We've upgraded FirstMerit ( FMER) from hold to buy, driven by its expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share. FirstMerit's Gross profit margin of 68.6% has increased from the year-ago quarter. Revenue dropped by 9.5%, and EPS are down. ROE has decreased slightly. Net income fell 7.4% compared with the same quarter last year, to $29.1 million from $31.5 million. Despite the decline in its share price over the last year, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry. We feel, however, that other strengths this company displays compensate for this. We've upgraded Quest Software ( QSFT) from hold to buy, driven by its revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, increase in net income and expanding profit margins. We feel these strengths outweigh the fact that the company shows weak operating cash flow. Revenue increased by 8% since the same quarter a year ago, and EPS are up 16.7%. We expect the company's yearlong trend of EPS growth to continue. Quest has no debt to speak of and a quick ratio of 1. Net income increased by 15.3%, to $29.2 million in the most recent quarter from $25.3 million in the year-ago quarter. Quest's gross profit margin of 93.2% has increased since the year-ago quarter. Its net profit margin of 14.5% trails the industry average.