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Wednesday - August 31, 2005
Want to view the archive of past issues? Go to: http://at.zacks.com/?id=62.
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.
If ever there was a time to prove the old adage that stocks “climb a wall of worry” now appears to be it. Surging oil prices, a hawkish Federal Reserve, the so-called housing bubble, and the fallout if it bursts, have rattled investors nerves. But these concerns have not translated to declining equity prices. Yes, stocks have pulled back from their recent highs, but the correction to date has been modest. Considering that the Russell 2000, the S&P 400, and the S&P 600 were in record high territory and many of the other major averages notched multi-year highs, the sell off has been relatively mild. In fact, there is nothing in the technical picture that suggests that the long-term trend has been broken. Still, these concerns mentioned above could play a significant factor down the road.
The market has withstood ten consecutive interest rate hikes by the Fed since June 30, 2004. Short-term rates are at their highest level in four years. The double whammy of high energy costs and high interest rates could significantly curtail consumer spending. According to Merrill Lynch total household interest (including credit cards and mortgage interest) and energy costs now absorb 19.1% of personal disposable income.
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While these worries have held the stock market in check, it has also prevented investors from getting overly optimistic. For example, when the major averages recently broke to new highs the Rydex Asset Ratio remained well below readings usually associated with previous market peaks. The ratio has risen from a neutral reading of .63 to a current reading of .92. Neither reflect extreme levels of optimism or pessimism on the part of investors. Based on its current direction, investors are becoming increasingly bearish. The last time it fell to these levels was in May.
In regards to other fundamental factors, both positive and negative developments continue to affect the market. On the positive front, the overall economy remains healthy and continues to grow at a reasonable rate, with real Gross Domestic Product growing at an annualized rate of 3.4% in the second quarter, as compared to 3.8% in the first quarter. Meanwhile, the housing market continues to show strength and inflation remains under control. However, on the negative front, business investment in capital equipment has slowed, as have durable goods orders. On Wednesday of this week, the U.S. Department of Commerce reported that Durable Goods Orders fell in July by the largest amount since January of 2004, falling 4.9% from the previous month. Orders for computers and electronic product orders declined 5.9%, machinery orders fell 6.2%, and electrical equipment orders dropped 2.0%. Non-defense capital goods orders excluding aircraft, which are viewed as a proxy for business spending, declined 3.7% – the largest drop since October 2004.
Although the major stock market indices have pulled back in price over the past two weeks, all of the major market averages closed on Wednesday of this week at intermediate-term price support areas. In addition, several market sentiment indicators, short-term price oscillators, and volume statistics indicate that stocks are approaching oversold territory. For example, the Public-to-Specialist Short Sales Ratio and the NYSE Short Interest Ratio have risen to their highest levels since April 15 of this year. Meanwhile, the Put-to-Call Ratio has trended higher over the past two weeks, and the percentage of individual investors that are bullish is at its lowest level since May 6.
Autodesk (NASDAQ: ADSK) Strong demand for its design software helped Autodesk to nearly double its quarterly profit. The company’s fiscal second-quarter profit climbed to $75.3 million, or 30 cents per share, up from $39.2 million, or 16 cents per share.
Revenue for the three-month period ended July 31 jumped 33%, from $279.6 million to $373 million. License revenue climbed 30%.
As a result, the company has forecast full-year earnings of $1.20 to $1.25 per share on revenue of $1.49 to $1.51 billion. Third quarter projections are that the company’s profit and revenue will remain little changed from the second-quarter results.
Chesapeake Energy Corp. (NYSE: CHK) Earnings more than doubled in the second quarter for Chesapeake, caused by higher production and higher prices of oil and gas. The oil and natural gas company announced net income of $179.2 million, or 52 cents per share, as compared with $85.8 million, or 30 cents per share, in the year-ago period. Revenues climbed to $1.05 billion, up from $574.3 million a year ago.
Average daily production of oil and gas increased 31% from the year-ago quarter. In addition, the company has or plans to acquire $410 million of gas assets in deals with four private companies.
The StreetAuthority Market Advisor is an invaluable resource for self-directed investors. With a keen focus on fundamental analysis and an eye for undervalued stocks, editor Paul Tracy sorts through thousands of investing opportunities each week and brings you only those with the greatest potential for both near- and long-term gains. Rather than the news, the Market Advisor delivers profitable investment guidance that you can act on today to improve your own portfolio. Learn more about this newsletter and free trial offer at: http://at.zacks.com/?id=707.
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Charles Carlson reviews a pair of DRIPs in the financial services industry. More...
