Breakout Stocks Weekly Summary

It's all about the consumer. We have maintained for quite a while that the economy cannot have sustained improvement without the participation of the consumer. On Friday, the Reuters/University of Michigan said its preliminary consumer-sentiment index for November fell to 66, down from 70.6 in October, and less than the consensus analyst expectation of 71. Incidentally, the November reading was at the lowest level since August -- and, yet, the market rallied!

Perhaps this can be explained by Thursday's weekly jobless claims numbers, which showed a drop to 502,000 vs. last week's 514,000, coming in lower than estimates for 510,000. After last week's Labor Department report, which showed a 10.2% unemployment rate, it seems investors were not surprised by the decline in confidence and would rather focus on the fact that incrementally fewer jobs are being lost.

Interestingly, top-tier retailers, including Wal-Mart (WMT:NYSE), Macy's (M:NYSE), Costco (COST:Nasdaq), and Amazon (AMZN:Nasdaq), were all cautious in their outlooks for the U.S. consumer and provided guidance with that caution in mind. If this caution proves merely to be the typical public company practice of setting expectations low, and does not reflect reality, that would be ideal for the market. Let's hope, for the economy's sake, that these companies are looking to under promise and over deliver, and that they are simply not imparting their bullish outlook at this time.

As always, with the economic recovery still in question, we continue to search for the next breakout stock -- a company that can outperform in even the most volatile environment.

Now, let's take a look at the model portfolio. As a reminder, Ones are stocks that we would buy at their current levels, Twos are stocks that should not be purchased at their current share prices, and Threes are stocks we would sell on strength.

ONES

ArcSight (ARST:Nasdaq, $26.00, 600 shares, 6.96% of the model portfolio): ArcSight is a leading play on the security information and event management (SIEM) sector. The company provides compliance and security-management products that allow enterprises and government agencies to address security threats, monitor compliance controls and ensure business continuity. After hitting a new 52-week high earlier this week, shares of ArcSight proceeded to tick lower. On Tuesday, a ThinkEquity analyst published a positive note on the company previewing what he believes will be a better-than-expected second quarter. We believe ArcSight continues to represent one of the most compelling secular growth stories in the market today and, given that, the stock remains a core holding in the model portfolio.

AsiaInfo (ASIA:Nasdaq, $25.05, 300 shares, 3.35%): AsiaInfo is the largest provider of enterprise software and services in China's telecom-services market. The company has forged strong relationships with the three major Chinese carriers - - China Mobile (CHL:NYSE), China Unicom (CHU:NYSE) and China Telecom (CHA:NYSE) -- and is benefiting from the country's fast-growing telecom infrastructure and mobile- application buildout. On Tuesday, a Susquehanna analyst raised his 2010 earnings estimates and upped his price target on AsiaInfo from $24 to $30. After speaking with management, the analyst has increased confidence that the company can control its expenses, and he believes the company is poised for further margin expansion. We are bullish on the strong growth opportunity that lies ahead for AsiaInfo, and we believe the stock can continue to climb over the coming months.

Duff & Phelps (DUF:NYSE, $17.11, 600 shares, 4.58%): Duff & Phelps is a leading provider of independent financial advisory and boutique investment banking services. The company is well positioned to take advantage of two important macro-level developments: a recovery in the mergers-and-acquisition (M&A) marketplace, and an increased focus on fair-value accounting standards and conflicts of interest. This week, we heard what we deem an independent validation of our investment thesis that the M&A market is indeed undergoing a resurrection. The chief financial officers from both Morgan Stanley (MS:NYSE) and Lazard (LAZ:NYSE), speaking this week at the Bank of America/Merrill Lynch Banking and Financial Services Conference in New York, indicated that the M&A market has hit a bottom and is set to see a resurgence in 2010. We remain confident that the company's fundamentals are improving, and that it's well positioned for continued growth with an early-stage recovery in the M&A market. As such, we continue to believe that the stock is attractive to purchase at current levels.

Monro Muffler Brake (MNRO:Nasdaq, $30.11, 400 shares, 5.38%): Monro is the largest company-owned undercar care service chain in the U.S., providing repair services, tire products and general scheduled maintenance. Monro is currently benefiting from two tailwinds: the customer dislocation of the closed/closing Chrysler and General Motors dealerships, and the fact that Americans are hanging on to their cars longer due to the economic downturn. Monro's shares slid a bit this week on little company- specific news. We believe the stock remains attractively valued, given the company's growth prospects.

