectations quarter after quarter. Usually, this results in large downside moves in the stock after each earnings report.

A few missteps can be forgiven, but if a company is serially disappointing Wall Street, then this can be a sign that management is misleading analysts. Alternatively, management may simply not be providing transparent information to investors so that they can form accurate expectations. Either way, continued disappointments may be a sign that a company is not as straightforward with the public as it should be.

Unusual Share Structure -- Be aware of companies that have multiple classes of shares, or shares that convey exceptional voting rights. Insiders often use these techniques to maintain control even if they only hold a minority position in the stock.

Alternatively, such shares may be evidence of what's known as a takeover defense -- a way for management to block hostile takeover attempts from other companies or private investors. Often, hostile takeovers lead to strong share price gains for existing shareholders. As such, takeover defenses generally do not create shareholder value. Instead, they merely provide added job security for top managers.

Source: http://www.zacks.com/experts/featured/view_article.php?art_id=2647&newsletter_id=148

Kelley Wright, editor of the Investment Quality Trends newsletter, says leave the chasing of returns to those that have yet to be enlightened. Find out what that means and learn about his investing criteria as well as his primary goals. Afterward, take a look at some of the stocks that reside in this featured expert's Timely Ten portfolio.

INVESTMENT OUTLOOK from September 15

Here it is mid-September, and instead of talking about how far the markets will decline, the Wilshire 5000 and Dow Industrials give every indication of making new all-time highs. Kelley Wright knows, there are myriad reasons why this shouldn't be happening, but the numbers are what they are.

So, now to the salient question; how does one participate? For the enlightened Trendphile, no new instructions are necessary; Wright and his team buy high quality Select Blue Chips at their historic level of Undervalue, hold them through their Rising Trend, and when appropriate, liquidate them when they reach their historic area of Overvalue. But that is what Wright and his team always do, you say. Exactly, and that is the point. Just because Mr. Market decides to take the indexes to a particular price is no reason to alter your long-term approach to safely building capital. The price of an index is just a number, not a measure of value.

Now, the dividend yield is also a number, but it is a number that represents a measure of value; a tangible cash return on your investment capital. Remember the admonition of Charles Dow, values, when applied to stocks, are determined in the end by the return to the investor.

Based on the popular indexes, the S&P 500 for instance, what has been the return to the investor? Well, since the market top in March of 2000 the S&P has yet to recover. This means that investors that purchased the index before the top are still upside down.

But the S&P rallied in 2003 and 2004 you say. True, but it still hasn't recovered from its bear market decline. Interestingly, John Hussmann, PhD, who runs two mutual funds at the company that bears his name, recently pointed out that since the S&P's intermediate peak in March of 2004, it has returned just a tad above the 3-month Treasury; pretty paltry when one compares the risk of the S&P with Treasury bills. In fact, Hussmann further reports, the S&P has underperformed the Treasury bill market going on eight years now.

So how does this square with Wright and his team's advice to stick to their knitting? The simple answer is they never let the market tail wag the investment dog. Wright and his team stick to their market of stocks that meets their Criteria because it provides the surest path to realizing their primary goals: protect principle, earn an immediate return on investment via dividends, and realize long-term total return by harvesting capital gains at Overvalue.

Solely seeking capital appreciation because an index, a sector, or an individual stock is hot is nothing more than pure speculation. Speculation, in Wright's view, is a crap shoot, and he as well as his team are not gamblers.

It bears repeating the question, how many opportunities have investors that purchased the indexes at the top back in 1999 and 2000 had to realize capital appreciation? The answer again, is none.

In comparison Wright and his team point to their Lucky 13 portfolio as an example of successful investing despite the machinations of Mr. Market. The first six years saw double digit gains and an average annual return of about 20%. Wright and his team's return of 8.0% last year was definitely below their norm but still beat the indexes and kept the annualized return since inception at about 18.0%. This year's Lucky 13 shows a total return so far of around 8.50%; not a barnburner by Wright's measures but comfortably ahead of the indexes and the Treasury market.

The current strength in the indexes notwithstanding, Wright and his team remain cognizant that their Undervalued category hovers around 10% of their Select Blue Chip universe. They also note that the yield on the Dow Industrials and the S&P 500 pales in comparison to the Treasury bill market.

