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Tuesday - April 5, 2005
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1. FEATURED EXPERTS
Here we cast the spotlight on a timely Featured Expert commentary that recently appeared on Zacks.com. Following the article you will find previews of other profitable commentaries with insights and recommendations from leading investment experts.
Back in mid-March, Genentech (NYSE: DNA) announced patients with non-small cell lung cancer treated with Avastin along with standard chemotherapy lived longer. The news gave Gententech’s shares, which were on a three-month slide a much-needed boost.
The National Cancer Institute sponsored the study that showed patients who received Avastin along with the standard chemo drugs paclitaxel and carboplatin lived a median of 12.5 months compared to 10.2 months for patients given standard chemotherapy alone. The results were published early because they showed some benefit in the treatment of a cancer that has a dismal cure rate. Additional details of the trial will be released at the May 2005 ASCO meeting. Genentech said it would seek FDA approval to market Avastin for lung cancer.
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The next big news for Genentech will be for the use of Avastin in metastatic breast cancer, with data released in late 2005 or early 2006. The study, E2100, is a Phase III study in HER2 negative, chemotherapy-naive metastatic breast cancer patients. The primary endpoint is progression-free survival. Non-small-cell lung cancer and metastatic breast cancer each represent market opportunities comparable or greater than colorectal cancer. In addition to the big solid tumor indications, Avastin is in Phase III trials for first-line renal cell carcinoma.
Avastin is the first-in-class angiogenesis inhibitor approved by the FDA in February 2004. Avastin was approved for first-line treatment of colorectal cancer. Genentech has initiated discussions with the FDA to submit an Avastin sBLA for second-line colorectal cancer (CRC) based on the positive ECOG 3200 study data, which combined Avastin and the FOLFOX chemotherapy regimen. On March 21, near-term competitor Novartis and Schering AG announced its oral angiogenesis inhibitor PTK/ZK was ineffective in stopping the progression of colorectal cancer in a key Phase III clinical trial. PTK/ZK is being tested in both first- and second-line CRC in combination with FOLFOX. This news should give Avastin a significant marketing advantage since Novartis and Schering AG said they could file a BLA for PTK/ZK in early 2007, a delay from their original filing.
Avastin has become the standard of care for CRC with more patients receiving Avastin than any other branded therapy for CRC. Moreover, Avastin is broadly being evaluated in multiple new tumor indications as well as in various combinations with chemotherapy and biological drugs. Even if Avastin faces an increasingly competitive market for CRC, it can expand into new indications ahead of the competition, and the broadest label in the class would support long-term growth. As Nadine Wong and her team see it, Genentech should have no problem reaching its long-term financial goals for 2006-2010, with a targeted average annual EPS growth of 20%. Avastin will remain a major contributor to revenue and an earnings growth driver. Look for angiogenesis inhibition to be a hot topic at the upcoming ASCO meeting in May.
BioTech Stock Report is an `information integrator` specializing in biotechnology stocks. We bring together the mass of medical scientific data that is available and interpret it for you. Each report gives a detailed rationale explaining the technology, examining new products, evaluating their potential, the markets and the likely impact it has on a company’s future. Learn more about this newsletter and free trial offer at: http://at.zacks.com/?id=1779.
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Donald Rowe has no doubt that the Dow Jones Industrial and the Nasdaq will more than double from current levels before 2008. Read about the positive signs this expert sees and take a look at one of his stock profiles. More...
Richard Moroney has upgraded several small-cap stocks. Read about these three companies and find out why this expert is expecting big things in the future. More...
Don Dion says the economy is expanding nicely as the stock market has gotten off to a decent, although uninspiring start this year. Take a look at a few positive indicators and learn how to invest for retirement through mutual funds. More...
Supply is leaving the commercial and hotel markets these days in order to provide condos. Bill Martin and Matt Ragas highlight the reasons behind this trend, and how it fits into their bear thesis on real estate and mortgage lenders. More...
Richard Rhodes` short-term model is showing divergences consistent with `bottoming action.` Learn what this could mean moving forward, and then find out which side of the market you should be on. More...
Featured Expert articles are courtesy of the 60+ leading investment newsletters that have partnered with us to create the Zacks Expert Advice service. Check out the Experts section of Zacks.com daily to find profitable stock picks and timely market commentary at: http://at.zacks.com/?id=1340.
2. BEST OF ZACKS INDEPENDENT RESEARCH
The analysts from Zacks Independent Research create a mountain of insightful equity research everyday of the week. Here you will find the best of that information recently published on Zacks.com.
BULL OF THE DAY
Comstock Resources (CRK) - Strong Growth Prospects
Anthracite Capital (AHR) - Dividend at Risk
Turbulence in Jobs Numbers Continues
Slower Growth Expected for Insurance Stocks
3. WEEKLY COMMENTARY: Earnings & Sector Update
Zacks.com offers 3 unique weekly commentaries that all further
our mission to help you Profit from the Pros. Today’s
commentary is the Earnings & Sector Update from Nick Raich,
Director of Research for Zacks. His weekly article explores
the important trends in recent and upcoming earnings data. This
report is a must for any investor seeking to buy into the
hottest industry sectors and avoid those out of favor. See
the full report at: http://at.zacks.com/?id=1363.
