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Stock Picks: Wells Fargo, Best Buy

Wells Fargo (WFC)

Keefe, Bruyette & Woods upgrades to market perform from underperform; raises price target Deutsche Bank upgrades to buy from neutral

At least two analysts upgraded Wells Fargo & Co. on Dec. 15, a day after the national bank said it would repay $25 billion in bailout money.

Wells Fargo said Monday after the market closed it would repay the money it received last year at the height of the credit crisis. Wells Fargo's announcement came just hours after Citigroup Inc. said it would pay back $20 billion received as part of the Troubled Asset Relief Program, and that the government would sell its stake of nearly 34 percent in the bank.

Wells Fargo was the last of the eight initial recipients of TARP money to agree to repay the government.

Keefe, Bruyette & Woods Inc. analyst Frederick Cannon raised his rating on Wells Fargo and increased his share price target to $28 from $24.

In a research note, Cannon said the capital raise and repayment of TARP ease the bank's two biggest concerns: Its capital ratios and the valuation of its risky assets.

Wells Fargo is selling $10.4 billion in new stock to help pay off the government, which will improve its capital position, Cannon wrote. The Treasury Department's approval of Wells Fargo's plan also shows the government is not concerned with the valuation of the bank's assets.

Deutsche Bank analyst Matt O'Connor also upgraded the stock. O'Connor said the capital raise removes questions that had been lingering about potential dilution to the stock. He also predicts Wells Fargo will have a strong fourth quarter, boosted by gains from hedging and the sales of securities.

Best Buy Co. (BBY)

Janney Montgomery Scott rates neutral

Janney Montgomery Scott analyst David Strasser said on Dec. 15 that the Best Buy's third-quarter results beat his estimate and the consensus Wall Street forecast, driven by cuts in selling, general, and administrative (SG&A) expenses. Strasser noted that the electronics retailer guided down expectations for gross margin for the fourth quarter due to its anticipated sales mix, something he had anticipated. The analyst attributed this predominantly to the better results in the third quarter.

While recent strength in the stock price reflects the strong third quarter, Strasser believes the share price will remain somewhat range-bound in the low to mid $40s. CBS Corp. (CBS)

UBS downgrades to neutral from buy; raises price target

UBS analyst Michael C. Morris downgrades shares of CBS Corp. on Dec. 15, saying the shares were fairly valued as investors anticipated stronger advertising demand.

"CBS shares reflect what will likely be a stronger ad environment in 2010 and are balanced between the potential for earnings outperformance and the risk of ad sales weakness and/or higher costs," Morris wrote in a note. He said his earnings estimate of 96 cents per share for 2010reflects 5% overall ad growth led by 5% improvement at the CBS network and 14% at the TV stations (excluding the Super Bowl), weighted toward the latter half of the year.

"We feel [the] current valuation leaves little margin for disappointment in coming months in the still nascent ad recovery," Morris wrote. He raised his price target on the shares to $15 from $14, however.

News Corp. (NWS)

Deutsche Bank upgrades to buy from hold

Deutsche Bank analyst Doug Mitchelson upgraded News Corp. on Dec. 15, saying the media conglomerate's shares have been nearly flat for the past two months even as its rivals have improved and its outlook continues to get better.

Mitchelson said the company's improving outlook includes a rebound in local advertising as well as a potential for a $500 million retransmission fee. Such fees are generally paid by cable companies like Comcast or Time Warner to TV station owners to carry their channels.

Mitchelson said he continues to have concerns about parts of the company's business, such as the social networking Web site MySpace, which has fallen behind rival Facebook, as well as the home video market maturing and troubles in the print industry. Even so, he said the stock "looks cheap" and recommended investors buy the shares.

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