SBA Communications (SBAC:Nasdaq, $31.36, 225 shares, 3.15%): The company owns and operates wireless communications towers in the U.S., Canada, Puerto Rico and the U.S. Virgin Islands. SBA generates approximately 80% of its revenue from leasing antenna space on its towers to wireless-service providers. The company also provides site consulting and end-to-end construction services for its wireless carrier customers, which generate the remaining 20% of its revenue. On Tuesday, SBA's customer Clearwire (CLWR:Nasdaq) announced its intention to raise $1.56 billion in an equity-rights offering to existing shareholders. The capital raise will close a significant portion of the company's funding gap for its 2010 expansion plans, which should ultimately lead to increased business for SBA. Also this week, SBA's stock made a new 52-week high. We continue to believe the company is well positioned to benefit from the "mobile Internet tsunami," and that the stock can continue to climb in the months ahead.

Skyworks Solutions (SWKS:Nasdaq, $12.08, 800 shares, 4.31%): The company is a handset and wireless- infrastructure company with a mobile-platforms segment that accounts for 75% to 80% of its revenue. Skyworks' linear products segment brings in 20% to 25% of its revenue and offers higher-than-average gross margins, longer product cycles and revenue diversification. This week, Skyworks' stock held its gains from last week on little new news. We are unabashed believers in the smartphone megatrend and are confident that Skyworks is an excellent long-term play on it. We believe that the stock is attractive to purchase at current levels.

Sykes Enterprises (SYKE:Nasdaq, $25.20, 225 shares, 2.53%): Sykes Enterprises is a leading global provider of customer contact management solutions and services in the business process outsourcing (BPO) arena. On Monday, Sykes reported better-than-expected third-quarter results and issued a solid outlook for its fourth quarter, with management further commenting that demand trends remain encouraging. Sykes shares slid slightly lower this week. We continue to believe that the forthcoming completion of the ICT Group (ICTG:Nasdaq) acquisition will add materially to Sykes' revenue and earnings opportunities, and that it's creating an attractive entry point for investors.

WMS Industries (WMS:NYSE, $43.66, 250 shares, 4.87%): WMS is a leading designer, manufacturer, and marketer of gaming devices, including video and mechanical spinning reel games and video lottery terminals. WMS stands before three strong growth drivers: a move away from the larger casinos' material underinvestment in refreshing the slot machines on their casino floors, the prospect of escalating momentum among state legislators who are looking to fund budget gaps by increasing the number of gaming sites or, in certain states, by legalizing gambling, and growing international sales opportunities. On Monday, a Goldman Sachs analyst raised his rating on WMS from neutral to buy and wrote that the stock is attractively valued, given the company's robust growth outlook. On Thursday, WMS management presented at the BMO Capital Markets digital entertainment conference in New York, where they commented that they are seeing "meaningful improvement" in casinos' slot replacement budgets for 2010. Also on Thursday, a Deutsche Bank analyst initiated coverage on WMS with a buy rating and a $56 price target. The analyst argued that WMS is becoming the industry leader in gaming technology and innovation, and he believes the company is well positioned for strong growth. We remain bullish on WMS and believe the shares are a compelling investment.

TWOS

Air Methods (AIRM:Nasdaq, $34.45, 250 shares, 3.84% of the model portfolio): Air Methods is the largest provider of air medical emergency transport services and systems in the U.S. The company is primed to take advantage of its cost- cutting efforts, and it could demonstrate significant operating leverage should its flight volumes normalize with an improving economy. We also believe that Air Methods could benefit from the government's proposed health care reform. This past Saturday, the House of Representatives approved H.R. 3962, the Affordable Health Care for America Act, by a vote of 220 to 215. The legislation, if passed into law, would expand access to health insurance coverage, and it includes the creation of a public health insurance option. Now the focus shifts to the Senate, where Majority Leader Harry Reid has set a goal of getting the bill to a floor vote by Christmas. We will keep a watchful eye on developments in Washington, as health care reform will impact Air Methods' business (though it's still too early to tell whether the impact would be positive or negative). In the meantime, we continue to believe that the company's recent positive quarterly results have validated our investment thesis. We will wait for a pullback in the share price before adding to our model portfolio position.

Alnylam Pharmaceuticals (ALNY:Nasdaq, $17.17, 450 shares, 3.45%): Alnylam is a biopharmaceutical company focused on developing therapeutics based on RNA interference (RNAi), which is considered to be one of the most notable breakthroughs in modern medicine because it allows scientists to target diseases on a genetic level. Alnylam stock broke its downward trend this week. On Thursday, the company hosted an investor day in New York and announced its plan to seek partners for its RNAi technology for the manufacturing of biologics (involving certain forms of proteins, antibodies and vaccines), a market worth $100 million. The upside of potential new partnerships such as these, as well as the reduced risk afforded by the company's slow cash burn rate and strong balance sheet, supports our continued holding of this name.

