Analyst upgrades:

• Merrill upgraded Schering-Plough (NYSE: SGP) to Buy from Neutral citing the company's better near-term pipeline outlook with two potential blockbusters to be approved over the next year. Schering-Plough's target was raised to $23 from $20.
• Morgan Stanley lifted RadioShack (NYSE: RSH) and Texas Roadhouse (NASDAQ: TXRH) to Equal Weight from Underweight.

• Jefferies downgraded shares of Hologic (NASDAQ: HOLX) to Hold from Buy as they see limited near-term catalysts after the company reported a Q3 miss and lowered top-line guidance for FY08. The firm lowered their target to $24 from $28.
  
• Baird downgraded California Pizza (NASDAQ: CPKI) to Neutral from Outperform as they see limited near-term upside given the uncertain 2H08/2009 outlook. The company's target was lowered to $15 from $17.
  
• JP Morgan downgraded Jones Lang LaSalle (NYSE: JLL) and CB Richard Ellis (NYSE: CBG) to Neutral from Overweight due to the continued challenging economic environment.

• BC Capital initiated Dollar Financial(NYSE: DLLR) with an Outperform rating and $24 target. The firm likes Dollar's geographically diversified business and valuation.

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Kaufmann has started The Knot (NASDAQ: KNOT) as a "buy," according to the AP.

Soleil upgraded Yahoo! (NASDAQ: YHOO) to "hold" from "sell," according to Briefing.com. The news service also reports that Stanford initiated Time Warner (NYSE: TWX) with a "buy" rating.

Campbell Soup (NYSE: CPB) raised to Overweight from Equalweight at Lehman, according to 24/7 Wall St.

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MOST NOTEWORTHY:

• Banc of America downgraded shares of Motorola (NYSE: MOT) to Neutral from Buy, despite believing the split into two businesses could ultimately unlock value, as they see few catalysts over the next year to lift shares. Banc of America also sees risk to Q1 earnings and lowered their target to $11 from $15.
  
• Friedman Billings lowered California Pizza Kitchen (NASDAQ: CPKI) to Market Perform from Outperform citing sluggish trends in its core markets.
  
• Seagate (NYSE: STX) was cut to Neutral from Outperform at Baird, citing weakening industry conditions throughout the month of March.

• Goldman lowered the Communications Tech sector to Neutral from Attractive, and also downgraded Juniper Networks (NASDAQ: JNPR) and Starent Networks (NASDAQ: STAR) to Neutral from Buy, and Aruba Networks (NASDAQ: ARUN) to Sell from Neutral.

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The casual dining sector has been hit hard these past few several quarters, not as hard as mortgage lenders and home builders, but hard nonetheless. Consumers are squeezed between rising energy and fuel costs and a drumbeat of negative financial news. Dining out may not be high on many consumers' to-do list.

California Pizza Kitchen Incorporated (NASDAQ: CPKI) is not immune to the impact of these factors. Despite the fact that recently (Aug 9) released 2Q 2007 earnings were overall good, the stock continues to drop from $25 and change in May to $19.28 on 27 August. Analysts had predicted EPS of $0.22 and the stock posted earnings of $0.21, hardly a reason for the stock to fall into disfavor. The numbers tell a much more positive story. Total revenue increased 16% to $158.6 million. Comparable restaurant sales increased 5.4% by total volume, while average weekly sales at the 200+ current restaurants increased almost 5% to $68,535. Some of this increase was due to menu price increases to keep pace with raw material price increases, but some was due to an increase in the number of customers.

There is no denying that margins are tight in the casual dining sector. But California Pizza Kitchen does expect to post modest EPS of $0.03-0.04 in 3Q 2007. Given that small amount, it is difficult to believe FY guidance of $0.58-$0.62 diluted EPS. Management must be planning on a dynamite 4Q 2007.