Don Dion says July was positive for his portfolios. Read about their performance and learn this mutual fund expert’s thoughts on oil. More...
Jack Adamo says this autumn may be atypically good for stocks. He also provides an update on a gold stock. More...
Bill Martin and Matt Ragas analyze the impact of the latest storm. 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=1386.
2. SCREEN OF THE WEEK
Zacks.com offers three unique weekly commentaries that all
further our mission to help you Profit from the Pros. Today is
the latest installment of Screen of the Week from Kevin Matras.
Each week, Kevin shares with you another winning screen he has
discovered using the Research Wizard software from Zacks
Investment Research. Learn more about the Research Wizard at: http://at.zacks.com/?id=1388.
Creating a Custom Consensus of your Winningest Screens
Every week in this article, I either go over a unique way to screen for stocks or I’ll publish a proven profitable screening strategy.
If you’re a regular reader of this column, you know that most of our strategies have done fantastic. The only real decision is in choosing which one(s) you want to start using.
Well instead of choosing just one, why not look at them all and create a Custom Consensus of some of our winningest strategies.
This too is a great strategy for picking winning stocks from many diversified approaches. Because aside from using the Zacks Rank for many of the screens, there are many other filters layered on top of it to find the best stocks from different styles.
The screens I’m currently using in my Custom Consensus strategy come loaded with the Research Wizard program.
(I should probably add that they are all my ‘favorite’ strategies, which is why they’re included in the program.)
Anyway, simply run each screen, generate a list of qualified tickers for each one, and then count how many times a stock appears in all of those screens.
If a stock appears in two or more screens, it qualifies for the Consensus portfolio.
Here are five stocks from this week’s (8/29/05) Consensus list.
Sign up now for your two-week free trial to the Research Wizard and get this Custom Consensus list week after week along with all of the individual strategies as well. And learn how easy it is to build and test your own winning strategies too. Click here and see how.
All the Screen of the Week strategies are created and back-tested using the Research Wizard software from Zacks Investment Research. Learn more about the Research Wizard free trial offer and our new special report “Top 10 Stock Screening Strategies” at: http://at.zacks.com/?id=1388.
Discover all the Free Screening Tools on Zacks.com at: http://at.zacks.com/?id=1389.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
3. BEST OF ZACKS EQUITY RESEARCH
BULL OF THE DAY
Tesoro Corp. (TSO) - Improving Balance Sheet.
Cousins Properties (CUZ) - Declining Operating Results.
Hurricane Katrina Hits Travel Industry
Energy, Industrials and Telecom Ruled the Second Quarter
4. PROFIT TRACKS
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 highlight...
Fundamental strength is often a key criterion for many investors. A strong balance sheet and a history of profitability indicate that a company has the ability to meet its obligations and the flexibility to pursue opportunities for growth. Therefore, such stocks are often perceived as having a lower level of risk.
The lower level of risk often results in higher valuations. Occasionally, however, the markets undervalue a stock relative to its company's fundamental strength. When this occurs, opportunities for profits are created. This Profit Track identifies such opportunities.
Backtesting results show just how successful this Profit Track has been. Double-digit returns have been achieved during each of the past four years. In 2005, this strategy continues to handedly beat the S&P 500.
ACE Ltd. (NYSE: ACE) reported second-quarter earnings of $1.50 per share in late July, exceeding the consensus estimate by almost 5% and surpassing last year’s result. The company said that quarterly results were highlighted by record net income and strong operating income. Other promising highlights include this company’s current ratio of 2 and a debt/equity level of .18. ACE also has an appealing valuation as indicated by its PEG Ratio of .63. To continue your research on ACE, click here.
Benchmark Electronics, Inc. (NYSE: BHE) has strong fundamentals and low levels of debt as evidenced by its current ratio of 2.77 and a debt/equity level of .01. In mid-July, the company announced second-quarter earnings of 44 cents per share, improving on last year’s 42 cents and beating the consensus estimate by about 2%. BHE stated that its second quarter results reflect revenue growth of 14% driven by the significant level of new program production. Value investors may find this stock attractive with its price/sales multiple of .55 and PEG ratio of .88. To continue your research on BHE, click here.
Nucor Corp. (NYSE: NUE), which manufactures and sells steel products, posted second-quarter earnings of $2.03 per share in mid-July. The result topped the consensus estimate by approximately 3% and outpaced the year prior result. The company sports an attractive valuation with a PEG ratio of .43 and price/sales multiple of .67. NUE also has a favorable current ratio of 3.32 and low debt as reflected in its debt/equity ratio of .24. To continue your research on NUE, click here.