Wright and his team interpret these facts as investors are taking on more risk in search of yield and return. In Wright's experience this usually ends badly. So his team cautions subscribers to remain resolute in adhering to Wright and his team's discipline of taking advantage of value when Mr. Market makes it available and to leave the chasing of returns to those that have yet to be enlightened.

Reviewed @: $15.61

California-based Applied Materials Inc. (AMAT or the Company) is engaged in the developing, manufacturing, marketing, and servicing of integrated circuit fabrication equipment for the worldwide semiconductor industry. Its integrated chips are built on a silicon wafer base and include various circuit components such as transistors and other devices that are connected by multiple layers of wiring. The Company manufactures systems that perform the primary steps in the chip fabrication process, including atomic layer deposition, chemical vapor deposition (CVD), physical vapor deposition, electrochemical plating, etch, ion implantation, rapid thermal processing, chemical mechanical polishing, and metrology and wafer inspection, as well as systems that generate, etch, measure, and inspect circuit patterns on masks used in the photolithography process. In addition, through its subsidiary, AKT, Inc., it manufactures CVD systems and array testers for making flat panel displays used in notebook computers, desktop monitors, televisions, and other applications. The Company markets and sells its products primarily in North America and Europe as well as in Japan, Korea, Taiwan, and Asia Pacific to semiconductor wafer manufacturers and semiconductor integrated circuit/chip manufacturers. The Company website is: www.appliedmaterails.com
Analysts have identified the following key factors for evaluating the investment merits of AMAT:

Key Positive Arguments

-Integration of the acquisition of Applied Films and success in the joint venture with Dai-Nippon screen are seen as improving the fundamentals of the Company.
-Analysts believe the Company is poised to gain share in CVD, PVD, etch, and implant arenas.
-Analysts detail the Company has a strong cash balance, leading to higher liquidity and financial flexibility.
-AMAT is not solely dependent on equipment revenue and could experience higher growth rates than its peers if the flat panel display and service sectors outgrow the organic equipment industry.

Key Negative Arguments

-Although the Company gained market share in 2004, it is increasingly lagging behind its peers, according to more bearish analysts.
-Cyclical nature of capital expenditure trends of the semiconductor companies, which is presently in the middle of a down cycle, causes volatility in earnings and revenue growth, according to analysts.
-The Company could fail to keep pace with technological developments in the industry, according to bearish analysts.
-Business is dependent on capital investment and could cause drains in the cash balance in upcoming quarters, according to analysts.

Note: AMAT's fiscal year ends on October 31; fiscal references differ from the calendar year.

Recent Events

On August 15, 2006, the Company announced that after more than 21 years with AMAT, Nancy H. Handel, senior vice president and Chief Financial Officer, will be retiring, effective January 5, 2007.

On August 15, 2006, the Company reported 3Q06 results. Highlights are given below: Total revenue was $2,540 million, up 13% sequentially and 56% y/y. Net income was $512 million, up 39% y/y and 24% sequentially.
EPS was $0.33, up $0.10 y/y and $0.07 sequentially.

Further details will be provided below.

On July 20, 2006, AMAT's management announced that it has completed the formation of sokudo Co., Ltd., a joint venture company.

On June 14, 2006, AMAT announced that its Board of Directors approved a quarterly cash dividend of $0.05 per share payable on the Company's common stock. The dividend is payable on September 7, 2006, to stockholders of record on August 17, 2006.

On June 13, 2006, AMAT announced the appointment of Robert H. Brust, Chief Financial Officer (CFO) of Eastman Kodak Company, to serve on its Board of Directors, effective immediately. Brust has also been appointed as a member of the Audit Committee and the strategy Committee.

Revenue

AMAT recorded 3Q06 revenue of $2,540 million, up 13% sequentially and 56% y/y due to strong demand from memory chip makers, particularly NAND flash, as well as market share gains particularly in etch and partially offset by a lethargic foundry market. Revenue was above the street consensus of $2,440 million and management guidance of 5%-10%. The Zacks compiled average for 3Q06 was $2,543.4 million.