Earnings & Sector Update
First quarter earnings season will soon be the main focus for investors. Many view Alcoa’s upcoming earnings release as the unofficial start to earnings season because the company is usually the first Dow component to release results for the quarter ended March 31, 2005. At Zacks, we actually start the clock ticking for first quarter earnings sooner. We include companies that have released results for the quarter ended February 28, 2005 as first quarter 2005 figures. Therefore, there have already been 27 companies in the S&P 500 that have announced first quarter 2005 results.
So far, 81% of those companies have met or exceeded estimates. The average company had earnings 23% higher than last years first quarter. The current first quarter 2005 consensus estimate is for 11% earnings growth. Based on the early reporters and relatively light negative news during preannouncement season, the Zacks forecast is for 16% first quarter 2005 earnings growth.
The Materials and Oil-Energy sectors are expected to post the largest year-over-year gains in earnings during the first quarter. We have no reason to believe otherwise. The lowest first quarter earnings expectations, among the consensus, are in the Consumer Discretionary and Financial sectors. As we stated above, the current 11% first quarter earning growth expectation for the S&P 500 is most likely too low.
Although we expect the majority of companies to meet or exceed their estimates, if oil prices continue to rise, we believe forward guidance will not be raised after companies release results. If this occurs, it will not be good for a rising stock market. We caution, without the raised earnings guidance, the market could face continued near-term selling pressure.
This week will still be rather light on the earnings front as only 115 companies should report earnings. Ten of those companies will be in S&P 500. It will be during the week of April 11th that we should see a noticeable increase in the number of companies releasing results.
66% (of the companies) exceeded estimates
More at: http://at.zacks.com/?id=1363.
Table of Contents for Rest of the Report
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One of the best-performing technology industries is computer storage, and the All Stars have several recommendations from this space to help you stock up on profit potential. More...
Kevin Matras goes over a winning, longer term, dividend investment strategy. Check out the stats over the last 4+ years on this consistent performer. In both up markets and down markets, this strategy has been able to show impressive returns that handily beat the market year after year. More...
4. TRADING STRATEGIES: Model Portfolios
Zacks.com is proud to share with you some of the best trading strategies that truly allow you to Profit from the Pros. Today we feature our 2 exclusive model portfolios on Zacks.com (All Star Analyst and Brokerage Buy List). See below for highlighted stocks currently in these profitable portfolios.
This exclusive portfolio contains only those stocks recommended by 5 or more of the best stock pickers on Wall Street based upon performance (aka All Star Analysts). Here are 2 stocks currently appearing in the All Star Analyst Portfolio.
CACI International, Inc. (NYSE: CAI) recently announced that it was selected as the prime contractor to support the Military Sealift Command (MSC) Professional Business Information Technology Support Services Contract. Under the terms of the contract, which has a ceiling of $20.4 million, CACI will offer professional and information technology services to MSC as it manages processes and programs across its enterprise. “CACI offers demonstrated expertise to help the Military Sealift Command transform its operations and enhance readiness support, according to Dr. J.P. London, CACI Chairman, President and CEO. “Our professional services, systems integration, and business process reengineering solutions assure MSC of high quality and improved productivity.” CACI is one of the leading government information technology contractors, and deals like this help to keep it a favored stock with several All Star analysts. To continue your research on CAI, click here.
EOG Resources, Inc. (NYSE: EOG): In early February, EOG Resources reported fourth quarter adjusted, non-GAAP earnings per share of $1.61, or approximately 81 cents after a 2-for-1 stock split. The result was about +10% on top of the consensus and well above year-ago levels. The quarter put an end to a productive 2004, in which the company’s operations performed above its original expectations. During the year, the company said it delivered record production from the drillbit, continued to develop long-term production growth prospects and maintained its reputation as a low-debt, low-cost producer. EOG Resources believes that it’s in a great position to reach its production growth goals while keeping its momentum going, and the All Star analysts agree. To continue your research on EOG click here.
Which brokerage analysts are the best stock pickers in their field and what stocks do they recommend today? Find out here with the Zacks All Star Analyst Survey, the best way to find those rare few analysts whose recommendations are worth following. http://at.zacks.com/?id=1419
Long-term investors take note. The stocks in the portfolio must be on the core recommended list of at least three of the top 14 brokerage firms. These stocks tend to be large-cap, "blue chip" companies and is for conservative, long-term investors.
Automatic Data Processing, Inc. (NYSE: ADP) experienced positive momentum in each of its businesses in its fiscal second quarter. The company said the quarter was its first in more than three years in which the yield on its investment portfolio exceeded the same quarter in the previous year. Automatic Data Processing is optimistic for future growth, and increased its revenues guidance to between +7% and +9% while refining its earnings per share growth estimate to between +12% and +15%. With three of the top brokerage firms recommending Automatic Data Processing, it’s obvious that this company isn’t alone in its enthusiasm for the future. To continue your research on ADP, click here.