Reliance Steel and Aluminum Co. (NYSE: RS) is a Zacks #1 Rank (Strong Buy) company with strong fundamentals and low valuations as evidenced by its current ratio of 2.75, as well as its PEG ratio of .25 and price/sales multiple of .5. This company also exceeded analysts’ expectations for the second quarter. With earnings per share of $1.48, RS was about 24% ahead of the consensus. The second-quarter report, which was released in mid-July, noted that RS continues to believe the operating environment, while changing, is still very favorable by historical standards. To continue your research on RS, click here.
All the Profit Track strategies were created and backtested using the Research Wizard software from Zacks Investment Research. If you like this screening strategy, but want to narrow down the list of stocks and even improve the performance, then you should start a free trial to the this powerful stock picking tool. Learn more about the Research Wizard and Free Trial offer at: http://at.zacks.com/?id=1993
5. ZACKS TOOLBOX
Zacks.com is first and foremost a free resource to help you make more profitable stock picks. In this space each week, we will provide insights into various tools and data points provided on Zacks.com and how to use them to improve your portfolio's performance.
Shortly after the dawn of the stock market, the investment newsletter industry was born. Today industry sources believe there are over 2000 investment newsletters (including online versions) with total annual revenues in the billions. Below we will discuss the benefits of investment newsletters and how to find one that best meets your needs.
At the end of the day, the reason to subscribe to investment newsletters comes down to performance. Studies show that investors who subscribe to newsletters outperform the average investor. Unfortunately most investors left to their own devices follow a scattered approach that leads to sub-par returns. Whereas investors that subscribe to newsletters are in affect subscribing to a time-tested investment philosophy. The philosophy is usually based upon sound investing principles and gives clear buy and sell signals. Most important are the sell signals since most investors have difficulty selling stocks at the right time. If their stock picks are down, then investors will hold on until the price returns to breakeven (which almost never happens). Or investors try to ride winners too long and do not lock in profits. Investment newsletters provide the holistic approach needed to help investors succeed.
Another benefit of newsletters is value. Consider that investors keep vast amounts of their wealth in mutual funds. Unfortunately, as most of you already know, 85% of the funds underperform the market. And for this sub-par performance, investors pay mutual funds 1.5% of assets. Even a modest sized portfolio of $50,000 pays $750 in mutual fund management fees to underperform the market. Note the average newsletter costs only $250 per year and provides superior results.
With over 2000 newsletters to choose from it can become overwhelming to find a newsletter that suits your needs. For starters, Zacks.com has formed partnerships with over 60 leading investment newsletter publications. We believe that these newsletters are best in class and most investors will find what they are looking for from this selection.
Now that the field is narrowed, you should take the following 3 steps to select a newsletter:
1) Identify Your Investment Style: Are you interested in just stocks or advice for the full range of investment choices including mutual funds, bonds, options, etc? Are you aggressive or conservative? Are you value or growth oriented? Or both? Start your search by answering these questions. Once you have determined the style of newsletter then you can proceed by searching newsletters by category. Go to our Experts home page, which is the home for investment newsletters on Zacks.com. http://at.zacks.com/?id=1691 Once there find the "Additional Search Options" section and select the newsletter category you are interested in.
2) Newsletter Philosophy: Within each investment category there are a number of newsletters to consider. Read the teaser description for each to get an understanding of their investment philosophy. To dig deeper click the free trial link to get a complete profile of the newsletter. Does their investment strategy make sense to you? Could you follow it in the future? If no, then move on. If yes, then start a free trial.
3) Free Trial: During the 30 day free trial process you need to "kick the tires" on the newsletter to make sure it works for you. Read all past and present newsletter issues available in the archive. Evaluate the clarity and quality of advice. Perhaps paper trade some of the investments and compare them over that period to the performance of the stocks you already own and the market overall. Once again, assess if this is an investment philosophy that suits you. If no, then cancel your free trial and try another publication. If the newsletter is on the mark, then do nothing and your subscription will continue until you cancel.
At the end of the day, most investors would benefit from the sound advice of investment newsletters. But not all newsletters are suited for every investor. So, before you invest your hard earned money in someone's recommendations you should be fully bought into their strategy. Luckily we offer a 30-day free trial process to each newsletter that gives you the time and access to make the proper determination.
To access our newsletter catalog at any time, then go to: http://at.zacks.com/?id=1691.
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, the Zacks #5 Rank (Strong Sell) List has 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, by visiting: http://at.zacks.com/?id=75.
Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=72.
FREE PORTFOLIO TRACKER
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Charles Rotblut, CFA
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