Revenue Analysis

Memory orders continue to move higher, according to analysts. Total memory orders were 53% vs. 51% in 2Q06. AMAT did not forecast memory bit growth this quarter but suggested that NAND flash memory unit growth could exceed 60% in FY2006.
300mm systems accounted for 87% of total systems orders. One analyst believes that Logic and Foundries have no desire to add capacity and memory players have likely squeezed incremental capacity out. Virtually all silicon systems orders were for 100 nanometer and below-device production.

The book/bill ratio in the quarter was 1.05, with a backlog at $3.3 billion equaling about 117 days of revenue. The backlog increased to 10% and was attributed to the recently closed acquisition of Applied Films, whose backlog was folded into AMAT s.

Regionally, order growth was seen as strongest in Japan (up 26% sequentially) where sony pull-ins contributed to the strength in the quarter. Elsewhere, Asia Pacific and Taiwan also experienced double-digit growth sequentially (up 23% and up 19%, respectively) driven by order activity at TSMC, UMC, and China (foundries/lagging edge 200mm business). North America and Europe were relatively flat sequentially, while orders from Korea fell 22% sequentially following strong bookings in 2Q06.

New orders contributed $2,670 million (up 7% sequentially). strength was attributed to Flash (29% of bookings), up 30% sequentially, and Foundry (20% of bookings), up 26% sequentially. Both DRAM and Logic decreased sequentially. Backlog now stands at $3.32 billion, up 20% sequentially as it includes an additional $285 million in Applied Films bookings less $20 million in AMAT 200mm order cancellations.
During the quarter, six customers placed orders over $100 million similar to the previous quarter, and six customers placed orders for $50-100 million, flat sequentially. There were 16 orders between $10-50 million, up from 14 in 2Q06.

Margins

The Company recorded gross margin of 48.1% in the quarter (10 basis points down from the average as compiled by Zacks Digest), up from 46.5% in 2Q06 and 43.9% in 3Q05. The improvement was attributed to a favorable revenue mix and improvement in services gross margin. Revenue mix (silicon systems/flat panel display/service) was skewed higher to silicon systems, which carry higher margins. Incremental gross margin leverage was 60% and the pre-tax margin was 40%. Total operating expense was up 10% sequentially in spite of a 13% rise in revenue due to higher spending for incentive compensation and early investment in the Company's business transformation initiatives. Operating margin increased 170 basis points from 25.0% to 26.7% in the last quarter given the increase in gross margin. The average operating margin as compiled by Zacks Digest was 27.1%, up 210 basis points sequentially.

Margin improvement has been a key focus for the Company over the past 12-18 months, and analysts in general believe results are now being seen.

One firm believes that the Company has made significant progress in improving its operating leverage on both the gross margin line, as well as on the operating margin front. Initiatives on reducing cycle times (down to 100 days, or an improvement of more than 20% in the past year), material cost reductions and better factory utilization have all contributed to improved margins. However, the firm believes that over the next several quarters, these gains will be offset by the integration of the Company's recent Applied Films acquisition.

Another firm believes that the Company remained constructive on capital expenditure for FY07, pinning its reduced optimism on:
The beginning of a DRAM bit growth cycle catalyzed by consumer adoption of Microsoft's new Vista operating system; and
Much lower levels (30%-40% lower) of peak capital expenditure spending in FY06 as compared to the peak in FY04 which was heading into the inventory digestion phase in FY05.
As a percentage of sales, R&D declined modestly to 12% from 12.3% in 2Q06. sG&A increased modestly to 9.5% from 9.3% in the last quarter.

Earnings per share

AMAT recorded 3Q06 pro forma EPS of $0.33 in the quarter (in line with the Zacks compiled average), up from $0.26 in 2Q06 and $0.23 in 3Q05. This included stock option expenses of $54.0 million or $0.03 per diluted share and an in-process research and development charge of $14 million, or $0.01 per diluted share, associated with the acquisition of Applied Films Corporation. Tax benefit in the quarter was $34 million, or $0.02 per diluted share, primarily from a resolution of audits of prior years' income tax filings. GAAP EPS was also $0.33, up from $0.26 in the last quarter.
Most analysts attributed the increase in EPS to improvements in revenue and gross margin. Analysts also detailed that AMAT continues to outperform both on a fundamental basis as well as on a stock appreciation basis and that it could benefit from a near-term pickup in the industry and outperform during 2007, attributable to earnings leverage. It has yet to realize the benefits from its high foundry exposure, and its services and flat panel display businesses could provide sustainable EPS growth throughout the year, according to analysts.