The company remains optimistic. It opened four new locations with affiliates in 2Q, including a location in Hong Kong, and plans to add six more locations in 3Q. In June, the company granted a third-for-two stock split and is in the midst of a $50 million stock buyback program. The company plans to expand its line of California Pizza Kitchen frozen pizzas to capture a larger slice of the at-home pizza consumer.

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The whole series made me think what if someone had written a series like this back in 1982. Many of the names I wrote about I am sure were met with "what's this company?" or " I have never heard of these guys." Back in 1982 I am sure we would have reacted the same way, as many of the future great companies were new or unheard of ... and some did not even exist at that point. As I wrote in the introduction of this series, some of the top 25 stocks may not even be public yet, or even founded for that matter. Google ( NASDAQ: GOOG) was founded in 1998, just 9 years ago and is now a $160 billion market capitalization company!! It has been public for only 3 years.

I am not sure how many of the names I wrote about will be in the top 25 for the NEXT 25 years: only time and performance will tell. But of this I am confident: many of these companies will continue to grow and be more and more relevant in our daily lives. Many will touch us in ways we will never see or truly understand. Not many of us will deal with a large bank and wonder if Opsware (NASDAQ: OPSW) is helping them to automate its massive server farm? Or the next time we slam on our brakes to hopefully avoid an accident, will we really wonder if Wind River Systems (NASDAQ: WIND) designed the real-time operating system micro-chip that helped this automaker design the anti-lock brakes? I doubt it.

If you visit a casino in the US or any where else in the world, I doubt if you'll ask the dealer if they are employing Progressive Gaming's (NASDAQ: PGIC) casino-management software. Or if you'll ask your IT manager at work if your company is using Blue Coat Systems' (NASDAQ: BCSI) software security products. Again, many great companies work behind the scenes: they affect our lives, but we really do not interact directly with them.

On the other hand, if you are in the market for a new baseball glove, you'll love Dick's Sporting Goods (NYSE: DKS); or you might enjoy a cup of specially brewed coffee at Peet's Coffee and Tea (NASDAQ: PEET). If you get hungry, you can certainly enjoy a superb, quick meal at either California Pizza Kitchen (NASDAQ: CPKI) or at Chipotle (NYSE: CMG).

The medical world does touch us frequently and companies like Electro-Optical Systems (NASDAQ: MELA), Kyphon (NASDAQ: KYPH), SurModics (NASDAQ: SRDX) and DexCom (NASDAQ: DXCM) will have new-age medical technologies and advancements to help save lives and improve the quality of life. The great medical device and bio-tech companies of the past 25 years have served mankind first. Typically if mankind is served well, the shareholders benefit.

The beauty of investing in growth companies is watching them develop and, hopefully, succeed. Many great growth companies will have their trip-ups and can make fundamental mistakes along the way, but if management is highly talented and motivated, amazing things can happen. Look at the past 5-10 year history of Apple (NASDAQ: AAPL). Given up for dead just five or six years ago, great talent has resurrected this company to where it is now valued over $100 billion.

In 25 years I will be 77 years old, and hopefully still writing about stocks and great companies. It's a passion for me. I will follow these 25 names in the series and will provide an update about once a quarter. If something dramatic happens to one of the 25, I will write up a full article.

I hope you enjoyed reading the series as much as I enjoyed researching and writing them up. Have fun and be involved with your investments, and do not ignore some of the smaller, emerging names that will be the category dominant companies of the future. I wrote in my book Baby Boomer Investing...Where Do We Go from Here? that half the fun of investing is watching the good companies potentially become great companies.

Thank you very much ...

Georges Yared is the CIO of Yared Investment Research.

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California Pizza Kitchen (NASDAQ: CPKI) on May 10 served up hot 1Q earnings with total revenue up 15.2% to just under $150 million. Comparable sales at restaurants open at least a year were up 4.7%, not great but not bad. Net income was $3.6 million or diluted EPS $0.18, including $.02 per share for accelerated restricted stock vesting. Average weekly sales were up 4% to $65,904. The average check was $13.23. All these increases, though modest, are tending in the right direction.

