Table of Contents

1.  Market Outlook
2.  Dolby (DLB)
3.  Panera Bread (PNRA)
4.  Additional Investing Ideas
5.  Investor Trivia -- Asset Allocation
6.  Featured Topic -- Stock Buybacks
7.  Free Investing Resources

Today's Top Stock Picks

Hefty Profit Margins Make Dolby an Appealing Investment
Overlooked by the market, this firm, with profit margins of nearly 30%, stands to earn a nice return for investors. Read More. . .

Panera: A Phenomenal Growth Story Trading at a 29% Discount
Shares of restaurant chain Panera Bread (PNRA) have struggled recently, leaving an attractive entry point for value investors.
 Read More. . .

Market Outlook

Like a spine-tingling roller coaster, the market has been wildly unpredictable lately -- with each new rise or fall creating or destroying billions in market capitalization in the span of a few hours.

Since peaking above 14,000 on July 19th, the Dow Industrials have made a habit out of posting tumultuous triple-digit price swings. In fact, when the Dow kicked off last week with a 286-point surge on Monday, it marked the eighth time in ten sessions that the index moved at least 100 points in one direction or the other. However, for those who happen to like volatility, the real excitement was still to come.

Over the next couple days, the market's gyrations were enough to make even hardened market watchers a little dizzy. On Wednesday, for example, the Dow shot up nearly 200 points on better-than-expected earnings from tech bellwether Cisco Systems (Nasdaq: CSCO), only to fall all the way back into negative territory on unsubstantiated rumors regarding Goldman Sachs (NYSE: GS), before rebounding to finish with yet another triple-digit gain.

At that point, the broader S&P 500 was riding its strongest three-day winning streak in nearly five years. Yet, just when the worst appeared over, a move by French bank BNP Paribas to suspend withdrawals from three troubled funds holding subprime debt-related assets sent the Dow reeling nearly 400 points on Thursday.

Nevertheless, when the dust finally settled, the Dow finished the week with a modest gain of +0.4% -- snapping a three-week losing streak. Meanwhile, the Nasdaq and S&P finished with solid gains of +1.4% and +1.5%, respectively.

Right now, investors remain on high alert for further signs of tightening in the credit markets. Any significant news on that front is likely to catapult stocks one way or the other, and we might continue to see headlines containing the phrase "biggest one-day gain (or loss) in years."

So, why has turmoil in the credit markets caused a global panic? For one thing, a rash of defaults has taken a heavy toll on financial stocks -- which make up the heaviest weighting (around 20%) of any sector in the S&P 500. At the same time, it has forced lenders to clamp down on the flow of inexpensive cash that corporate and private equity borrowers have used to fund a wave of acquisitions.

It is liquidity that oils the capital markets, and when funding is hard to come by, everything seizes and comes to a grinding halt -- much like an oil-starved engine. To combat the risk of a credit crunch, the Fed (as well as its counterparts in Europe and Asia) has intervened by injecting tens of billions into the banking system to keep overnight lending rates low

For now, it's difficult to say whether these moves will work. However, it's a safe bet that changes in the credit markets will go a long way towards filling in the blanks on future market headlines.

In the meantime, it remains business as usually for many investors -- and that means hunting for new investment ideas. Below, Timothy Lutts, Editor of Cabot Wealth Advisory, pushes the play button on Dolby Labs (NYSE: DLB, $35.44). Think Dolby is merely an outdated relic of the audio tape era? Think again. This patent-rich company is continually reinventing itself.

Also in today's TopStockAnalysts Digest, I explain why now might be the time to place an order for Panera Bread (Nasdaq: PNRA, $43.31). The casual dining chain is expected to deliver red-hot earnings growth of +22% annually over the next five years, yet because of short-term concerns the stock trades at a cool 29% discount to its fair value.

Good Investing!

-- Nathan Slaughter
Co-Editor
TopStockAnalysts Digest

America has an ongoing pursuit of happiness and an ongoing preoccupation with entertainment. For all the carping about hardship in America, the fact is that everyone buying a big screen TV, or an iPod, or going on a trip to Disney World, or a trip to Las Vegas, is signaling that they've achieved the basics, they've worked hard enough, and now they're going to spend some money to have some fun!

So where's the investment angle here? Not in Apple (Nasdaq: AAPL). I think Apple -- regardless of how many million iPods, iPhones, and iMacs it sells in the year ahead -- is too well loved to be a good investment here. All the stock's great growth phases have begun when the company was unloved. Today, I think you're better off looking for companies with great growth prospects that are not well loved. And happily so.

