Table of Contents

1.  Market Update
2.  Offshore Drilling
3.  Kinetic Concepts (KCI)
4.  Additional Investing Ideas
5.  Investor Trivia -- The Biotech Stock that Delivered Gains of +9,000%
6.  Featured Topic -- Decoding the Dividend Yield Formula
7.  Free Investing Resources

Today's Top Stock Picks

Fed Up With Financials? Go Drilling Instead
With the markets rocking and rolling over the last two weeks, investors need to catch up on a huge development in offshore drilling. 
Read More. . .

This Cutting-Edge Medical Company has Room to Rise +65%
Deep wounds heal faster with Kinetic Concepts' revolutionary products. And their stock might just be the cure for an ailing portfolio.
Read More. . .

Market Update

Not to sound overly dramatic, but we have watched history unfold before our very eyes in recent days. Who could have imagined that the stunning takeover of mortgage financiers Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) was just a prelude, with the main act still to come?

The week began on a somber note when Lehman Brothers finally succumbed to its wounded balance sheet and filed for bankruptcy, an ignominious fate for a venerable company that predates the Civil War. Meanwhile, Merrill Lynch (NYSE: MER) also saw the writing on the wall and sought refuge in the hands of Bank of America (NYSE: BAC) in a hasty deal valued at $50 billion -- just a fraction of what the company might have fetched a year ago.

Merrill's sudden departure marked the third of Wall Street's five biggest and most storied investment houses to be pulled under by subprime quicksand. And there have been plenty of others struggling for a way out. In fact, insurance giant American International Group (NYSE: AIG) -- which has been insuring far more insidious things than cars and homes -- had gotten in over its head and finally sunk under the weight of $440 billion in credit default swaps.

By mid-week, confidence had rapidly drained out of the market and the major averages seemed almost destined to post one of their worst weeks in recent memory. At one point, demand for safety was so strong that yields on 3-month Treasury bills actually dipped into negative territory for the first time since 1940.

But on Thursday the government hatched a multi-faceted rescue plan that will temporarily ban short selling and give troubled financial firms a way to unload some of their most toxic, illiquid debt. The announcement, which came not a moment too soon, sent global markets soaring -- with the Dow gaining back almost 800 points off its lows and reclaiming nearly all the ground it lost earlier in the week.

Investors around the world are cheering the latest developments in the financial sector: London's FTSE Index rebounded +7% almost immediately; stocks in Shanghai jumped +10%, and the Irish Stock Exchange surged +25% in the first hour of trading

Below, Smart Profits Report Managing Editor Martin Denholm is swearing off financials. He's just tired of hearing about them, and who could blame him? In this week's issue, Martin points out that while the world was transfixed by the roiling of the markets, an important development was unfolding just under the radar screen -- and just offshore. He brings our Digest readers up to speed on the fascinating turn of events in offshore drilling.

After that, I explain why Kinetic Concepts (NYSE: KCI, $32.35) is extremely well positioned for growth. This overlooked medical technology company has turned in record financial performances over the last couple of quarters, but two key growth drivers could turbo-charge their results going forward. With a new acquisition and deeper penetration into foreign markets, KCI's success won't stay a secret for much longer.       

Good Investing!

-- Nathan Slaughter
Co-Editor
TopStockAnalysts Digest

You know what? I'm done with the financial sector for now. For the past week or so, everyone (except perhaps folks in parts of deepest, darkest Peru) seems to have pontificated ad nauseum about the woes within the sector. Sure, people want to know the details -- after all, this is one of the biggest financial meltdowns in history -- but just how much is enough? And it's not like the 24/7 television coverage added any clarity to the whole murky financial mess. 

Stock markets around the world tumbled following the recent bankruptcy of Lehman Brothers, coming just six months after Bear Stearns folded. The near-collapse of two other major American companies -- Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) in the housing sector -- added to the worry that Uncle Sam might have an increasingly tough time writing more checks. But apparently there was at least one more check in the checkbook, and The Federal Reserve used it to bail out American International Group (NYSE: AIG) to the tune of $85 billion.

While Bank of America's (NYSE: BAC) purchase of Merrill Lynch (NYSE: MER) served to alleviate some fears, attention quickly focused on the next potential card to fall. Washington Mutual (NYSE: WM) recently reported it added $4.5 billion in loan loss provisions for the current quarter, and Moody's responded by cutting the company's bonds to "junk" status.

But sliding somewhat under the radar is another important issue...

To Drill Or Not To Drill?
While the financial world frets, lawmakers in Congress are mulling over a vote on a wide-ranging new energy package -- one that contains a controversial measure. With a moratorium on offshore drilling set to expire on September 30th, Democrats have proposed lifting it -- a move that could pave the way for offshore oil drilling on the U.S. coastline.

