Being a successful contrarian investor takes skill and preparation; yet many talented and hard working contrarians are often proven wrong for too long before eventually being proved right in the long run, their portfolios paying a steep price in the process and often jeopardizing hard-earned gains–John Paulson comes to mind here. In a market as treacherous and volatile as today’s stock market, dominated by high frequency traders and double and triple inverse or leveraged ETFs, playing contrarian to investor sentiment can be disastrous. Good examples of this are Netflix and MF Global Holdings, two companies that could hardly be any more different from each other. One, a (once) high-flying Internet darling and the other a self-styled up-and-coming investment bank with more ambition than capital to support it. Yet they have at least one thing in common: they are both members of MarketGrader’s Declining Sentiment list, currently featured on our web site as the free stock idea list of the week. This list highlights the 100 stocks with the biggest four-week drops in Sentiment score.

While Netflix’s story reached a climax this week with the company’s disappointing earnings announcement, in which the it revealed a jaw-dropping loss of 800,000 subscribers in one quarter, the tug of war between NFLX bulls and bears has been playing out for months. And while today’s rock bottom Sentiment score of 1.1 (out of 10) might seem like yesterday’s news, NFLX has been a member of this not-so-select group for more than a month. Actually, signs of deteriorating Sentiment first surfaced based on MarketGrader.com’s analysis as early as June, when the stock’s Sentiment rating was first downgraded from Positive to Neutral. While the score stayed in a Neutral Sentiment range for most of the following two months a second major decline occurred in mid September when the Sentiment rating was downgraded from Neutral to Negative. This should have given cautious investors warning a month ahead of the company’s earnings announcement. While many would argue today that the company still has a solid business, generally strong fundamentals (we won’t argue with that) and a clear plan to steer its business away from DVD deliveries and towards streaming digital content (can’t argue here either,) such deterioration in Sentiment should have given investors pause in waiting for a better entry point given the stock’s lofty valuation (here our Rating Style Change feature comes in quite handy.) And for long term owners of the stock it should have served as a sign to take some money off the table and wait for the storm to pass. A history of Netflix’s Sentiment rating in the last two years is illustrated below.

MF Global’s story played quite differently in the last few months yet it had a similar (and scarier) ending this week. While MarketGrader.com has rated MF a ‘Sell’ since 2008, unlike NFLX which we rate a ‘Buy’ based on its fundamentals, a similar decline in the stock’s Sentiment score took place two weeks before yesterday’s earnings announcement. On October 11^th MarketGrader.com downgraded MF’s Sentiment rating from Neutral to Negative and added the company to the Declining Sentiment list. The chart below illustrates the decline in Sentiment earlier this month. The stock fell 47% yesterday following the company’s earnings report and is down again today more than 32% at the time of this article’s publication.

Investors without a MarketGrader.com subscription wondering who else might be on our Declining Sentiment list may view it for free for a limited time by clicking here. They may then view our complete analysis, both top-down (Sector, Industry and Sentiment) and bottowm-up (Fundamentals) for every company on the list. Subscribers may, of course, always access this and all other daily-updated lists in the Stock Ideas section under the StockGrader tab in MarketGrader.com.

Our popular ‘Stock Ideas’ section, one of our web site’s most popular features with our subscribers, is, we suspect, about to become even more popular. After hearing back from many of our subscribers who have requested an expansion of this section to include more pre-filtered lists of stocks based on myriad search criteria, we have embarked on a complete revamp of our Stock Ideas section, the first part of which was released on Friday along with our new ‘Company Profile’ page. The two new Stock Ideas sub-sections rolled out last week are only the first step in our roll-out of an entirely new set of lists devoted to helping you find the best stocks in MarketGrader.com based on your own preferences or investment style. Since last Friday subscribers clicking on the ‘Stock Ideas’ link in the StockGrader section of our site will notice two new sections: ‘New Income Ideas’ and ‘New Sentiment Ideas.’ In addition to providing you with brand new lists of stocks with these two sections we’re also introducing our new user interface design, which will be used going forward in this section of our web site.

