MAJOR PAPERS:

• The Wall Street Journal reported that is is not yet certain whether Merrill Lynch & Co Inc (NYSE: MER) will need to raise money. If it does, selling common stock could be expensive due to a 12-month protection the bank offered the investors that bought $12B in common and preferred shares earlier this year and selling assets like its interest in Bloomberg may present a different problem.
• The Wall Street Journal also reported that investigators from the European Union are probing deeper into the pharmaceutical industry in an effort to determine whether drug companies have used unfair tactics to increase prices and block competition. Investigators have reportedly ask for views on direct-to-pharmacy distribution channels, which Pfizer Inc (NYSE: PFE) and AstraZeneca Plc (NYSE: AZN) recently established in Britain.
• After Anheuser-Busch Companies Inc (NYSE: BUD) said it would reject InBev's $46B bid as "financially inadequate," InBev said it would launch a hostile bid. According to court documents, the Financial Times reported that InBev is preparing to launch a proxy battle seeking the removal of Anheuser's entire board.
• The Financial Times also reported that soaring energy prices are forcing U.S. consumer goods company The Procter & Gamble Company (NYSE: PG) to rethink how it distributes products. The company may consider shifting manufacturing sites closer to consumers in order to lower its transport bill.

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MOST NOTEWORTHY:

• Credit Suisse downgraded shares of UBS (NYSE:UBS) to Neutral from Outperform as they believe UBS will have difficulty rebuilding the franchise and do not expect a quick recovery for its private bank unit.
  
• Wachovia downgraded Coventry Health (NYSE:CVH) to Market Perform from Outperform citing concerns regarding visibility around higher than expected inpatient/outpatient costs following reduced 2008 guidance.
  
• UBS downgraded Express Scripts (NASDAQ:ESRX) and Medco Health to Neutral from Buy citing the Pfizer (NYSE:PFE)/Ranbaxy settlement, which reduces the likelihood of a generic Lipitor launch in 2010.

• Goldman downgraded ENI SpA (NYSE:E) to Neutral from Buy and removed the stock from the Pan-Europe Conviction Buy List.
  
• Huntsman (NYSE:HUN) was downgraded to Underperform from hold at Jefferies.
  
• Commercial Metals (NYSE:CMC) was cut at Citigroup to Hold from Buy.

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According to FORTUNE, Google Inc. (NASDAQ: GOOG)'s YouTube is experimenting with longer videos and full-length content that would be more appealing to advertisers. YouTube is often going after independent film directors and is poised to make a major announcement at the Los Angeles Film Festival this week.

Pfizer Inc. (NYSE: PFE) said Wednesday that it has agreed to settle patent litigation with India-based generic drugmaker Ranbaxy Laboratories Ltd. where Ranbaxy will obtain a license effective Nov. 30, 2011, to sell generic versions of Pfizer's cholesterol-lowering drug Lipitor and high blood-pressure and cholesterol treatment Caduet in the U.S. PFE shares are up 2.7% in premarket trading.

According to the Wall Street Journal, Boeing (NYSE: BA) may have to forgo its plans to sell its aerial-refueling tankers to overseas buyers if it loses a protest against the U.S. Air Force's decision to buy its tankers from rival Northrop Grumman (NYSE: NOC).

And the exodus at Yahoo! Inc. (NASDAQ: YHOO) continues with Flickr co-founders, Fake and Butterfield, this time quitting.

Last, but not least, Morgan Stanley raised its price target on Apple Inc. (NASDAQ: AAPL) from $185 to $210.

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Panera (NASDAQ:PNRA) is up over 5% on improved guidance.

Pfizer (NYSE:PFE) is up almost 2% on news it has settled a patent dispute.

Ambac (NYSE:ABK) is down over 4% in what appears to be a general sell-off in insurance stocks.

Gannett (NYSEL:GCI) is down almost 3% after posted poor ad revenue for May.

Stocks may trade lower in the premarket than they do in the regular session.

Douglas A. McIntyre is an editor at 247wallst.com.