2006 forecasts (21 total) range from $0.98 to $1.17; the average is $1.09. 2007 forecasts (21 total) range from $0.78 to $1.40; the average is $1.12.
One analyst believes that the Applied Films acquisition will have approximately a $0.01 -$0.02 negative impact to Applied Materials' earnings over the next few quarters, or about $0.04-$0.06 in FY07. Further, the firm suspects a much larger impact at the beginning (in 4Q06 and 1Q07) but sees the negative implications tailing off in each successive quarter through FY07.

Guidance

According to management, revenue guidance for the October quarter was $2.49-$2.59 billion growth of down 2% to up 2%, and the prior street estimate of $2.55 billion is within the range. EPS guidance was $0.33-0.34 and reflects $0.01 in dilution from the recently completed acquisition of Applied Films. The street was previously looking for $0.32 for the October quarter, based on slightly higher margin assumptions.
Order guidance is $2.62-$2.72 billion versus consensus estimates of $2.55 billion or ranges from down 2% to up 2% as management expects continued strength from NAND and DRAM capacity orders to be offset by weakness in foundry orders. Management sees excess inventory in the PC supply chain contributing to a pause in foundry and logic segment capacity growth plans while end-market strength in flat panel displays, laptop, wireless.

Target Price/Valuation

Target prices for AMAT range from a low of $14.50 to a high of $35.00, with an average of $20.81 ( from the previous report by $1.88). Most analysts have used a P/E methodology to value the shares; other valuation metrics include DCF analyses, long-term returns model and sum-of-the-parts models.

One analyst quoting the minimum target price of $14.50 rates the stock sell. Another analyst quoting the minimum target price of $14.50 rates the stock Neutral and has based the target price on 20x EPS of $0.70 to $0.75. The analyst quoting the maximum target price of $35.00 rates the stock Buy and based the target price on a ratio of target market capital and diluted share count. Of the 23 analysts covering the stock, 12 are bullish, 10 are neutral, and 1 provided a negative rating.

Capital structure/Solvency/Cash Flow/Governance/Other

Balance sheet

AMAT's balance sheet remains strong, according to analysts. Cash balance decreased by $671 million sequentially to $5.157 billion from $5.829 billion last quarter. This equates to $3.04/share in net cash at the end of the quarter. The majority of the cash decline (about $465 million) was attributed to the purchase of Applied Films Corporation which closed on July 7, 2006. The Company generated about

$372 million in cash from operations and $332 million in free cash flow ($0.21/share) in the quarter, below $471 million in the prior quarter. DSOs were 82 days, up slightly from last quarters 79 days and continued to be higher than the historical average of 75 days as total accounts receivable increased $345 million or up 17% sequentially. DIOs jumped sequentially to 93 days from 83 days, mostly due to the acquisition of Applied Films. Inventory days rose to 91 compared to 81 days last quarter as inventory increased by 24% sequentially or $259 million ($151 million was from its Applied Films acquisition).

Share repurchases

During the quarter, the Company spent about $500 million to repurchase about 31 million shares on the open market at an average price of about $16.30. This leaves the Company with about $4 billion remaining in its current stock repurchase program. In addition, the Company paid out about $78 million in the form of a $0.05/share quarterly dividend. The Company expects to repurchase about $400-$600 million in fiscal 4Q06.

Acquisition

One firm believes that The Applied Films acquisition will be accretive in late 2007 or early 2008 and in the near term it will be a slight drag on earnings. Further, the firm believes the sokudo joint-venture with Dai¬Nippon screen is a growth opportunity, with the track market estimate to grow to over $2 billion in 2008.

One analyst is encouraged by the Company's acquisition/joint-venture activity as (1) the deals should allow AMAT to better penetrate higher growth areas of the semiconductor market (i.e. lithography in the case of the sokudo joint-venture) and higher growth markets outside of the semiconductor market (i.e. LCD and solar cells in the case of the Applied Films acquisition), and (2) Applied has been focused on acquisitions in the services segment up until now, which had proven to be dilutive to gross margins. The analyst therefore views product acquisitions/joint ventures as an important strategic step in the right direction.

