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 company earnings forecasts. Objective elements include volatility of past operating revenue, financial strength and company cash flows. Sears Holdings ( SHLD) operates through three segments: Kmart, Sears Domestic and Sears Canada. It has been downgraded to a hold from a buy. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, it has also shown unimpressive net income growth and poor profit margins. In addition, Sears' stock price has declined 36% in the 12 months prior to Nov. 21. The company had been rated a buy since March 2006. Sears reports its third-quarter earnings before the market opens on Nov. 29. Clothing retailer The Gap ( GPS) has been upgraded to a buy from a hold. The company's third-quarter net income increased 25.4% to $237 million from $189 million in the same quarter last year. Its earnings also increased to 30 cents per share from 24 cents a share in the third quarter of 2006. The Gap's debt-to-equity ratio of 0.04 is below that of the industry average, implying that there has been very successful management of debt levels. However, its quick ratio of 0.63 displays a potential problem in covering short-term needs. The company's strengths outweigh its feeble stock price performance, which has declined by 0.43% in the 12 months prior to Nov. 21. The Gap had been rated a hold since September 2006.