In a U-turn from their original opposition to the idea, Democrats now suggest repealing the ban on offshore drilling, in place since 1981, as long as it's part of a wider energy plan. Having initially stated that offshore drilling wouldn't have enough of a positive impact on U.S. gasoline prices, the Dems' new proposal would give coastal states the option of drilling between 50 and 100 miles off their coastline. Any areas more than 100 miles from the coast would be totally open to drilling.

The vote comes at a good time, too...

Preserve The Environment, Or Pay $4 For Gas?
While oil prices have declined dramatically from the record high of $147.27 a barrel on July 11th, consumers still aren't seeing much relief at the gas pump. Not yet anyway. Yes, average prices have slipped back under the $4 a gallon level, but the devastation of Hurricane Ike crippled many refineries along the Gulf of Mexico and pushed the price back up.

In all, the hurricane forced the closure of 14 refineries in Texas and Louisiana, or 20% of U.S. refining capacity. That took 3.7 million barrels of production offline -- and both companies and experts in the region say it could be another week before normal operations resume.

So it's perhaps no surprise that public sentiment towards long-term offshore drilling has shifted in favor of exploration, in order to alleviate some of the pressure at the pump as well as break America's dependence on foreign oil resources, and provide a safety net from attacks to oil supplies in the Middle East and Africa.

Florida is one such state in favor...

Florida To Get Its Drills Out?
Florida's main tourist attractions are well documented: Theme parks. But the state is also home to other attractions, such as a wide array of wildlife. For as long as the offshore drilling ban has remained in effect, residents have argued that drilling would pose a threat to the state's lucrative coastline attractions.

But with gas prices having hit $4 a gallon, times are a changin'. And in a state that has now become the focal point of election campaigns, it's a crucial issue. That's where John McCain could pick up some support. According to a Mason-Dixon Polling and Research survey, 6 in 10 Floridians support McCain's pro-offshore drilling stance (a stance he made crystal clear in his speech at the recent Republican Convention, declaring, "We'll drill new wells offshore and we'll drill them now.")

Many agree with Florida's Lieutenant Governor, Jeff Kottkamp (a Republican), who says he and his fellow leaders in the state can drill offshore, while also preserving its natural beauty, thanks to newer, safer technology.

Quoted in the International Herald Tribune (IHT), executive director of the Florida Petroleum Council, David Mica, says natural gas could hold more promise than crude oil. That's because existing wells that were restricted because of the offshore drilling ban could be explored "in less that two years in an environmentally friendly sensitive way," due to modern technological advances.

Aside from the environmental issues, there is also a deeper reason for wanting to drill: National security. With foreign oil an increasingly unstable resource, due to Middle East tensions and Russia's recently renewed aggression, the need for alternative energy sources is unfortunately heightened, even if it means slightly comprising the environment.

You can see why: Almost two-thirds of America's 21 million barrels of oil usage per day are imported from the Gulf, Africa, and Latin America. But is offshore drilling the "cure all" for America's oil needs?

Massive Drilling Could Have Little Impact
The U.S. still gobbles up one-quarter of the world's oil production, yet only possesses 3% of the world's oil reserves, so drilling might not be enough. In addition, it may not have the quick and positive impact on gas prices that many expect. While many politicians are obviously keen to pander to voters' wishes at this time of year, some Republicans believe the Democrat plan is a crafty way of promoting offshore drilling, but one that doesn't actually boost domestic production very much.

Quoted in Reuters, Republican Roy Blunt of Missouri is one such dissenter, saying it "removes the financial incentive for coastal states to team up with the federal government to break our dependence on foreign oil and bring prices down at the pump."
Others point out that some states will be reluctant to participate if there is no revenue sharing plan. And still others complain that restricting firms from drilling within 50 miles from the shore means they can't take advantage of oil located in the outer-continental shelf.

In addition, the IHT notes that government analysis has shown that a widespread offshore drilling program "would result in a price reduction of perhaps two-tenths of one cent 18 years after drilling begins."

This issue is a longer-term concern -- but one well worth watching in the run-up to Election Day on November 4th.

P.S. Speaking of energy resources, the October Xcelerated Profits Report issue features a brand new natural gas play from commodities expert Lee Lowell. Having been involved with the commodities sector for 17 years, including six as a market maker in the NYMEX trading pits, where he set the prices for oil and natural gas, Lee tells me that this is a terrific opportunity to get into a depressed market at a bargain price. And having seen the play, you don't want to miss it. For more information, simply click here.