Addressable Markets

One firm suggests that AMAT continues to execute on its strategy to grow its addressable market to $38 billion by 2008 through acquisitions from an estimated $17 billion in 2004.
Other

On May 5, 2006, the Texas supreme Court issued an order in favor of suntron Corporation in its ongoing litigation against AMAT. The Texas supreme Court's decision allows the litigation to continue in Fort Bend County, Texas, the location of suntron's sugar Land manufacturing facility.
Update on semicon West Analyst Meeting
The theme of Applied's semicon West analyst meeting was to outgrow and outperform its industry and the market. To this theme, the Company highlighted a number of growth initiatives. According to one firm, AMAT can outgrow the WFE industry over the next several years, but execution is the key. For the near term, Applied Materials noted one of its leading indicators, customer demand for spare parts, remains strong. Management highlighted NAND flash memory as a key near-term business driver.

Potentially severe Problems

General risks, according to analysts, are as follows: supply/demand model or bottom-up model of the Company may cause the market to reach the wrong conclusion regarding the timing of the next upturn. A protracted downturn would most likely cause a decline in the stock price. The Company has undertaken a strategic initiative to increase its services business. This initiative may fail or may prove to be challenging.

Long-Term Growth

AMAT's long-term growth rate ranges from 6.0% to 21.0% with an average of 14.6%.

While the growth was boosted by increase in orders, one analyst believes the trend will not be sustainable in the near future, attributable to the following:
The significant inventory backlog in the semiconductor supply chain as evidenced by recent data points from Intel, ADI, Marvell, and the EMS companies. This inventory accumulation is consistent with the inventory trend chart, which shows the units are currently 11.0% above the historical graph. Traditionally, such a situation has led to an inventory downturn at AMAT.

There are several sub-segments of the semiconductor industry, which have begun to show signs of excess capacity, notably MPUs and NAND flash. While many analysts view MPU issues as Company-specific and the NAND flash excess supply and recent price cuts as a short-term phenomenon, the analyst believes any excess supply that results in even the smallest slowdown in orders from these segments would be problematic for sequential growth in orders.

However, analysts in general believe the two key differentiators for AMAT are its services group and Flat Panel Display equipment business. While these two segments are not expected to completely offset weakness in the core semiconductor business, these provide a potential for upturn and downside protection in the case of a downturn. Analysts believe if the semiconductor environment shows signs of weakness in 2H06, these segments could provide support to the Company as compared to peers that are essentially concentrated in the semiconductor equipment market.

One analyst believes growth opportunities are in the flat panel market. The Company currently addresses only 20% of the equipment in an LCD fabrication. Through the acquisition of Applied Films, the Company has increased its presence in the LCD market and the analyst expects it to leverage the acquisition and increase penetration in new LCD equipment markets.

Upcoming Events

November 8, 2006: 4Q06 Earnings AnnouncementComprehensive Multiple Page Report

Paul Tracy, editor of the StreetAuthority Market Advisor newsletter, says investors don't have to fall victim to corporate excesses and accounting blow-ups. There are plenty of warning signs to look for and plenty of specific ways to identify highly-transparent, shareholder-friendly firms. Read about a few of the features this expert looks for in evaluating a company's shareholder friendliness.

Shareholder-Friendly Firms

With these points in mind, Tracy and his team recently scoured the investment landscape in search of shareholder-friendly companies. Below, you'll find a few that fit the bill.

Automatic Data Processing (ADP) ADP is probably best known for offering payroll processing and information systems to employers. However, the company also offers a variety of other business services, including transaction processing and insurance claims processing. Handling payroll and accounting services for businesses is a very attractive market. ADP's systems handle all tax considerations, wire funds or issue checks, and track employee information. Once a company signs up for ADP's services, it would be time-consuming and expensive to switch providers. As a result, payroll processing is considered a "sticky" business. Moreover, ADP has an opportunity to sell additional services to its enormous base of existing customers. ADP's management team owns just 1.5% of the firm's outstanding share count. Therefore, on the surface, it might not seem as though management's interest are aligned with shareholders' interests. However, when you take a look at the firm's top insider holdings, the picture looks much brighter. For example, Automatic Data's CEO earned a touch over $1.43 million last year and owns nearly $20 million worth of stock -- a significant financial investment. Moreover, ADP has tied its compensation plan to financial performance. With no debt and a return on equity of 19%, ADP has a proven track record of generating shareholder value.