Dolby Laboratories (DLB:NYSE, $42.06, 100 shares, 1.88%): Dolby is a global leader in audio technologies used in consumer electronics and professional content productions, such as films and TV programs, and the company benefits from its license-based revenue model and limited competition. This week, we continued to hear of strong initial sales results for Windows 7. Strong Windows 7 sales are a positive for Dolby, as Dolby receives a per-unit license royalty on four of the six Windows 7 versions. In addition, we see the beginnings of what may be an improving consumer-spending climate that could help boost consumption of higher-end consumer electronics. In view of Dolby's robust balance sheet and its potential for revived growth, we will continue to hold shares at current levels.

Guess? (GES:NYSE, $39.15, 300 shares, 5.24%): Guess? is an international retailer and wholesaler of apparel aimed at young men and women. We like Guess for its strong operational discipline, improving North American business, and growing international exposure. On Wednesday a Brean Murray, Carret analyst wrote that the company's stores have experienced steady consumer traffic in recent weeks. Guess continues to be one of the biggest beneficiaries of a weak U.S. dollar in the specialty retail space. We will look to add to our position on a pullback in shares toward the mid- $30s.

Kansas City Southern (KSU:NYSE, $28.92, 300 shares, 3.87%): The company operates rail freight transportation services in the U.S., Mexico and Panama. The strategy for this play hinges on an economic recovery, as the company has exciting growth drivers that should push the stock higher in an improving market environment. According to a research analyst at Morgan Keegan, Kansas City Southern posted a 3.2% decrease for the week in overall traffic in the U.S. and Mexico. The total traffic decline comes to 6.5% so far in the fourth quarter, an improvement from last week's reading. The total traffic decline came to 10.1% for the third quarter, better than the traffic decline of 18.8% in the second quarter and the 15.1% decline in the first quarter. Shares of Kansas City Southern made a new 52-week high this week. We will look to build up our remaining position in the stock on weakness.

MercadoLibre (MELI:Nasdaq, $45.00, 300 shares, 6.03%): The company operates the largest online trading platform in Latin America. Internet penetration remains low throughout Latin America, providing MercadoLibre with an opportunity for huge growth potential. This week, shares of MercadoLibre held their ground on little company-specific news. We will continue to hold our position in the stock at current levels.

Perfect World (PWRD:Nasdaq, $46.35, 250 shares, 5.17%): The company is a leading Chinese video-game developer, and its stable of successful existing games will likely continue to generate solid revenue as the company develops and launches new titles. Perfect World is also a play on increasing broadband penetration and consumer spending in China. On Wednesday, a Bank of America/Merrill Lynch analyst raised his 2010 revenue and earnings-per-share (EPS) numbers for Perfect World, as well as his price target on the stock (from $49 to $55). The company is scheduled to report its third-quarter earnings results on Monday, Nov. 16 before the market open. We believe shares are worth holding at current levels, and will reevaluate our outlook subsequent to the earnings report.

Shaw Group (SHAW:NYSE, $28.19, 175 shares, 2.20%): The company offers an array of services, including engineering, design, and construction, for projects ranging from power plants to environmental cleanup. Its 20% stake in nuclear plant designer Westinghouse Electric gives Shaw exclusive access to engineering work on any its AP1000 reactors, which leaves the company poised for huge upside potential based on prospective nuclear projects. Late last week, shares were boosted partly on news that Shaw's CEO, James Bernhard Jr., bought 250,000 company shares for $6.4 million. Insider buying of this magnitude is meaningful. This week, shares of Shaw held their ground. We continue to believe that the downside in the company is limited by the company's huge cash position and low expectations for its business units, and that there could be tremendous upside in the stock should a "nuclear renaissance" take hold in the U.S. As such, we will continue to hold our current position in the name.

VanceInfo (VIT:NYSE, $18.73, 300 shares, 2.51%): VanceInfo is a leading offshore information technology (IT) services vendor headquartered in China that is focused on research and development (R&D) and enterprise-solutions services. Interactive Data Corp. has ranked VanceInfo as the top Chinese offshore software-development service provider for the North American and European markets. On Monday, a Susquehanna analyst positively previewed VanceInfo's upcoming third-quarter results, which are scheduled for release Tuesday Nov. 17 before the market open. We will continue to look to build up our position if the stock experiences any material weakness along with a market pullback.

Vocus (VOCS:Nasdaq, $17.78, 400 shares, 3.17%): Vocus is a small-cap company in the software as a service (SaaS) industry, focusing on providing public relations (PR) management to companies across a wide range of industries. We believe that the company's near-term success depends entirely on a pickup in the macroeconomic environment. Shares of Vocus slid 4% on news that the company's CEO, Richard Rudman, sold 300,000 shares last week. This does make us incrementally cautious on the name. We will continue to hold our position in this name for the time being, and we will wait for signs of improvement in Vocus' fundamentals before becoming more bullish.

Regards,

Bryan Ashenberg & the TSC Research Team

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