Table of Contents

1.  Market Update
2.  MFS Intermediate Income (MIN)
3.  PepsiAmericas (PAS)
4.  Additional Investing Ideas
5.  Investor Trivia -- An Asian Performer
6.  Featured Topic -- Nuclear Energy
7.  Free Investing Resources

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Market Update

Over the last two years, the Dow Jones Industrial Average has crossed through several major milestones -- passing the 11,000 marker in January 2006 and then cruising through 12,000, 13,000 and 14,000 in rapid succession. But last November we began making the roundtrip, and for the first time in two years the Dow has sunk back below 11,000.

Of course, such figures are more symbolic than anything else, but they do underscore the severity of this pullback.

Early on last week, it looked as if the market was poised to deliver solid gains and snap an ugly five-week losing streak. In fact, the Dow rebounded more than 150 points on Tuesday, but that attempt at a rally quickly fizzled out and gave way to yet another round of heavy selling.

Once again, rising oil prices were a major culprit. Around mid-week, crude prices slid more than $10 per barrel on a strengthening dollar and news that Hurricane Bertha posed no danger to drilling activity in the Gulf of Mexico. However, a surprisingly large drop in stockpiles, missile testing in Iran, and political unrest in Nigeria have all conspired to push oil back to a new record approaching $150 per barrel.

Of greater concern are the mounting troubles faced by mortgage finance giants Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Both companies surrendered more than half of their value in recent days on worries of a pending collapse. But the bloodletting appears to have stemmed now that the Federal Reserve and U.S. Treasury have issued a plan to assist the ailing mortgage behemoths.  

The two government-chartered companies are a vital cog in the economy, buying mortgages from commercial banks and then packaging them into bonds to sell to investors -- in the process ensuring that funds are available for millions of consumers looking to buy a home. Combined, the two firms either own or back a staggering $5 trillion worth of mortgages, almost half of the nation's $12 trillion mortgage market.

With all of these concerns weighing heavily on the market, the major averages suffered their sixth-straight weekly decline.

With the U.S. economic outlook growing more uncertain, defensive investments continue to look attractive. And they don't get any safer than Treasuries and other "AAA"-rated securities, which is exactly where MFS Intermediate Income Trust (NYSE: MIN, $6.19) goes fishing. Below, High-Yield Investing editor Carla Pasternak gives us the specs on this top-tier fund, which offers a tempting payout of 9.4%.

After that, I explain why value investors might want to pour themselves a tall, refreshing glass of PepsiAmericas (NYSE: PAS, $19.46). The bottler has superior margins and a growing product line, and is making a strong push into fast-growing markets throughout Eastern Europe. Yet, after taking a -40% spill so far this year, the underpriced stock now has the potential to appreciate by more than +50% before hitting its fair value.

Good Investing!

-- Nathan Slaughter
Co-Editor
TopStockAnalysts Digest

You won't find many closed-end funds with a better mix of high-quality bonds than MFS Intermediate Income Trust's (NYSE: MIN, $6.19) "AA+"-rated portfolio. The fund invests in "AAA"-rated U.S. Treasuries and agency bonds, foreign debt of developed countries, and high-grade corporate bonds. Management insulates the portfolio assets from currency volatility by holding them in U.S. dollars. A low duration of 4.4 years limits sensitivity to changing interest rates. The fund also may trade derivatives and use leverage to boost returns.

Dividend:  After introducing a managed distribution policy in January 2008, the fund's monthly dividend has doubled to a current $0.0484 per share. That equates to $0.58 a share annually, giving MIN a hefty yield of 9.4% of today's share price.

The distribution policy calls for the fund to make distributions at a fixed rate of up to 8.5% of the fund's average monthly net asset value each year. An annual management fee of 0.75% of the portfolio assets takes a small bite out of the income available for distribution.

In 2007, almost all of the distribution came from earnings and was taxable at the ordinary income rate. However, with the introduction of the managed distribution plan this year, the tax breakdown could vary.