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• Cardinal Health (NYSE: CAH)
• Chevron Corp (NYSE: CVX)
• Exxon Mobil (NYSE: XOM)
• General Dynamics Corp (NYSE: GD)
• Goldman Sachs Group (NYSE: GS)
• JPMorgan Chase (NYSE: JPM)
• Northrop Grumman (NYSE: NOC)
• Pfizer (NYSE: PFE)
• Raytheon Company (NYSE: RTN)

• Automatic Data Processing (NYSE: ADP)
• Adobe Systems (NASDAQ: ADBE)
• Avon Products (NYSE: AVP)
• Black and Decker (NYSE: BDK)
• Cisco Systems (NASDAQ: CSCO)
• Coca-Cola (NYSE: KO)
• Costco Wholesale (NASDAQ: COST)
• Kraft Foods'A' (NYSE: KFT)
• Suntech Power Hldgs ADS (NYSE: STP)

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MOST NOTEWORTHY:

• JP Morgan downgraded Allegheny Tech (NYSE:ATI), Carpenter Tech (NYSE:CRS) and Haynes (NASDAQ:HAYN) to Neutral from Overweight based on the decline in nickel prices and its impact on nickel-based metals demand on valuation, as they find the risk/reward less attractive following the recent rally and increased raw material costs.
  
• Oppenheimer downgraded shares of Motorola (NYSE:MOT) to Underperform from Perform after channel checks indicated the company could miss Q2 handset guidance and continued market share losses.
• UBS said the risk/reward profile for owning Machinery stocks given macro challenges and valuations. The firm downgraded Caterpillar (NYSE:CAT) and Kennametal (NYSE:KMT) to Sell from Neutral and United Rentals (NYSE:URI) and RSC Holdings (NYSE:RRR) to Neutral from Buy. Additionally, shares of Paccar (NASDAQ:PCAR) were cut to Sell from Neutral and Navistar (OTC:NAVZ) was downgraded to Neutral from Buy due to weak U.S. truck demand.
  

• Jefferies cut Hercules Inc (NYSE:HPC) to Hold from Buy.
  
• Goldman downgraded Pfizer (NYSE:PFE) and DirecTV (NASDAQ:DTV) to Neutral from Buy.
  
• Regeneron (NASDAQ:REGN) was downgraded to Neutral from Outperform at Credit Suisse.

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"You can invest for all the right reasons and still get the wrong result," notes long-standing turnaround stock expert George Putnam, referring to the poor performance of the pharmaceutical sector in recent years.

Here, in his industry-leading The Turnaround Letter, he offers a fascinating review of 10 leading drug stocks which he now believes offer a combination of growth potential at "pretty cheap" valuations. Here is his overview.

"In 2000 and 2001, when the Internet boom was becoming a bust, many smart investors turned away from technology stocks and put their money into drug stocks. How could you go wrong with the big pharmaceutical companies?

"Demand for their products was growing as the population aged. These companies had huge research
and development programs that seemed to keep cranking out new blockbuster drugs. And most of them had great balance sheets, with many paying handsome dividends.

"Much of this reasoning has been borne out in the intervening years. Many large drug manufacturers have rung up substantial revenue gains over the last decade. So what's happened to the big drug stocks? With few exceptions they have gone sideways or down - in some cases down a lot.

"What happened? With the benefit of hindsight, we can see that while they were indeed great companies (and still are), their stocks were overvalued. Investors gradually realized that these companies did face risks - generic competition, shifting regulatory winds and product liability lawsuits, to name a few.

"Now, as often happens, the markets may have gone too far in the other direction, and the big drug stocks look pretty cheap. The growth potential is still there, but the risks are pretty well priced into the stocks.

"Moreover, many of the dividends are even richer today, which gives you some downside protection in case the markets remain volatile. We highlight below ten large pharmaceutical makers whose stocks look particularly attractive to us right now.

"Abbott Laboratories (NYSE: ABT) recently reported quarterly results that showed double-digit revenue and earnings gains.

"But the stock has sold off to trade near its lows of the last 16 months and only marginally higher than levels of early 1999! With a forward P/E below 15 and a dividend yield of 2.9%, Abbott is well priced to reward patient investors.

"AstraZeneca (NYSE: AZN) has gone nowhere for a decade, despite revenues having grown from $5.5 billion to $29.6 billion. The major difference being that investors in 1999 were willing to pay as high as 75x earnings, but now are unwilling to pay even 10x expected earnings for 2008.

"In addition to the industry's general malaise, AstraZeneca has some integration issues from recent acquisitions. But once it sorts those out, the stock should perform well.

"Bristol-Myers Squibb (NYSE: BMY) is streamlining. It recently sold its medical-imaging unit and plans to divest half of its 27 manufacturing facilities, cut its work force by 10% and spinoff up to 20% of its nutritionals business.

"Meanwhile, it is also building a pipeline of new products. With the stock recently trading at the same level it did in 1991, it seems that mainstream investors have given up on Bristol-Myers, which provides an opportunity for those willing to go against the crowd.

"Eli Lilly & Company (NYSE: LLY) is generally recognized for having a more diversified drug portfolio and a deeper pipeline than many in the industry. Nevertheless, the stock trades at low multiples right along with its industry peers.