California Pizza Kitchen currently has 212 full-service restaurants, recently opening 2 in Austin, Texas, and 2 in San Francisco, as well as a franchise location in Japan. The company plans to open 4 more new locations in the second quarter. 181 locations are company owned and, the remainder are franchised. With the new openings, the company also expects to bring in a comparable sales increase of 5-6%, CEOs Rick Rosenfield and Larry Flax forecast 2Q diluted EPS of $.34-.36. California Pizza Kitchen is also looking to expand its brand alliance with Kraft Foods.

The company is so confident in its continuing profitability that is recently granted a 3-for-2 stock split, the company's first stock split since the company's founding in 1985. After the split, the company will have just over 29 million shares outstanding, an increase of 10 million from the current 19.4 million shares. It is shaping up to be a good summer for California Pizza Kitchen as the stock has already gained 9% since January 2007. The stock closed at $36.26 on May 29th, down $0.15.

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I have written up eight companies that have a chance to be among the top 25 stocks for the NEXT 25 years and I thought it might be time for some discussion. You, the readers have sent in quite a bit of responses to the first six names. Most of your responses have been very positive and I certainly appreciate it. But many of you have been raising questions that I believe need a general response.

Let's put a few ideas and myths to rest once and for all.

The top 25 for the NEXT 25 years are bound to be smaller capitalization companies. By definition, they have to be. I recommend a number of companies on my website that are of a larger capitalization, but to make the list, the law of large numbers is against the larger cap names. If a $20 billion market cap names five folds over the next 10 years, that's a great return and no one should be unhappy. But if a $500 million market cap name goes to $20 billion in value, that's a 40 times return. So, the names will be of a smaller cap nature.

With high-growth companies early in their development, don't get hung up on lack of dividends. High growth companies do not pay dividends, nor should they. You want every penny of after-tax earnings to be plowed back into the business. Mature companies tend to pay cash dividends because their growth rates have slowed, the business lines are well-funded, and the excess cash is returned to shareholders. The downfall is that the stocks will not grow as fast in value as a high-growth company that is executing well. The big joke among portfolio managers when Microsoft Corp. (NASDAQ: MSFT) declared its one time $3 dividend and initiated a quarterly dividend was that the party was over! When is the funeral? Microsoft was signaling that the high-growth, plow the earnings back into the business era was over. The stock traded sideways for nearly three years as Microsoft tried to get its footing back.

PE ratios -- yes sometimes they are meaningless. During the great growth phase of Microsoft, Oracle Corp. (NASDAQ: ORCL), Cisco Systems (NASDAQ: CSCO), and Dell Inc. (NASDAQ: DELL), the PEs were frightening. If an investor held firm to a PE ratio range, that investor would never had owned any of these great performers. During the high-growth phase, top-line growth is among the most important barometers, as is sequential quarter-to-quarter revenue growth, margins holding or expanding, etc. A PE ratio becomes important when a company like Microsoft initiates a dividend! Seriously, when a company hits a "maturity" stage, a PE ratio becomes more relevant and important in the analysis. One name I wrote about, Salesforce.com (NYSE: CRM), has a PE measured in the thousands. It's a subscriber-add story and sequential revenue story: that's how the Street values it ... one day the PE will be relevant.

With many of these names you may think: "I've never heard of this company before!" That's right. Many small, emerging growth companies are not yet mainstream, so name recognition is an issue. But don't fear; I am researching these companies extensively! Many companies for the NEXT 25 years will be in industries that do not have a direct consumer line of business. However, some you will have heard of, like California Pizza Kitchen (NASDAQ: CPKI) or Crocs Inc. (NASDAQ: CROX), and a few more to come. Stay tuned.

One last thing: I was asked is why am I capitalizing the entire word next? Just to get and retain your attention. Heck, this is a lot of work, but a lot of fun! Please keep sending me your own ideas ... we still have 17 names to go.

Georges Yared is the CIO of Yared Investment Research. For more growth stock ideas, besides the Top 25 for the NEXT 25 years, please visit the web site!

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