This article highlights the commentary of Paul Tracy for the Zacks.com audience. Paul Tracy provides insightful analysis, market commentary, and favorite recommendations on a timely basis in "StreetAuthority Market Advisor" newsletter. Try it free for 30 days and see if you can improve your investment performance. Learn more about "StreetAuthority Market Advisor" and 30-Day Free Trial. And get immediate access to current issues and special reports. Click here now.

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STOCK OF THE MONTH: September 2006

Market Cap – $375 million — Shares Outstanding – 39 million — Buy Below – $13/share

Company Profile

Smith & Wesson (SWHC) is the largest manufacturer of handguns in the United States and the largest U.S. exporter of handguns. It manufactures revolvers, pistols, and related products and accessories for sale primarily to gun enthusiasts, collectors, hunters, sportsmen, protection— focused individuals, public safety agencies and officers, and military agencies in the United States and throughout the world. It also markets tactical rifles. The company has manufacturing facilities in Springfield, Massachusetts, and Houlton, Maine, both of which are primarily used to manufacture its products. In addition, the company pursues opportunities to license its name and trademarks to third parties for use in association with their products and services. It plans to increase substantially the product offerings and licensing program to leverage the 150— plus— year— old “Smith & Wesson” name and capitalize on the goodwill developed through its historic American tradition by expanding consumer awareness of products it manufactures or licenses in the safety, security, protection, and sports markets.

Based upon 2004 reports by the U.S. Bureau of Alcohol, Tobacco, Firearms, and Explosives (or ATF), the company believes the

domestic and export nongovernment market is approximately $138 million for revolvers and $467 million for pistols, with its current market share being approximately 38% and 10%, respectively; and $510 million for rifles, $346 million for shotguns, and $132 million for tactical rifles, with its current market share being less than 2% in the tactical rifle market.

The company’s wholly owned subsidiary, Smith & Wesson Corporation, was founded in 1852 by Horace Smith and Daniel B. Wesson. Mr. Wesson purchased Mr. Smith’s interest in 1873.The Wesson family sold Smith & Wesson to Bangor Punta Corporation

in 1965. Lear Siegler Corporation purchased Bangor Punta in 1984, thereby gaining ownership of Smith & Wesson. Forstmann Little & Company purchased Lear Siegler in 1986 and sold Smith & Wesson shortly thereafter to Tomkins Corporation, an affiliate of UK— based Tomkins PLC.They purchased Smith & Wesson from Tomkins in May 2001 and changed its name to Smith & Wesson Holding Corporation in February 2002. (Source: Company 10K Report)

Why I Like It

Management has been able to generate a return on equity of over 21 percent over the past year. Profits margins have been trending higher over the last several years. Close to 25 percent of the outstanding shares are held by insiders who have a vested stake in the success of the company.

Projection

According to my numbers, this is a stock that should be selling in the low $20s over the next three to five years. It is currently trading in the $10 range, so SWHC has a large upside potential. Place a sell stop at 25 % below your entry price. As the stock rises, continue to raise your stop so that you are trailing the Friday close by 25 %.

Contact Information: 2100 Roosevelt Avenue • Springfield, Massachusetts 01104 Phone: (800) 331— 0852 • www.smith-wesson.com

Courtesy: www.stealstocksonline.com

6B) PPG Industries (PPG)

Reviewed: July 26, 2006 @: $62.60

Overview

PPG Industries, Inc. (PPG or the Company), incorporated in Pennsylvania in 1883, is a leading chemical company. The Company focuses on areas such as automotive original, refinish, industrial, aerospace, packaging, and architectural coatings; flat glass, automotive original and replacement glass, aircraft transparencies and continuous-strand fiber glass; and chlor-alkali and specialty chemicals.

PPG has three business segments: Coatings, Glass and Chemicals. The Coatings segment (55% of revenue) supplies a variety of decorative and protective coatings & finishes, adhesives, sealants and metal pre-treatment products. This segment also provides technical, engineering, and purchasing services for automotive, aerospace, industrial, packaging, and aftermarket applications. The Glass segment (25% of revenue) supplies flat, fabricated, and continuous-strand fiberglass for residential and commercial construction, automotive original and replacement markets, as well as industrial applications. The Chemical segment (20% of revenue) provides chlor-alkali and specialty chemical products. The Company's client base is significantly concentrated in the U.S., and the region accounted for about 64% of revenue. Canada and Europe accounted for approximately 7% and 21%, respectively, while 8% of revenue was generated by other countries.