"Management isn't sitting idle. In addition to spending a formidable 18.7% of sales on developing the firm's pipeline, it is also pursuing strategic acquisitions.

"The valley at GlaxoSmithKline (NYSE: GSK) appears to be about 18 months to two years wide. That's how long it will take, according to the company's CEO, for it to be marketing newer products and for generic competition to erode.

"In the meantime, management is making acquisitions to build out its portfolio and streamlining operations in order to sustain profitability. In case you have to wait a bit for GlaxoSmithKline's stock to rebound, there is an attractive 5.7% dividend yield.

"Johnson & Johnson (NYSE: JNJ) is seen as a more stable competitor due to a more diverse operating
base. Pharmaceuticals account for about 41% of total sales, with medical/diagnostic products at 35% and consumer personal care products at 24%. The stock has acted better than most, but it has made little net progress in the last six years.

"Merck (NYSE: MRK) has faced formidable headwinds ever since it was forced to pull Vioxx from the market in 2004. More recently, the firm's Vytorin and Zetia have faced challenges to their effectiveness, and Fosamax is facing increasing generic competition.

"Not surprisingly, the stock has taken a hit, falling more than 30% from its January 2008 level. But based on cost-cutting initiatives and sales of its cervical-cancer vaccine, Gardasil, management recently reaffirmed earnings guidance. Maybe the glass is half full.

"Pfizer (NYSE: PFE), the world's largest pharmacglaeutical company, reported disappointing quarterly results that pushed the stock below $20 for the first time since 1997.

"Competition for two of its leading products Norvasc (blood pressure) and Zyrtec (allergy), strict labeling requirements for Chantix (Pfizer's newer antismoking medication) and lackluster sales for Lipitor combined to hurt results. With a forward P/E below 8, it would appear that investors are assuming a pharmaceutical Armageddon.

"The latest quarterly results at Schering-Plough (NYSE: SGP), according to at least one article, 'trounced Wall Street expectations.' And, indeed, the stock has rallied a bit, but only after it had fallen to its lowest price since 1996.

"The results benefited from more rapid assimilation of last year's $14.5 billion acquisition of Organon BioSciences, strength in the U.S. dollar, overseas demand, growth in the firm's animal health segment and revenues from its joint venture with Merck covering Vytorin and Zetia. Despite the good news, the stock is off more than 40% from its level a year ago.

"Wyeth (NYSE: WYE), formerly American Home Products, continues to struggle with product liability issues and generic competition.

"Management is rethinking the company's business model. But there are bright spots in the outlook, including the recent approval of the firm's Pristiq antidepressant drug and a new drug pipeline that offers significant diversity."

Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.

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Before the bell: Futures mixed ahead of GDP; after COST, SHLD reporting

The chief executives of UAL Corp. (NASDAQ: UAUA) United Airlines and US Airways (NYSE: LCC) are set to meet today to discuss a possible deal despite concerns that threaten the deal, according to two people briefed on the discussions, the AP reported. Stocks of both airlines are up over 2% in premarket trading.

In other deal news, Yahoo (NASDAQ: YHOO) CEO Jerry Yang said that Yahoo is not a company under siege and that he is still waiting for a clearer proposal from Microsoft Corp. (NASDAQ: MSFT) about a possible partnership between the two firms. He said said that Yahoo "did not walk away from the proposal - Microsoft did. We were willing to do the deal on the right terms."

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Chantix, an anti-smoking drug from Pfizer (NYSE: PFE), would seem to be good for people. Smoking causes heart and lung problems and who knows what else. The trouble with the drug is that it seems to cause heart problems, called cardiac arrhythmia, all on its own. That seems counter-productive.

The drug may also make some people crazy, at least to the level of causing suicide and depression in a portion of patients.

The Institute for Safe Medication Practices said, "Based on the data available now, the existing warnings are completely inadequate," according to The Wall Street Journal.

The news points to an ongoing problem in the drug industry. Big Pharma wants to get products to market fast and sell as much as it can. Many of the current drugs that get them revenue are going "off patent" and will be sold by generic drug companies. That kills most of the profits on the treatments.

But, in the race to get the drugs out, it seems that side effects are overlooked and overlooked often.

Profits versus people being sick or dead. Hard decision.

Douglas A. McIntyre is an editor at 247wallst.com. and author of the Ten Stocks Under $10 letter.