New Stock Ideas Interface

This week we’re introducing a new way for our subscribers to scroll through any of our ‘Stock Ideas’ called ‘Mosaic View,’ which will be available for all lists in this section of our web site in addition to our traditional ‘List View.’ Starting with the two new sections we launched on Friday, subscribers that go to any of our new stock ideas sections will now land on a snapshot page highlighting the first stock in the list, which appears underneath a new horizontal scroll bar that will display all stocks in the list from left to right. Our goal with this new ‘mosaic view’ is to allow you to see, without leaving the stock ideas section of the site, the actual criteria and data points used in selecting every company to any particular list. The navigation bar above the company’s snapshot allows you to scroll across the list without leaving the page or hiding the stock currently selected. By simply clicking on any of the ‘mosaic tiles’ on the scroll bar you may change the snapshot below it. On the page’s left hand side you may see all the idea lists in each sub-category (such as Sentiment Ideas or Income Ideas) with a brief description of each one. Clicking on any of the lists on the left margin will populate the rest of the page. And when you want to see the entire list of stocks from top to bottom all you have to do is click on the ‘List View’ tab in the upper right hand corner of the page for a traditional view of the entire list.

New Sentiment Ideas

The first new group of lists we would like to introduce to our subscribers in our expanded ‘Stock Ideas’ section is based on our Sentiment indicator. The purpose of these three new lists is to help you identify stocks with improving or declining investor sentiment in anticipation of possible short-term price movements.

1. Improving Sentiment

This is a list of the 100 stocks in MarketGrader.com with the biggest jump in positive momentum based on changes to our Sentiment indicator in the last four weeks. Our Sentiment indicator, designed to complement our traditional Fundamental Analysis, measures overall investor and market sentiment for a company’s shares irrespective of the company’s financial performance. It is comprised of four individual indicators: Price Trend, based on a MACD analysis; Price Momentum, based on a relative price strength analysis; Earnings Guidance, which tracks the rate at which companies and the analysts that follow them change their annual EPS forecast over time; and Short Interest, which tracks the monthly changes in the number of shares sold short relative to the company’s public float. The combination of these four indicators, which result in our 0-10 Sentiment score, helps MarketGrader.com subscribers identify opportunities among stocks that seem to be in favor with investors and that may be climbing as a result of a quantitative story (acquisition, product launch, etc.) not tracked or quantifiable by our traditional fundamental analysis. However, all companies in this list must have an overall ‘Buy’ or ‘Hold’ rating. The list is ranked, from top to bottom, based on the magnitude of the increase in each stock’s Sentiment score in the last four weeks.

2. Declining Sentiment

This list with the 100 stocks in MarketGrader.com with the biggest drop in Sentiment is, essentially, the opposite of our ‘Improving Sentiment’ list. It measures drops in our 0-10 Sentiment score in the last four weeks irrespective of company fundamentals. These are usually stocks that investors want to be careful with as they are either out of favor at the moment or in the process of falling out of favor with investors. The list is particularly helpful in helping investors avoid companies with high fundamental grades whose stocks are in decline, particularly if they’re concerned about their short-term performance.

3. Speculative Plays

Like our ‘Improving Sentiment’ list, this one is based on stocks with significant increases in investor sentiment over the last four weeks; however, unlike the aforementioned list, stocks in this selection are all rated ‘Sell’ based on MarketGrader.com’s fundamental analysis. This leads us to believe that the reasons why these stocks’ Sentiment is improving have little to do with the companies’ financial performance and more to do with investor expectations of upward movement in their shares as a result of a qualitative story that might not have played our entirely in the market. This would help explain why, for example, the current list contains plenty of homebuilders, banks, financials, publishers and generally companies in industries with poor overall fundamentals. This is an interesting list for investors willing to do some qualitative research looking to uncover the story behind some of these jumps in Sentiment and get ahead of a potentially lucrative rise in the stock. However, caution is required as these are, after all, speculative plays.