These are the major issues to consider when assessing this stock, according to analysts:

Key Positive Arguments

-Strengthening chlorine and caustic markets
-Manufacturing efficiencies
-Strong volume growth
-Strong free cash flow
-Healthy balance sheet
-Improving economy
-Continued expected strength in the chlor-alkali market

Key Negative Arguments

-High pension expenses
-Lack of pricing power
-Lower automotive demand
-Possible slowing economic demand
-High natural gas and raw material prices

Of the 10 analysts covering the stock, 4 gave positive ratings and 6 gave neutral ratings. No analyst provided a negative rating.

Further information on the Company can be found at: http://www.ppg.com/
NOTE: The Company's fiscal year ends on December 31; all fiscal references coincide with the calendar year end.

Recent News

On June 29, 2006 industrial piping and construction-supplies company, Ameron International Corp., announced it will sell its coatings unit to PPG for $1 15 million.

On May 1, 2006, PPG announced it acquired certain assets of Eldorado Chemical Co., a privately-held maker of paint strippers and technical cleaners for the aerospace industry.

On April 28, 2006 PPG announced it is expanding its presence in the Chinese architectural coatings market and has agreed to acquire certain assets of Shanghai Sunpool Building Material Co., Ltd., and its associated companies, including Shanghai IDI International Co., Ltd., and a group of Shanghai-based businesses that manufacture and distribute coatings and building materials.

On April 20, 2006 PPG announced it raised its quarterly dividend and will repurchase 10 million shares of its common stock.

Revenue

Total revenues were $2,824.0 million in 2Q06 as compared to $2,656.0 million reported in 2Q05, up 6.3% year over year.

Segment revenue details are as follows:

Coatings: 2Q06 sales increased $129 million or 9% year over year, attributable to higher volumes especially in Asia and Europe, improved selling prices, the impact of acquisitions, and the positive impact of stronger foreign currencies across most businesses.

Glass: 2Q06 sales increased $30.0 million or 5% year over year owing to higher volumes across most businesses and acquisition-related sales increases.

Chemicals: 2Q06 sales increased $9.0 million or 1% year over year, attributable to higher selling prices for chlor-alkali products and increased optical sales based on organic growth and acquisitions. These increases were partially offset by lower volumes for chlor-alkali products.

For FY06, analyst forecasts range from $10,730.0.0M to $10,980.0M, with an average of $10,840.6M (compared to a previous estimate of $1 1,033.9M). For FY07, it ranges from $10,950.0M to $1 1,310.0M, with an average of $11,156.1M
(compared to a previous estimate of $10,935.0M).

Margins

In 2Q06, PPG's operating income increased 12.55% from $376.0 million to $423.2 million. Pre-tax income increased 9.05% to $392.6 million from $360.0 million recorded in the prior-year quarter.
Coatings: 2Q06 operating earnings were up $62 million, attributable to higher selling prices and volumes and higher other income resulting from favorable insurance settlements. The increases were partially offset by a negative impact from inflation, higher raw material costs, and higher overhead expenses, primarily related to growth initiatives in architectural coatings.

Glass: 2Q06 operating earnings were down $4 million, owing to the impact of inflation and lower equity earnings and legal matters. These were substantially offset by lower manufacturing and overhead costs.

Chemicals: 2Q06 operating earnings were down $15 million; primarily reflecting the impact of higher inflation as well as higher environmental charges and manufacturing costs. Decreases were partially offset by higher selling prices from chlor-alkali.

One analyst expects to see margin expansion in Coatings, attributable to higher volumes and more stable raw material costs. Further, the analyst sees the potential for higher prices, which will support a margin recovery in Coatings and healthy commodity margins in 2006. Despite the recent downward revision in the alumina caustic price, the analyst expects chlor-alkali profitability to remain relatively stable in 2H06, which will reflect limited new supply, healthy demand and well-behaved natural gas. Yet another analyst forecasts a margin recovery in 2006 for the Coatings division, which could continue to increase toward the 15% level.

