Schaeffer's Street Chatter Highlights the Following Stocks: Caterpillar, 3M Company, Sun Microsystems.

CINCINNATI -- Today's "Street Chatter" from Schaeffer's Investment Research focuses on: Caterpillar (NYSE:CAT), 3M Company (NYSE:MMM), and Sun Microsystems (NASDAQ:SUNW). "Street Chatter" is a report that analyzes three newsworthy stocks that are generating a lot of attention on Internet message boards. "Street Chatter" is published on www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research.

For additional information about this report or to have it delivered to you free via email every day click on the following link: http://www.schaeffersresearch.com/redirect.aspx?CODE=PRSC12M&PAGE=1 .

Street Chatter:

Caterpillar

Analyst activity is apparently the name of the game today, as all three of today's selections have garnered either the ire or approval of the brokerage bunch. Blue-chip construction equipment firm Caterpillar (NYSE:CAT) leads things off for us this morning, after UBS downgraded the stock to "neutral" from "buy." The broker said the move reflects "our expectation of decelerating end-market growth and stock prices now approaching what we believe is fair value."

Obviously, CAT has reacted rather negatively to the news, dropping more than two percent so far today. However, while the shares have gapped below their 10-day and 20-day moving averages, CAT's decline appears to have been halted by its ascending 10-week moving average. What's more, since May 2005, the security has only closed three sessions below the support of its 10-week and 20-week moving averages. Personally, despite the upgrade, I feel that a little consolidation in the equity could be a good thing following its meteoric rise during the past several months - especially after setting an all-time high just a few sessions ago.

Quick Facts on CAT

--Percent of analysts tracked by Zacks who rate the stock with a "buy": 36%

--Number of analysts tracked by Zacks: 11

--Short interest as a percent of float: 1.21%

--Short-interest ratio: 1.83

--Schaeffer's put/call open interest ratio (SOIR): 1.02

--SOIR percent rank: 99%

--Overall Schaeffer's Equity Scorecard rating: 8.0

Looking over the sentiment figures, CAT has some obvious room for improvement. Prior to this morning's downgrades, seven of the 11 analysts covering the shares rated them a "hold," leaving room for upgrades. Meanwhile, options players are trying to call a top, as the stock's SOIR is certainly at a pessimistic extreme. The only concern is the lack of short-covering support, but with CAT leaning heavily on a supportive 10-week moving average on today's pullback, I don't see this as much of a detractor from a long position on the shares.

That said, those willing to lay it on the line might consider a short- to intermediate-term call on CAT at the 75 level. A more conservative play, especially if you are concerned about a pullback in the broader market at this point, would be an intermediate- to long-term call at the 70 level, or even a put sell at the 70 strike.

Click the following link to see a Weekly chart of Caterpillar since May 2005: http://www.schaeffersresearch.com/wire?ID=15664 .

3M Company

3M Company (NYSE:MMM) has experienced just the opposite of its aforementioned blue-chip brother, but their outlooks (from my perspective) couldn't be more different. Earlier this morning, Merrill Lynch lifted MMM to "buy" from "neutral," stating that the company's overseas exposure means it is poised to benefit from faster international economic expansion.

Now, I'm not here to argue with Merrill Lynch's reasoning, but it seems to me that the technical picture says it all when it comes to MMM's performance as an equity. After topping out at 90.29 in June 2004, the shares have not seen much upside, being pressured lower by their 10-month and 20-month moving averages. Furthermore, while MMM rallied quickly above its 20-month trendline, which it has not closed a month above since March 2005, the shares appear to be struggling with maintaining their new-found perch. Furthermore, the round-number 80 level, and its plethora of open call positions in the front three months of options, is also a major concern for the security.