Adventurous investors looking for outsized returns spend a good deal of their time looking for stocks in the small cap space. While smart stock selection can indeed result in significant gains, the risks are also considerable and investors buying small caps, particularly in a market as nervous as the current one, should keep a close eye on their stocks. Understanding, or at least following, the qualitative story is very important, particularly as many of the most promising small caps belong in sectors such as technology and health care where product innovation, regulatory changes and litigation, only to name a few, carry consequences to which smaller companies are more sensitive than bigger ones. While reporting companies’ qualitative story isn’t MarketGrader’s strength, we do believe that beginning your research process with a solid group of well run, profitable candidates can get you off to a good start. Below we list the top five Small Caps in MarketGrader based on a combination of solid fundamentals and strong sentiment. These companies are part of our Small Cap Honor Roll, which you may view here.

DepoMed Inc. (DEPO)

With an overall grade of 93.6 (out of 100), DEPO is the highest graded pharmaceutical company in MarketGarder.com. The company has a market capitalization of $422 million and, it should be said, faces significant headwinds on a number of fronts. Its diabetes drug Glumetza is facing a patent challenge from Sun Pharmaceuticals while its partner, Abbott Labs, has declined to market its new drug Gralise, despite FDA approval. Despite a three month decline of 15% in the price of the stock, most investors seem to be sticking around, as evidenced by our strong Sentiment score of 8.3 (out of 10). MarketGrader’s Sentiment analysis is based on four indicators designed to measure, well, investor sentiment for the stock, irrespective of the company’s fundamentals (RIMM’s Sentiment score, for example, fell from 8.1 in early April to 1.7 in the days before last week’s earnings announcement, which sent the stock tumbling more than 20% in a day).

As indicated by our fundamental grade, DepoMed’s financials are solid, in large part because it posted very strong results for the quarter ended March 31^st. It generated $86.7 million in free cash flow during the last 12 months, on revenues of $149.8 million. The company has been paring its debt load aggressively, with total debt outstanding of just $1.16 million, down 86% from where it stood two years ago. The stock is currently trading at 3.9 times trailing 12-month earnings per share and 4.8 times forward full year earnings. The company’s return on equity in the last 12 months was 85%.

Kulicke and Soffa Industries Inc. (KLIC)

Singapore-based KLIC, which manufactures equipment for the Semiconductor industry, is one of a few highly graded companies by MarketGrader in the sector. It has an overall grade of 93.5, a Sentiment score of 8.6 and a market capitalization of $785 million. The company has cut its debt by 59% in the last two years to $101.75 million, which now accounts for just 21% of total capital. Kulicke and Soffa generated $138.45 million of free cash flow during the last 12 months on revenues of $836.12 million, with a return on equity of 41.3%. Revenues are now 40% higher than they were three years ago. During the last year the company’s margins expanded smartly, with operating margins of 21.17% compared to 8.7% for the 12 months ended a year ago. The stock is currently trading at 4.6 times trailing 12-month earnings per share and 5.7 times fiscal year 2011 estimates.

Republic Bancorp Inc. (RBCAA)

This Kentucky-based bank has a market capitalization of $367 million and the highest overall grade, at 90.3, of all banks in MarketGrader.com. Its Sentiment score is 7.6. RBCAA, which has branches in Kentucky, Indiana, Ohio and Florida, has consistently increased its dividend yearly in the last five years and never had to cut it during the 2008 financial crisis. The bank, which has excellent financials, was highlighted on our Blog last month. During the last 12 months, ended last quarter, Republic Bancorp’s income resulted in a 2.78% return on over $3.6 billion on average quarterly assets, much higher than the average return on assets of 0.05% for all banks followed by MarketGrader. The bank’s capital position is very strong, with core capital accounting for 23.9% of risk-weighted assets, above the 12.7% bank average. Additionally, at the end of last quarter Republic Bancorp had $0.70 in loan loss reserves for every dollar of nonperforming assets. The stock is currently trading at 4.5 times trailing 12-month earnings and 5.4 times full year estimates.