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MAJOR PAPERS:

• Future crude oil supplies may be a lot tighter than thought. That is what the International Energy Agency in Paris is expected to find when it releases its assessment of the world's 400 major oil fields in November, according to the Wall Street Journal, a reversal from previous reports and is based on a lack of investment and aging oil fields.
• The Institute for Safe Medication Practices, a nonprofit safety organization, found serious side effects linked to Pfizer Inc's (NYSE: PFE) Chantix, a smoking cessation drug. Chantix, which has been banned by the FAA for use by pilots and air-traffic controllers, is already tied to psychiatric issues, including depression and suicide, according to the Wall Street Journal, and the report also points to heart trouble, seizures and diabetes.

• The New York Times reported that the Jacksonville Police and Fire Pension Fund has accused American International Group Inc (NYSE: AIG), along with several of its executives, of inflating its stock price artificially by understating the company's exposure to the subprime mortgage crisis. According to the lawsuit, AIG's Q1 loss of $7.8B shocked investors because the insurance giant assured them that any losses on credit insurance "would be limited".
• Following speculation a Chinese entity would look to take a stake in Australian miner BHP Billiton Limited (NYSE: BHP), Huang Tianwen, the president of Sinosteel Corp, said the company has not formed a bid for the firm. The Australian reported that Chinese steel mills may look to buy into iron ore miner Fortescue Metals Group.

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• Eli Lilly & Co. (NYSE: LLY) is awaiting approval for Enzastaurin, its non-hodgkin's lymphoma drug late 2010 / early 2011 and for Arzoxifene for osteoporosis and prevention of breast cancer, and also has quite a list of oncology drugs clinical trials going on. The company says a new study showed Alimta delayed growth in lung cancer when used soon after initial chemotherapy. This could support broader use of Alimta, which had $854 million in sales last year.
• Pfizer said that study results across several difficult-to-treat cancers will be presented at ASCO. Most notable, though, is Pfizer's tests for Sutent for use in breast cancer, perhaps competing with Avastin there.
• GlaxoSmithKline PLC (NYSE: GSK) announced that its Tykerb drug combined with Genentech's Herceptin increased progression-free survival in women with HER2-positive, advanced breast cancer to 12 weeks versus 8.1 weeks for Tykerb alone.
• Bristol-Myers Squibb (NYSE: BMY), which co-markets ImClone Systems' (NASDAQ: IMCL) colon cancer drug Erbitux -- another example of a best-seller cancer drug from a smaller company -- was mentioned by 100 study abstracts. As for Erbitux, though, its sales could be hurt from studies that showed the drug is useless in nearly half of colon cancer patients and that now a simple gene test could determine compatibility ahead of time. Amgen's Vectibix will likely be affected by these findings as well.
• Speaking of Amgen Inc. (NASDAQ: AMGN), it also provided an abstract to a study that showed that according to early test results, its experimental drug Denosumab was more effective than Novartis's Zometa in halting cancer's spread to bones and preventing fractures in cancer patients.

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Before the bell: Futures lower ahead of CPI

Macy's (NYSE: M), which was forecast to report a loss of a penny a share in the first quarter, said the difficult retail environment hurt sales and it incurred costs from a restructuring. The loss came to $59 million, or 14 cents a share, compared with a profit of $36 million, or 8 cents a share, a year earlier. (As the numbers are quite fresh, it's possible they include one-time item not yet sorted out and not comparable to analyst expectations.)

John Deere (NYSE: DE) said its second-quarter profit rose 22%. Deere experienced increased demand for its farm equipment, as crop prices kept rising, posting an 18% increase in sales. Profit for the quarter jumped to $763.5 million, or $1.74 per share, a penny below analyst estimates. From premarket early action, it seems shares of DE might start much lower.

Freddie Mac (NYSE: FRE) also reported this morning, saying its first quarter loss widened to $151 million as the U.S. housing market worsened. Somehow, though, the results were not as poor as expected and FRE's loss of 66 cents a share beat estimates of a 92 cents a share loss. FRE's shares are up over 6% in premarket trading.

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"Although Pfizer (NYSE: PFE) recently posted an 18% drop in its first-quarter earnings, I remain a long-term bull on the shares," notes Nilus Mattive in the income and growth oriented Dividend Superstars.

"Results were hurt by tougher generic competition for the company's blood-pressure drug Norvasc and allergy treatment Zyrtec. Pfizer pulled in $0.41 a share in the quarter, but would have earned $0.61 excluding costs associated with two acquisitions.

"A lot of investors are treating the poor earnings as a death knell for the company, especially since Lipitor - PFE's biggest product - will also lose patent protection in 2010. However, I've watched countless drug stocks go through these cycles before, and I continue to believe it's smarter to buy when things look the worst.

"This is still the world's largest drug company ... it still delivers big, fat dividend checks ... and it is making strong moves to reorganize its operations and focus on new drug development. For all those reasons, I remain positive on the shares."

Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.

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