The fund offers a dividend reinvestment plan that reinvests all distributions or only long-term capital gains at the shareholder's option. 

Performance:  Over the past year, the fund has delivered returns of over +10%, ranking in the top 1% of its category of taxable bond funds. The fund's managed distribution policy, along with its well-positioned holdings of outperforming U.S. Treasuries and foreign government bonds, have contributed to its strong results. The policy of holding assets in U.S. dollars does keep the fund from benefiting from the dollar's decline, however, it also makes for more stable returns -- which aren't buffeted by currency volatility.

In an effort to provide a more competitive yield, last October management widened the fund's mandate to allow investments in higher-yielding (but still investment-grade) bonds that may not be actively traded on the public exchanges. This change slightly reduced the portfolio's average credit rating from "AAA" to "AA+."

Outlook/Valuation:  Going forward, the fund's focus on high-grade U.S. and foreign government bonds should continue to yield above-average returns as investors seek safe havens amid volatile global markets. Over the long-term (5-plus years), we would expect the fund to provide steady average returns of about +6% annually, just as it has for the past decade. 

Despite its solid returns and high-grade portfolio, the fund is still selling at a discount of -9.2%, in-line with its 10-year average.

MIN offers a generous monthly income stream and steady returns amid volatile markets. It's appropriate for more conservative investors looking for high single-digit returns over the long term. 

Whether you prefer Coke (NYSE: KO) or Pepsi (NYSE: PEP), you have to admit both companies have done a remarkable job of putting their products in the hands of consumers around the world. There is virtually not a single restaurant, convenience store, or supermarket in the country that doesn't offer one or both of these brands.

But have you ever stopped to think about how those drinks made it from the factory to the soda fountain?

That's where bottlers like Minneapolis-based PepsiAmericas (NYSE: PAS, $19.46) come in. The company is a vital link in the massive Pepsi distribution chain, supplying Pepsi, Mountain Dew, 7-Up, Lipton Iced Tea, Aquafina and other brands to customers across the U.S. and in 15 countries around the globe. Overall, the company handles one-fifth of Pepsi's volume and covers a territory representing more than 120 million thirsty consumers.

Of course, PAS is not the only distributor of Pepsi products. But it is the second largest, with $4.5 billion in annual revenues. Furthermore, the company is firmly entrenched in 19 states throughout the Midwest U.S. -- where Pepsi is the carbonated beverage of choice and enjoys strong market share. Finally, PAS is far more profitable than its peers, with an operating margin of 10%, versus 8% for Pepsi Bottling Group (NYSE: PBG) and 5% for Coca-Cola Bottling (Nasdaq: COKE).

Though carbonated beverage growth remains sluggish for the most part, demand for teas, energy drinks and other new products continues to rise. In fact, PAS reported healthy volume growth of +8% from this category last quarter. However, the most promising growth opportunities don't lie in new products, but in untapped new markets.

Specifically, sales in Central and Eastern Europe continue to soar. Driven largely by robust demand in Romania and Poland, volume in this region spiked +62% last quarter. Those gains, along with stronger pricing and favorable currency translation, helped push sales in this area up an impressive +84%. More importantly, operating income generated in these faster-growing markets quadrupled last year and now accounts for over one-quarter of the firm's total -- and that percentage is likely to continue marching higher.

However, rising production and packaging costs and higher transportation expenses have weighed on the stock lately. After posting outsized gains of +60% in 2007, PAS shares have lost more than one-third of their value so far this year, sliding from $33 to just under $20.

Yet, returns on invested capital are expanding. And as the firm continues to consolidate market share in fragmented emerging markets overseas, earnings are forecast to rise at a healthy double-digit pace over the next few years. Management has also been using a large chunk of cash to repurchase shares and boost dividend payments.

Based on my calculations, PAS has a fair value of $30.  And investors who take advantage of this recent sell-off have an opportunity to see a +50% share price appreciation. This also represents a refreshing margin of safety for anyone interested in a conservative way to tap into the continued development of Eastern European countries.