Nova Measuring Instruments Ltd. (NVMI)

Another highly graded company in the semiconductor space, Israel-based NVMI has a MarketGrader overall grade of 90.2 and a Sentiment score of 8.9. It has a market capitalization of $267 million. The company’s revenues and net income have been growing at a healthy clip in recent quarters and it has no debt. It generated $27.38 million in free cash flow on a trailing 12-month basis, on revenues of $98.8 million, which were 72% higher than the 12 months ended three years ago. More importantly, Nova Measuring Instruments has been growing profitably, having grown its gross margin to 57.5% in the last 12 months from 50.6% a year earlier, while achieving a return on equity of 35%. The company’s shares currently trade at 9.3 times trailing earnings and 9 times full year estimates.

Momenta Pharmaceuticals Inc. (MNTA)

Momenta Pharmaceuticals, with a market capitalization of $978 million the highest graded biotechnology stock in MarketGrader.com, is another company investors should monitor closely. We give it an overall grade of 89.5 and a Sentiment score of 8.4. The company was losing money up until three quarters ago, when its growth exploded. Contrast its results for the 12 months ended last quarter to the equivalent period ended a year ago: revenues grew in this one-year period to $191.25 million from $19.95 million; a $62.19 million loss turned into $110.38 million of net income while free cash flow went from a negative $50.1 million to $39.93 million in the most recent period. The company has increased its common share base by 15% also during the last year. It has apparently used its capital and improved operating results to aggressively pay down debt, which went from $11.58 million in 2007 to $1.58 million at the end of the first quarter. It is also sitting on $182 million in cash and other short-term investments. Among things for investors to monitor will be its ongoing profit sharing agreement with Sandoz, part of Novartis, and its pending litigation with TEVA Pharmaceuticals, which Momenta sued for patent infringement last December.

Yesterday Goldman Sachs upgraded the coal sector from neutral to attractive, alleging that a rise in the price of oil will support higher coal prices and improve investor sentiment in substitute industries (such as Coal and Consumable Fuels).

In this vein, we have employed our MarketGrader analysis to determine which companies seem to be best positioned to capitalize on the improving outlook of this industry, should Goldman’s theory materialize into improved business for coal producers. For those of you not yet familiar with MarketGrader’s analysis here’s a recap: we evaluate companies on the basis of 24 fundamental indicators that are grouped into 4 categories, growth, value, profitability, and cash flow. The individual grades for these indicators are then compiled into an overall numerical grade from zero to 100 and a Buy, Hold or Sell rating. Our system also performs technical and momentum analysis to arrive at our Sentiment rating (positive, negative or neutral), designed to gauge current investors’ mood for any particular stock.

Below are the five highest graded Coal and Consumable Fuel companies (all rated buys) in MarketGrader.com, along with their overall grade, sentiment rating, and two of their best indicators:

1. Alliance Resource Partners LP (ARLP)

Grade 83.68

Sentiment: Positive

Best indicators: Return on equity- A+ (A+ on overall profitability), P/E analysis- A+

2. Sino Clean Energy Inc (SCEI)

Grade 81.48

Sentiment: Negative

Best indicators: Long Term Market Growth- A+, Return on Equity- A+

3. L&L Energy Inc (LLEN)

Grade 81.05

Sentiment: Negative

Best indicators: Long Term Market Growth- A+, Relative Profit Margins- A+

4. Alliance Holdings GP LP (AHGP)

Grade 79.05

Sentiment: Positive

Best indicators: Debt/Cash Flow Ratio- A+, Capital Utilization- A+

5. Uranium Focused Energy Fund (UF.U.CA)

Grade 76.51

Sentiment: Negative

Best indicators: Growth Potential- A+, Cash Flow Growth- A+

Now for the Nots- below are the bottom five companies in the Coal and Consumable Fuels Industry. This list contains their overall grades (all corresponding to a sell rating), sentiment, and two of their worst indicators. Note that this list includes Patriot Coal Corp (PCX), which Goldman Sachs upgraded yesterday from a neutral to a conviction buy. However, MarketGrader’s analysis shows PCX’s profitability and cash flow indicators are extremely poor, raising concerns about the company’s future outlook.