Earnings per Share

In 2Q06, PPG posted net income of $259.8 million or $1.57 per share as compared to $231 million or $1.42 per share in 2Q05.

One analyst raised FY06E EPS from $5.20 to $5.30 to reflect 2Q06 upside. The analyst also raised FY07E EPS from $5.50 to $5.60 based on expected accretion from recent M&A activity. Another analyst raised 2006E EPS from $5.27 to $5.40 based on continued volume growth and strong margins from coatings through 2007. Further, the analyst expects PPG to enhance EPS with smart, small mid-size acquisitions financed by a strong balance sheet and robust free cash flow generation. One analyst raised 2006 EPS estimates to $5.39 from $5.25 to account for tax recoveries in 2Q06. Another analyst raised FY06E and FY07E EPS from $5.15 and $5.00 to $5.20 and $5.10 respectively, in order to reflect the 2Q06 outperformance and continued momentum in growth businesses. Another analyst raised FY07 estimates to $5.05 from $5.00 to reflect higher expected natural gas costs and tougher chlor-alkali which might offset margin expansion in Coatings.

Highlights from the above chart are as follows:

2006 forecasts range from $5.10 to $5.40; the average is $5.25. 2007 forecasts range from $5.05 to $5.65; the average is $5.25. 2008 forecasts range from $4.80 to $4.91; the average is $4.86.

Target Price/Valuation

The average Zacks Digest price target quoted by the analysts providing such a number is $70.25 (from $69.74 published in the previous update). Price targets range from $64.00 to $79.00, with a median price of $70.00. Most analysts have used a P/E based methodology to arrive at the target price.

The analyst with the lowest target price applied a price/forward earning and firm value/forward /EBITDA, while the analyst with the highest target price has used a 2007 P/E of 14x and an adjusted EV/EBITDA of 7.8x to compute a valuation. Valuation targets by individual analysts vary significantly because of differences in valuation techniques and underlying model assumptions.

Capital Structure/Solvency/Cash Flow/Governance/Other

One analyst believes $250 million has been spent on acquisitions and 750,000 shares were repurchased so far in 2006. Another analyst expects PPG in 2006 to generate $1.19 billion in cash from operations based on higher Coatings earnings, which will further lead to free cash flow of $875.0M or a FCF yield of 8.1%. Further, the analyst expects PPG to use FCF to make a pension contribution of $100 million-$200 million and pursue acquisitions in Coatings and Optical products. Another analyst expects FY06 capital expenditure and acquisitions to be between $300 million- $400 million. Further, the analyst expects PPG to make a voluntary pension contribution of not more than $250 million. Another analyst expects PPG to generate significant free cash flow over the next two years and believes the Company has a strong balance sheet with a debt/capital ratio of 28%, excluding asbestos liabilities. One analyst expects PPG to contribute up to $200 million for pensions in 2H06 and about $450 million for the asbestos settlement. Another analyst expects PPG to generate $1 billion of operating cash flow for the fourth consecutive year, and also go for additional small acquisitions and share repurchases.

Potentially Severe Problems

Analysts remain concerned about economic slowdowns, capacity overbuilds, product liability lawsuits, regulatory changes and currency fluctuations. Higher natural gas, soda ash and solvent prices could pressure margins.

Long-Term Growth

The estimated long-term EPS growth rate expected by analysts ranges from 7% to 14%; the Digest average is 9.8%.

Analysts believe that despite improvements in topline growth, the chemical industry is likely to show slow growth overall. Demand is growing but at a very slow pace. Demand for chemicals tracks industrial production and GDP very closely. Low interest rates engineered by the Federal Reserve have allowed for a broad-based improvement in the economy; however, it has been steadily increasing rates.

Petrochemical margins are seen as under pressure because of sharply higher crude oil and natural gas prices. Most analysts believe oil is a leading indicator of demand. PPG and other chemical stocks could rally on any initial oil price declines. However, analysts note this strategy becomes more risky the longer oil prices remain high. Additional price increases are more difficult; and valuations may compress because of the higher risk, as they appear to have done recently.

Analysts believe that with the energy sector under increased scrutiny, chemical companies, which also depend on hydrocarbons for raw materials, warrant more attention.
Upcoming Events

3Q06 earnings announcement (expected) October 19, 2006

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