Most people over a certain age will remember Dolby Labs (NYSE: DLB, $35.44) as the company whose noise-reduction system saved us all from tape hiss back in the mid-1960s, when reel-to-reel tape machines ruled the audio world. Now the company has predicted that it would continue to capitalize on the growth of HDTV and personal computers. Dolby's revenues come from royalties on its patents for improving the sound of DVD players and other electronics. Most movie theaters also use Dolby to improve sound. This is a straight revenue/profit story, supplemented by high profit margins, and Dolby looks to be on track.

Dolby's sound-enhancing wizardry can be found on both HD DVD and Blu-ray disks, on PCs, game consoles, and portable media players, and on sound systems from headphones to movie theaters. According to one estimate, over 2.2 billion devices have been built to include one or more Dolby technologies, which helps to explain how roughly three-quarters of the company's revenues are generated by licensing.

Dolby Laboratories has also announced the decision by the Digital Video Broadcasting Project (DVB), an industry consortium committed to designing global standards for digital TV, to include Dolby Digital Plus audio technology as an option in the latest version of its Internet protocol television (IPTV) specifications.

IPTV. It's going to be big, and Dolby's going to be part of it.

So, while Dolby is a well-respected name -- and for good reason -- it's not a well-loved stock. First, it has made no one rich; it came public only two years ago, and it's "just" +88% above its IPO price today.

And second, many baby-boomer investors still identify Dolby best with its original tape-oriented products, and assume the company is therefore on the trailing edge of technology, instead of the leading edge. But Dolby is a great example of a company that has used its patents to erect a high barrier to entry. And today, partly because these barriers give it pricing power and partly because it has a royalty-heavy revenue stream, it boasts profit margins of 28.6%. I think it's worth checking out.

Panera Bread (Nasdaq: PNRA, $43.31) -- One of the problems of investing in a high-flying growth stock is that investors are not at all forgiving -- even a hint of a slowdown can send the shares tumbling.

On the other hand, these irrational selloffs can knock such stocks down into value territory, giving nimble investors the rare opportunity to pick up rapidly growing companies at discounted prices. Such is the case with fast-casual dining chain Panera Bread, which has retreated from nearly $60 to around $40 over the past two months.

Panera operates a chain of more than 1,000 fast-casual eateries. The firm's popular bakery-cafe style outlets are well-known for their pastries and baked goods -- which are made with dough delivered fresh each morning.

Without a doubt, the fast-casual dining space is crowded. However, there is a reason why Panera has been awarded top marks for customer loyalty over and over again. The firm goes a step above your standard soup and sandwich meals -- think chicken & wild rice in a sourdough bowl or turkey & artichoke on rosemary & onion focaccia. And aside from its fresh, healthier entrees, customers can also relax in a quiet setting with complimentary high-speed Internet service.

Yet, with an average ticket of just $7 to $8, customers aren't paying much more than they would for a combo meal at their favorite fast-food hangout. As a result, the company occupies its own growing niche -- somewhere in between Burger King (NYSE: BKC) and Chili's (NYSE: EAT).

The results speak for themselves: revenues have soared +33% annually over the last five years, quadrupling from $200 million to around $830 million. At the moment, the average Panera bakery now rakes in weekly sales of about $38,200, which works out to about $2 million per year -- easily outpacing most of its rivals.

The shares have come under fire in recent weeks from a very demanding market. Much of the damage came after the company reported an -11% drop in second-quarter earnings amid rising costs and mediocre same-store sales growth. Worse still, the company issued a soft outlook for the upcoming quarter.

But it seems shortsighted to erase nearly one third of the firm's market capitalization just because costs have crept upward lately. While we do think rising commodity prices could continue to present a challenge, this is hardly a company-specific problem -- many others are battling it as well. And Panera will be in a better position than many to at least partially pass these additional input costs on to consumers.

Meanwhile, none of this is an indication that Panera's restaurants have lost their appeal. In fact, business already appears to be picking back up, as same-store sales (a key metric for restaurants and retailers) are expected to have rebounded sharply in July -- rising between +3.6% and +3.9%.

Investors should expect the firm to continue with its aggressive expansion plans -- there is room for the store base to grow from the current 1,100 to as many as 5,000. That is expected to help drive the firm's earnings up +22% annually over the next five years.

Based in part on that robust outlook, we have calculated a fair value of $61 per share -- about where the shares were trading back in June. Now that recently lowered full-year guidance has dampened short-term expectations, much of the risk in the shares has been removed. And given the company's solid long-term outlook, we think now is the time to act.