FORD MOTOR CO. $9 (New York symbol F; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Extra risk) continues to lose sales to Toyota and Honda. Ford earns substantial profits on trucks and SUVs, and the recent jump in gas prices has hurt demand for these vehicles. Consequently, Ford lost $2.79 a share (total $5.2 billion) in the third quarter of 2006. One-time costs related to a major restructuring also hurt its earnings. It lost $0.31 a share ($583 million) a year earlier. Revenue fell 8.4%, to $37.1 billion from $40.5 billion. The company hopes its latest restructuring will help bring its costs in line with sales. It plans to close plants, phase out unprofitable models and cut 30% of its workforce. It also aims to simplify its operations by using the same parts in different models....

We generally confine our recommendations to American companies, but from time to time we make an exception. That’s what we did in the case of two Japanese carmakers Toyota and Honda, and it paid off nicely for our readers. Although overall car sales in the United States are falling, these two continue to gain market share from U.S. automakers. Their appealing line-ups of fuel-efficient vehicles should spur their sales for the next several years. Their strong reputations for quality and service have let them build up a large base of loyal customers. Thanks to their sharp rise in the past two years, Toyota and Honda now trade around 14 times earnings. That’s high for cyclical business like automobiles. Rising steel, labor and other costs could squeeze their profit margins in the next few years....

In the past year, the SEC has investigated more than 120 companies over the backdating of executive stock options. The agency thinks companies improperly or illegally manipulated the exercise price on stock options they granted to their managers, to expand the manager’s profits at the expense of investors. Only four of our recommendations are on the SEC list. Any restatements will likely be small, but serious charges could come out of this investigation. That’s why we think you should limit your total exposure to companies that are included in the investigation. APPLE COMPUTER INC. $90 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Extra risk) hit a new all-time high on speculation that it will soon launch a iPod music player/mobile phone. Hold....

McDonald’s stock ran into trouble a few years ago during the European mad cow scare, and got as low as $12 in 2003. The sudden death of two chief executives within one year also added to the company’s uncertainty. Since then, however, the company has done a good job improving the quality of its food and the cleanliness of its stores. A new picture-based menu ordering system has improved ordering accuracy by 33% in early tests. Other initiatives such as installing flat-screen TVs and DVD rental machines are also helping to lure more customers into its stores. The stock has more than tripled in the past three years. But we feel it still has further gains to come....

VERIZON COMMUNICATIONS INC. $35 (New York symbol VZ, Conservative Growth Portfolio, Utilities sector; WSSF Rating: Average) has spun off its directories business as a separate company called IDEARC INC. $29 (New York symbol IAR; Income Portfolio, Consumer sector; WSSF Rating: Average). Idearc publishes over 1,200 yellow pages and white pages directories in 35 states. It also owns SuperPages.com, a major online directory service. Verizon investors received a special dividend of one common share of Idearc for every 20 shares held. Stockholders will only be liable for capital gains taxes when they sell they new shares....

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BARNES & NOBLE INC. $41 gained 6% after a hedge fund increased its stake in the company, from 2.3% to 8%. The move raised speculation that the company could become a takeover target. Insiders control 27% of the stock, so a takeover seems unlikely. Still, the move helps highlight the company’s improving sales and earnings. Buy. TEXAS INSTRUMENTS INC. $31 earned $0.46 a share in the third quarter of 2006, up 21.1% from $0.38 a year earlier, while sales grew 15.2%, to $3.8 billion from $3.3 billion. But a drop in new orders spooked investors, and the stock fell 5%. We feel the long-term outlook for cellphone chips is strong, particularly as high-speed wireless service spreads to more areas. Buy. AUTODESK INC. $37 has held up nicely as it sorts out accounting errors related to stock option grants. New product launches and a loyal client base add to its long-term appeal. But the stock will likely make little progress until it completes its review. Hold.

CANON INC. ADR’s $55 (New York symbol CAJ; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) is a leading maker of business machines such as copiers and printers (67% of revenue), cameras (21%) and optical products such as chips and specialty lenses for TV sets and medical equipment (12%). Markets outside of Japan account for 75% of its total sales.

Each Canon ADR represents one Canon common share. (All per ADR data adjusted for a 3-for-2 stock split in August 2006.)

Canon’s revenue rose from $22.0 billion in 2001 to $33.3 billion in 2004. In 2005, sales fell to $31.8 billion due to the rise in the Japanese Yen. Excluding the currency effect, sales grew 8.3% in 2005. Earnings per ADR grew from $0.95 to $2.48 in 2004, but fell to $2.45 in 2005. Excluding exchange rates, earnings in 2005 rose 11.9%.

New products fueled sales growth

Canon spends close to 8% of its sales of $25 per ADR on research, which makes it look less profitable than it really is. But new products from this research accounted for 66% of Canon’s sales in 2005, up from 44% five years earlier. These products have helped Canon dominate several industries.

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DIEBOLD INC. $42 (New York symbol DBD; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) has won new contracts to supply and service over 1,500 automated teller machines (ATMs) in China. The company now has 30% of the Chinese ATM market, but there’s still plenty of room to grow. China has just 55 ATMs per million people. Developed countries have 600 to 800 per million people. The stock has stayed in a narrow range recently, mostly due to bad publicity over its electronic voting machines. But this division accounts for less than 10% of Diebold’s total revenues. If problems continue, the company could sell this business. A sale, even at a deeply discounted price, would spur a rise in the stock....

CHIPOTLE MEXICAN GRILL INC. (New York symbols CMG $56 and CMG.B $56; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Speculative) operates a chain of over 500 Mexican food restaurants in 23 states. It plans to open roughly 60 more outlets this year. Chipotle feels its use of organic foods and traditional cooking methods give it an advantage over other casual dining restaurants. In October, McDonald’s handed out all of its Class ‘B’ common stock (10 votes per share) in Chipotle to its own stockholders through a special exchange offer. McDonald’s structured the offer so that its stockholders could acquire Chipotle at a 10% discount....