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Leading analyst examines the airlines sector in this special Outlook for Airlines report from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info491.htm

TWST: Are there any stocks that you would advise investors to avoid?

Mr. Bradley: Avoid? Well, let’s put it this way. Over the last year there has been a polarization of the stocks on the Canadian software scene. There’s been a flight to quality, so it’s clear that investors have shifted their attention toward the larger cap, more liquid stocks with more experienced management teams, larger customer bases, and they have shunned the early-stage small and micro-cap stocks. I think you can probably see that the place to avoid at the moment is the small cap end of the market. Some interesting technologies will undoubtedly emerge from the small cap segment, as well as some of tomorrow’s great companies. But I think at the moment, the small caps suffer from illiquidity and volatility. Many of these companies’ stocks move around on news releases that may have only marginal impact on the overall success of the company. Therefore, you’re not really getting the benefits from the performance of the underlying business. It’s just too event-driven. So my view would be: stay away from the small cap end of the market; you should definitely be looking at the larger, better-capitalized stocks. By and large, that capitalization reflects the fact that they’re more mature businesses, but with strong growth prospects.

TWST: Within the smaller cap market, are there any specific stocks that you feel could prove to be a promising surprise for investors?

Mr. Bradley: Yes, there are a couple. One of them is Cedara Software (TSE:CDE.TO). It actually is interlisted on NASDAQ (Nasdaq:CDSW), although I’m not sure how much longer that will be the case. It’s a company whose business is providing medical diagnostic imaging software to the manufacturers of diagnostic equipment, so its customer base comprises companies such as Toshiba, Siemens, Philips, GE, etc. It’s very much a highly specialized software developer; it has sales of just over C$50 million a year. Cedara managed to get itself into an awful lot of trouble by investing in some new product offerings. I think there was probably a time when many people thought the company would go bankrupt. It clearly got close to that but stepped back from the abyss in time. Analogic (Nasdaq:ALOG) stepped in and took 19% of the company, and Cedara is slowly getting itself back on its feet. Most of the issues with its balance sheet are resolved and it is poised for a strong recovery. There are good reasons to believe that healthcare spending, particularly on things like diagnostic equipment, will remain strong and Cedara will be a beneficiary. In addition, Cedara has an opportunity through the Analogic investment to tap the market for explosive detection equipment — particularly the equipment that will be installed in all US airports in the near future to screen all checked baggage. The market opportunity for Cedara exists because the equipment that’s used to do the screening is basically medical MRI equipment and it needs software to help scan the contents of bags and identify what is found. That’s exactly what Cedara does, only normally they’re looking at the inside of the human body. So there’s an interesting opportunity for them, and they could see sales pick up significantly.

This special report includes:

1) Outlook for Airlines - In an in-depth (3,600 words) Analyst Interview, Raymond E. Neidl, Director and Equity Research Analyst at ABN AMRO Securities LLC, examines the outlook for the sector including and shares specific stock recommendations.