1. Evergreen Energy Inc (EEE)

Grade 8.47

Sentiment: Negative

Worst indicators: Market Growth Long Term- F, Operating Margins- F

2. Homeland Energy Group Ltd. (HEG.CA)

Grade 17.28

Sentiment: Negative

Worst indicators: Growth Potential- F, Market Value- F

3. Oxford Resource Partners LP (OXF)

Grade 19.30

Sentiment: Neutral

Worst indicators: Return on Equity- F, Capital Structure- F

4. JNR Resources Inc (JNN.CA)

Grade 19.42

Sentiment: Negative

Worst indicators: Asset Utilization- F, Operating Margins- F

5. Patriot Coal Corp (PCX)

Grade 24.38

Sentiment: Positve

Worst indicators: Debt/Cash Flow Ratio- F, Return on Equity- F

When looking to evaluate ETF’s, MarketGrader’s new ETFGrader application adopts a bottom-up approach based on our fundamental analysis. Utilizing StockGrader , we analyze each component’s fundamentals and issue an overall rating for each company in the ETF. We then calculate a weighted average of all components in the ETF, based on the underlying index’s calculation methodology, to arrive at its average overall grade, which is therefore derived from the fundamental strength of its components.

The fundamental rating that we assign each component takes into account four main indicators and 24 sub-indicators. The four main indicators are: Growth, Value, Profitability, and Cash Flow. Each indicator is divided into six sub-indicators such as Growth Potential, Capital Structure, Return on Equity, and Debt/Cash Flow Ratio. The grades for all indicators are then compiled into our overall company rating, or overall grade. Once we have our component ratings, we then calculate our ETF ratings based on a weighted average that takes into account both the components of the ETF and the weight in the portfolio.

Currently the 5 highest rated sector ETF’s in MarketGrader all belong to the Technology sector, and, more specifically, 3 of the 5 track the Semiconductors industry. The following is the list of our top 5 ETF’s complete with their average ETF grade and rating, their average sentiment, the two highest rated components, and the two lowest rated components. Note that grades that are 60 or higher denote a “Buy,” grades between 50 and 60 denote a “Hold,” and grades below 50 denote a “Sell.”

1. HOLDRS Semiconductor (SMH)

HOLDRS Semiconductor received an ETF average grade of 77.8 (out of 100). The market sentiment for SMH is currently positive. The two highest rated components in SMH are Intel Corp (INTC), which has an overall grade of 91.8 and Altera Corp (ALTR), with an overall grade of 86.0. The two lowest rated components are LSI Corp (LSI), with a 46.8, and National Semiconductor Co (NSM), with a 59.4.

2. IShares PHLX SOX Semiconductor Sector Index Fund (SOXX)

IShares PHLX SOX Semiconductor Sector Index Fund received an ETF average grade of 72.0. The market sentiment for SOXX is currently neutral. The two highest rated components in SMH are Intel Corp (INTC), with an overall grade of 91.8 and Cirrus Logic Inc (CRUS), with an 89.0. The two lowest rated components are NXP Semiconductors NV (NXPI), with an overall grade of 27.7, and NetLogic Microsystems Inc (NETL), with a 30.3.

3. IShares Dow Jones U.S. Technology Index Fund (IYW)

IShares Dow Jones U.S. Technology Index Fund received an ETF average grade of 71.8. The market sentiment for IYW is currently neutral. IYW’s two highest rated components are Intel Corp (INTC), with an overall grade of 91.8 and Apple (AAPL), with an 88.0. The two lowest rated components are Ciena Corp (Cien), 18.7, and Diebold Inc (DBD), 19.1.

4. HOLDRS Internet Architecture (IAH)

HOLDRS Internet Architecture received an ETF average grade of 71.8. The market sentiment for IAH is currently positive. IAH’s two highest rated components are Apple (AAPL), 88.0, and Hewlett Packard (HPQ), with an overall grade of 72.2. The two lowest rated components are Sycamore Networks Inc (SCMR), 14.6, and Ciena Corp (CIEN), 18.7.

