Each weekday, TheStreet.com Ratings updates its ratings on the stocks it covers. The proprietary ratings model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Buy, hold or sell ratings designate how the Ratings group expects these stocks to perform against a general benchmark of the equities market and interest rates.

While the ratings model is quantitative, it uses both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenue, financial strength and company cash flows.

Automotive retailer

Pep Boys

(PBY) - Get Prospect Capital Corporation 6.25 % Notes 2018-15.06.28 Report

has been upgraded to hold from sell. The company has demonstrated a pattern of positive earnings-per-share growth over the past year. Pep Boys earned 6 cents per share in the first quarter of fiscal 2007 after losing 2 cents per share in the same quarter a year ago. The stock price has shot up 40.2% in the past 12 months. PBY had had a sell rating since July 2006.

Mortgage insurer

MGIC Investment

(MTG) - Get MGIC Investment Corporation Report

has been upgraded to buy from hold. The company's stock is trading at a significant discount to its peers. MTG's price-to-earnings ratio is just 11.1, compared to the thrift and mortgage finance industry average of 50.7. At the same time, MGIC has a slightly better return on equity than the competition, coming in at 11.1%. The company had held a hold rating since April 2007.

Oil and natural gas producer

TheStreet Recommends

Encore Acquisition

(EAC)

has been downgraded to hold from buy. Revenues were down 11.8% in the first quarter of fiscal 2007 compared to the same quarter a year ago. The company lost 55 cents per share in the first quarter of 2007 after earnings 36 cents per share in the year-ago period. Those numbers, combined with the fact Encore's stock trades at a premium to the rest of the industry, suggests there is limited upside potential going forward. EAC had been rated a buy since May 2005.

Bookseller

Barnes & Noble

(BKS) - Get Barnes & Noble, Inc. Report

has been downgraded to hold from buy. The company lost three cents per share in the first quarter of fiscal 2007 after gaining 14 cents per share in the same quarter a year ago. Return on equity is currently just 12.2%, far below the industry average of 33.8%. TheStreet.com Ratings feels the gross profit margin for Barnes & Noble has fallen to lower level than what is desirable, coming in at 29.2%. BKS had had a buy rating since October 2006.

Specialty chemicals and performance material manufacturers

Cabot Corporation

(CBT) - Get Cabot Corporation Report

has been downgraded to hold from buy. The company's gross profit margin has decreased over the past fiscal year and is currently just 22.6%. Along with this, the net profit margin of 5.8% trails the diversified chemicals industry average. CBT's stock price has fallen 2.4% in the past three months. Cabot had held a buy rating since October 2006.

Some recent rating changes are highlighted below.