Quick Facts on MMM

--* Percent of analysts tracked by Zacks who rate the stock with a "buy": 45%

--Number of analysts tracked by Zacks: 11

--Short interest as a percent of float: 0.41%

--Short-interest ratio: 1.14

--Schaeffer's put/call open interest ratio (SOIR): 0.49

--SOIR percent rank: 0%

--Overall Schaeffer's Equity Scorecard rating: 4.0

On the sentiment front, there just isn't that much going for MMM right now. There is practically no hope of short-covering support on a pullback from today's rally, nor is there any pessimism in the options pits, as they have surged to their most optimistic level of the past year. Furthermore, following this morning's upgrade from Merrill Lynch, the analyst picture is beginning to favor downgrades going forward.

Looking for a pick on this Post-It Note guru? After today's surge higher, I would feel rather comfortable diving into an intermediate- to long-term put at the 80 level. Not only is this strike home to peak call open interest for the front three months of options, but the stock still must prove that it can hold off its monthly trendlines and short-term resistance at the 78 level. Obviously, a more conservative play would be a long-term put position at the 85 level. In this case, some weakness in the overall market (which seems to be developing at the moment) would work in your favor.

Click the following link to see a Monthly chart of 3M Company since January 2005: http://www.schaeffersresearch.com/wire?ID=15664 .

Sun Microsystems

Sun Microsystems (NASDAQ:SUNW) has jumped more than six percent higher following an upgrade from Morgan Stanley from "underweight" to "overweight." The brokerage firm cited the belief that cost-cutting efforts should spur the company toward consistent profitability.

Now, I want to make it clear that I'm not just going against these analysts just for the sake of contrarianism. The first warning flag on SUNW lies in the stock's monthly chart. Moving averages aside, SUNW has long struggled with resistance in the 5.50 area. In fact, since June 2002, the shares have only closed one month above this level. Upgrades or no upgrades, this type of performance does not instill a drive in me to go long on the shares at this point.

Quick Facts on SUNW

--Percent of analysts tracked by Zacks who rate the stock with a "buy": 11%

--Number of analysts tracked by Zacks: 18

--Short interest as a percent of float: 1.62%

--Short-interest ratio: 1.14

--Schaeffer's put/call open interest ratio (SOIR): 0.27

--SOIR percent rank: 39%

--Overall Schaeffer's Equity Scorecard rating: 6.0

Scanning the sentiment data listed above, you can see that there is really only one thing going for SUNW right at the moment. If today's surge higher is any indication, upgrades from the rather bearish bunch of analysts configured against the shares could certainly throw a monkey wrench into any bearish designs on SUNW. However, taking a look at a graph of Zacks' analyst ratings, this group has been rather stagnant for quite some time, hinting to me that the likelihood of upgrades remains a remote possibility at best.

Combining this with a bullish options crowd, and a definite lack of support on the short-selling front, I am inclined to go against our Schaeffer's Equity Scorecard rating of 6.0 and hazard a guess that the path of least resistance for SUNW lies to the downside. As such, if I were a betting man, purely on the odds portrayed in the technical outlook I'd go with a short-term put position on the shares at the six strike. Naturally, if you are a bit more concerned that SUNW may break out to the upside above the 5.50 level, then a longer-dated position may be in order.

Click the following link to see a Monthly chart of Sun Microsystems since May 2002: http://www.schaeffersresearch.com/wire?ID=15664 .

The best way to take advantage of the timely Schaeffer commentaries is to sign up to receive their free e-newsletters -- Opening View, Market Recap and Monday Morning Outlook. Click here to have the Schaeffer's commentaries delivered to you free via email every day. http://www.schaeffersresearch.com/redirect.aspx?CODE=PRSC12M&PAGE=1 .

About Schaeffer's Investment Research (www.SchaeffersResearch.com)

Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, is a financial information and trading resources company. It publishes Bernie Schaeffer's Option Advisor, the nation's leading options subscription newsletter. The firm's contrarian approach focuses on stocks with technical and fundamental trends that run counter to investor expectations. The firm's website, http://www.SchaeffersResearch.com , is recognized as one of the leading information sources for stock and options traders and was cited as the top options website by both Forbes and Barron's. Click here for more details about Schaeffer's trading methodology: http://www.SchaeffersResearch.com/method .