5. Powershares Dynamic Semiconductors (PSI)

Powershares Dynamic Semiconductors received an ETF average grade of 71.8. The market sentiment for PSI is currently positive. PSI’s two highest rated components are Kulicke and Soffa Industries Inc (KLIC), which has an overall grade of 93.5, and Veeco Instruments (VECO), with an 87.2. The two lowest rated components are NVidia Corp (NVDA), with a 44.2, and Electro Scientific Industries (ESIO), with a 54.2.

For the complete rankings of al sector or industry based ETFs in MarketGrader, please click here.

Amid an uncertain economic climate investors should be looking not only for companies that are able to survive an economic downturn but also for those that might actually benefit from taking market share from weaker rivals that may be too busy defending their turf or simply focused on surviving a weak economy. A good place to find these companies is MarketGrader’s Cash Kings idea list, one of 22 unique lists published daily for our subscribers.  In order to qualify as a ‘Cash King,’ a company must have an overall ‘Buy’ rating from MarketGrader, a Cash Flow overall grade of at least A- and a minimum of $1 billion in cash on hand. Our current list, available for free to all visitors as the Idea List of the Week, includes a total of 113 companies. 22 of them have at least $10 billion in cash on hand and 36 have a market cap of at least $50 billion; this is clearly a list of mostly large cap companies, with the smallest one, BBVA Banco Frances SA Buenos Aires (BFR), having a capitalization of $1.8 billion. And very telling perhaps of investor preference for safer, solid companies amid the recent market downturn, only five of the companies on the list have a Negative Sentiment rating, while 30 have a Neutral Sentiment rating and 78 have a Positive Sentiment rating.

The following are a few of the highlights of the top ten Cash Kings on MarketGrader.com:

1. Intel Corp (NASD: INTC)

Intel, which was recently the highest overall graded company in all of MarketGrader, has only $2.14 billion in total debt, compared to $11.90 billion in cash on hand. The company received an A+ grade in 4 of the 6 indicators that make up our Cash Flow category: EBITDA Margin, Debt/Cash Flow Ratio, Interest Coverage Capacity and Economic Value. Intel has an overall grade of 91.8 (out of 100).

2. Cliff’s Natural Resources Inc. (NYSE: CLF)

Cliff’s Natural Resources, with an overall grade of 89.0, saw its cash flow grow considerably in its latest quarter to $106.90 million, a 60.27% increase from $66.70 million reported in the year earlier period. The company’s liquidity is not only remarkable but the current amount of debt it carries relative to the cash flow it generates from its operations is even lower now than it was a year ago. It received an A+ grade in 3 of our 6 Cash Flow indicators: Cash Flow Growth, Debt/Cash Flow Ratio and Retention Rate.

3. Apple Inc. (NASD: AAPL)

Apple is truly a cash machine, generating almost $6 billion in free cash flow per quarter and more than $23 billion over the last 12 months.  Its cash flow grew considerably in its latest quarter to $6.22 billion, a 166.91% increase from $2.33 billion reported in the year earlier period. When compared to the 96.25% increase in cash flow in the last twelve months it seems like the rate of growth is accelerating, which could have a very positive impact on earnings growth in coming quarters. The company clearly has very strong liquidity having no debt to finance and $29.23 billion in cash on hand. This affords it significant flexibility to take on debt if it wanted to pursue new growth opportunities such as an acquisition. Apple received an A+ in 5 of 6 Cash Flow indicators: Cash Flow Growth, Debt/cash flow Ratio, Interest Covering Capacity, Economic Value, and Retention Rate. It has an overall grade of 88.0.

The following companies round out our top ten Cash Kings:

4. Research In Motion LTD. (NASD: RIMM)- Overall Grade: 87.6

5. Vale SA (NYSE: VALE)- Overall Grade: 87.2

6. Microsoft (NASD: MSFT)- Overall Grade: 87.1

7. Freeport-Mcmoran Copper and Gold (NYSE: FCX)- Overall Grade: 86.0

8. Altera Corp (NASD: ALTR)- Overall Grade: 86.0

9. Lam Research Corp (NASD: LRCX)- Overall Grade: 84.9

10.  Annaly Capital Management (NYSE: NLY)- Overall Grade: 84.4

For the complete list of all 113 “Cash Kings” and their fundamental analysis, please click here.

