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Monday's Top Upgrades (and Downgrades)

Rich Smith
October 29, 2012

This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, a rainy day on Wall Street is putting a damper on analyst activity, but we still have a few new recommendations for you: LifeLock (Nasdaq: LOCK  ) , a recent IPO that's getting positive press from Needham & Co., plus Anworth Financial (NYSE: ANH  ) and Yanzhou Coal Mining (NYSE: YZC  ) -- two companies getting knocked down by downgrades. Let's find out why.

Good news first
 It's looking rather dark and stormy out there, folks, so let's begin with some sunny news. This morning, before the storm shut things down, analysts at Needham & Co. were able to rush out an early morning buy recommendation on LifeLock -- the identity theft protector whose CEO famously dared the ID pirates to try and "steal my Social Security number."(And then they did just that).

LifeLock shares currently cost $7 even, which is 16% less than they began trading at on IPO day less than a month ago, and 30% below where the CEO had hoped to price the shares. Evidently, Needham thinks the sell-off is not justified, and it may have a point. Already profitable, LifeLock is an even better cash generator than its GAAP financials suggest, generating $33.7 million in positive free cash flow over the past 12 months, or more than twice its reported "net income" of $13.4 million.

Analysts expect normalized earnings at the company to increase upwards of 140% over the next couple years. At a today-valuation of just 18.5 times free cash flow, LifeLock just might be worth breaking into.

How much is Anworth worth?
 ...Not so for mortgage REIT Anworth Financial -- or not according to Maxim Group at least. Following a Thursday earnings report that showed Anworth earning 17% less in "core earnings" for Q3, than it earned last year, Maxim downgraded the mREIT from "buy" to "hold."

On the plus side, Anworth says it grew its b