Anheuser-Busch (NYSE: BUD) announced that Budweiser Select, its newest entry in a long line of innovative beers, would be available nationwide on February 21st. The company said it is meeting consumers’ demand for variety. “Anheuser-Busch has a history of developing new brands when opportunities emerge in the marketplace,” said Don Meyer, director of Budweiser Select marketing, Anheuser-Busch, Inc. “The company has had great success in being the first to meet consumers’ needs as they arise.” 2005 will likely be a challenging year for the beer business, but four brokerage firms continue to rate Anheuser-Busch as one of the top large-cap stocks to own. To continue your research on BUD, click here.
5. OPTIONS CENTER
Zacks has partnered with the leading options experts, Schaeffer’s Investment Research, to provide you the best options commentary, research and trading tools on the market today. Read below more on Schaeffer’s Tools to Profit with Options.
This week we’ll take a look at my personal favorite filter, the Put/Call Ratio over 1.0, and try to see if we can make some money – isn’t that the point? As regular readers already know, this filter is used to find bullish plays. The put/call ratio is just what its name implies - it measures the number of bearish puts to bullish calls in near-term options. Being contrarians, we love to see a huge build of bearish puts compared to bullish calls, as this suggests a huge amount of skepticism toward a stock.
Before I go any further, I want to take a step back and explain why it is we like to see a lot of bearish puts on a stock. You might think that this bearishness would be bad news for the stock, but we view it a little different. From our contrarian point of view, this bearishness means that there is still money on the sidelines, just waiting to push the shares higher. The key though is to have strong price action in the face of this pessimism. If you see a stock that is underperforming and it has lots of puts, don’t play it, as this doesn’t fit our contrarian way of thinking.
Now back to the filter. We know that this filter will find stocks with a Put/Call ratio coming in a 1.0 or higher, meaning that are more puts than calls in near term options. But another great feature about this filter is you can then take the list and sort it by the highest Put/Call ratio. This is a great advantage, as it shows us the very most pessimistic stocks possible without really even doing much work at all.
As I scanned down the list, one name that caught my eye was retailer Bebe Stores (BEBE). This is one that we’ve played here in the past and it's also in a strong sector, as select retailers have been rocking this year.
After doing a few more minutes of work, we find that there are twice as many bearish puts to bullish calls, yet the price action has been stellar – exactly what you want to see. Two other areas we look at to determine the sentiment is the shorts against the stock and the analysts. If both are bearish, then we have even more of a reason to be bullish on the shares. As for the analysts, they haven’t caught on yet, as there are only four “buys” out of nine total recommendations, leaving plenty of room for upgrades down the road. As for the shorts, they keep trying to pick a top, as over 30 percent of the float is sold short – more than enough to spark a short covering rally at anytime. Also the number of shares sold short jumped over 40 percent last month, a huge jump for such a short time. These shorts will only help add to a rally, as they move to cover (buy back) their bearish bets and thus provide more buying pressure.
So there you have it, a strong performer in the face of some pretty solid skepticism. And it all came about thanks to the filter and a few minutes of work. So let's put our money where our mouth is and play a BEBE call. As of 2:00 p.m. on Wednesday, March 30 you could have bought a BEBE June 30 call for $5.00 a contract. Let's go ahead and say we buy that one and check back in after a few weeks and see how we do.
In conclusion, although this trade looks like a good idea, always remember that when you are dealing with options you could very well lose your entire investment if conditions change quickly. Still, given the enormous leverage that options provide, with the right money management and effort - you to can succeed at this game. Please continue to use all of the filters on this page and have fun.
To learn more about the Put/Call Ratio filter, click here.
Bernie Schaeffer says that the worst of all possible strategies for your investments is to be 100-percent invested in an index fund. Read about the type of investing this expert is recommending and learn about some option plays from his Aggressive Portfolio. More...
Dr. Edward Olmstead can help you dress for success with an option trade from the retail industry. More...
Discover all the tools and commentary available from the Zacks.com Options Center at: http://at.zacks.com/?id=614.
OTHER TOOLS FROM ZACKS
At the heart of Zacks Investment Research is the Zacks Rank investment philosophy that continues to vastly outperform the market. Our Zacks #1 Ranked (Strong Buys) have produced the following results for investors:
And just as importantly, our #5 Ranked stocks (Strong Sells) have alerted investors as to which stocks to dump from their portfolios to avoid unnecessary losses.
To truly take advantage of the Zacks Rank, you need to first understand how it works. That`s why we created the free special report; Zacks Rank Guide: Harnessing the Power of Earnings Estimate Revisions. Download a free copy now to prosper in the years to come at: http://at.zacks.com/?id=1346.
Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=1353.
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