Following the Federal Reserve’s announcement last Friday that some banks may be held to higher capital requirements that correspond with the bank’s importance to the financial system (MarketWatch), investors have been bearish on financial stocks, especially large cap banks. The impact of this announcement is evident in companies such as Citigroup (C), which dropped 4.5% on the trading day after this announcement.

Year to date the S&P 500 Financial Index, which underlies the popular XLF ETF is down 6.6% while MG Financials is up 2.5% in the same period. These are price-only returns of the indexes and exclude dividends or the costs of owning a fund or ETF. Over a longer period of time, MG Financials’ out performance is even more remarkable. Based on three-year price only cumulative returns, as of yesterday’s close, MG Financials has outperformed the S&P 500 Financials Index by more than 38 percentage points.

3-Year Price-Only Cumulative Returns:

MarketGrader Financials Index:   +2.53%

S&P 500 Financials Index:    -35.89%

While some of this performance can be attributed to the fact that MG Financials is equally weighted, and thus not overly exposed to the mega-cap banks that crashed during the 2008 financial crisis, a good deal of the performance is also owed to sound stock selection and a disciplined rebalance approach. A few examples of its constituents appear below.

How is the index constructed?

The MG Financials Index consists of the 40 highest rated financial stocks (based on fundamental analysis) on MarketGrader.com and is rebalanced quarterly, with the last shuffle having taken place at the end of May.

As of June 7, 2011, the 3 highest rated stocks on the MG Financial Index were:

Anally Capital Management (NLY)- rated 84.4/100

Chimera Investment Group (CIM)- rated 81.9/100

Ares Capital (ARCC)- rated 80/100

The 3 stocks in the index with the largest YTD gains are:

Encore Capital (ECPG)- up 37.87%

Cash America International (CSH)- up 34.23%

Credit Acceptance Corp (CACC)- up 21.91%

When using ETFGrader to compare the MG Financials to an ETF that tracks the returns of the S&P 500 Financial Index, such as SPDR Financial Select Fund (XLF) we can see how these gains are possible. The MG Financial Index has an average rating of 68.23, whereas XLF has an average rating of 52.9. This reflects the fact that the MarketGrader Index consists of fundamentally stronger companies, which is reflected in the returns of the two indexes.

We upgraded Stericycle (SRCL) this morning from a HOLD to BUY based on last night’s positive earnings report of strong income and revenue growth.  SRCL reported $335.18 million in sales a 20.96% increase in revenue, and $48.12 million in net income an 18.36%, over the same quarter one year ago.  They reported fully diluted eps of $0.56, beating the consensus estimate 0f $0.55 eps by a penny.

SRCL completed 6 acquisitions during the quarter with anticipated annualized revenue of $37 million. Four of the acquisitions were international(Brazil, Chile and 2 from the UK).  The bulk of anticipated acquisition revenue is expected to come internationally.

The company anticipates 2010 eps to come in between $2.38 – $2.44, an increase of 16.7% to 19.6% over 2009’s diluted $2.04 eps.

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Yum! Brands (YUM) reported earnings of $0.59 per share, topping the consensus analyst estimate of $0.53, yesterday after market close. The stock has been upgraded by MarketGrader, from a HOLD to a BUY on improving revenue and income growth.

Alcoa (AA) is scheduled to announce earnings after market close this coming Monday, April, 12th, officially kicking off earnings season. Biogen Idec (BIIB) will be the first Barron’s 400 component to report on the same day. Barron’s 400 components: Intel (INTC), Westamerica Bancorporation (WABC) and YUM! Brands (YUM), will be reporting next week, as well. We will be highlighting some of the Barron’s 400 components in our Blog over the next few weeks.