Thursday - September 1, 2005

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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.

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Stock prices declined last week on renewed oil concerns and cautionary comments from Federal Reserve Chairman Alan Greenspan. The Dow Jones Industrial Average bore the brunt of the selling in losing 1.5%.

 
The S&P 500 fell 1.2%, while the NASDAQ Composite declined 0.7%.

Stocks slid on Friday after Mr. Greenspan cautioned investors over the temporary nature the value of housing and equities possess. He noted that the run-up in housing prices had largely been a factor of a low interest rate environment over the last decade and those with larger and more risky debt structures may be underestimating the risks associated with higher interest rates. To some, Mr. Greenspan’s comments seem harsh, but the truths contained within them are nothing new to the majority of investors. Those that save and spend prudently will prosper over the long-term, while those who don’t are likely to find trouble eventually. Mr. Greenspan’s comments are only meant to serve as a strong reminder and not a prediction of impending disaster.

More. . .

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FEATURED EXPERTS Continued...

This week’s early trading will be focused on Hurricane Katrina’s aftermath. Katrina was bearing down on a key concentration of U.S. oil refinery capacity. Should a significant portion of refining capacity be knocked out, there is likely to be another surge in oil and gas prices. Oil prices temporarily surged above $70 as speculators attempted to guess the storm’s destruction to the area. Even if there is damage to refineries, record oil prices should prove temporary. Energy prices should fall after the peak summer driving period, providing that the energy supply and production chain is not permanently disrupted.

Modest valuations should prevent stock prices from falling more than a few percent from current levels. Investors can use periods of weakness to add to their portfolios, especially fast-growing small-cap stocks, which currently sport the lowest valuations.

Also remember September is very often a strong month. Jim Collins and his team believe the economy is growing as fast, if not faster, this quarter than last quarter. This means that earnings will probably surprise on the upside.

 
Stock Picks

Cerner Corporation (NASDAQ: CERN) designs, develops, markets, installs, and supports information technology and content solutions for healthcare organizations and consumers that are capable of being implemented on an individual, combined, or enterprise-wide basis and are accessible over the internet by consumers, physicians, and healthcare providers. Cerner’s integrated suite of solutions enable healthcare providers to improve operating effectiveness, reduce costs, and improve the quality of care as measured by clinical outcomes.

Kendle International Inc. (NASDAQ: KNDL) is a contract research organization that provides a broad range of Phase I through IV clinical research and drug development services to the pharmaceutical and biotechnology industries. They augment the research and development activities of pharmaceutical and biotechnology companies by offering high quality, value added clinical research services, and proprietary information technology designed to reduce drug development time and expense.

 
About Jim Collins’ OTC Insight newsletter

OTC Insight® specializes in growth stocks, particularly in the small to mid-cap range. This monthly publication, which focuses on Nasdaq listed stocks, is a by-product of the research we use to select stocks for our managed client portfolios through Insight Capital Research and Management, Inc.® Learn more about this newsletter and free trial offer at: http://at.zacks.com/?id=342.

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MORE FEATURED EXPERTS...
 

b) The Focus is Katrina

Richard Rhodes says energy prices have upside risk with the possibility of further violent thrusts: More...
 

c) Volatility is Moseying Right Along

Bernie Schaeffer says online bookstores can expect a workout and volatility indices have been moseying higher. More...
 

d) Watch Closely and Be Cautious

Richard Moroney says a slightly more cautious posture is probably appropriate and recommends some opportunities. More...
 

e) Sit Tight

Dennis Slothower expects the market to renew selling pressure after the Labor Day holiday: 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=637.

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BULL OF THE DAY

PetroChina Company (PTR) - Benefitting from High Oil Prices.
Full Zacks research report at: http://at.zacks.com/?id=1412.

 
BEAR OF THE DAY

Unisys (UIS) - Technology Revenue Down.
Full Zacks research report at: http://at.zacks.com/?id=1413.

 
ZACKS ANALYST INTERVIEW

Some Chinese Mergers Possible
Chinese oil and internet companies may look to grow through M&A activity. More...

 
EARNINGS & SECTOR UPDATE

Energy, Industrials and Telecom Ruled the Second Quarter
Nick Raich says the second quarter will mark the 12th straight of double-digit profit growth. More...

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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…

 
Profit Tracks: Return on Equity

This Profit Track strategy uses Return on Equity (ROE) to discover solid stocks. ROE is one of the quickest ways to gauge whether a company is creating assets or gobbling up investors' cash.

One of the quickest ways to gauge whether a company is creating assets or gobbling up investors' cash is to look at their ROE. This fast moving Profit Track returned an impressive +30.3% in 2004. In 2005, it continues to outperform the S&P 500 by a wide margin.

 
Here are four stocks that make the grade for the Return on Equity Profit Track

Columbus McKinnon Corp. (NASDAQ: CMCO) recently provided an upbeat forecast, stating that it could return to the $600 million level in sales and achieve operating profit margins in the 11%-12% range in the foreseeable future. In late July, the company reported that fiscal first-quarter earnings per share topped the consensus estimate by 50%. The result also soared past last year’s earnings. Columbus McKinnon said its first quarter results clearly demonstrate the earnings power it has gained through its lean manufacturing and product and facility rationalization initiatives. CMCO boasts a ROE of 21.97% and a price to sales ratio of .53. To continue your research on CMCO, click here.

Gold Kist, Inc. (NASDAQ: GKIS) has one of the highest ROE figures for this profit track at 34.54%. It also has a favorable price to sales ratio of .38. The company recently posted fiscal third-quarter earnings of 87 cents per share, surpassing the consensus estimate by approximately 10%. GKIS mentioned that it is strengthening its customer base in all market segments by providing innovative new products and package design. To continue your research on GKIS, click here.

MDC Holdings, Inc. (NYSE: MDC) is creating assets for investors as evidenced by its ROE of 29.93%. In mid-July, the company announced second-quarter earnings of $2.25 per share, the highest for any second quarter in its history. The result outperformed last year’s $1.87 and beat the consensus estimate by almost 8%. MDC also noted that it achieved second quarter records for home closings, revenues and home gross margins. The home builder sports a price to sales ratio of .74. To continue your research on MDC, click here.

WESCO International, Inc. (NYSE: WCC) released second-quarter earnings of 56 cents per share in mid-July, jumping ahead of the consensus estimate by 12% and outpacing the year prior result. The company, which has a ROE of 23.72% and a price to sales ratio of .39, said sales levels and productivity continued to accelerate through the quarter as sales per workday and sales per employee reached record levels for both the month of June and the quarter. To continue your research on WCC, click here.

 
To see the full list of stocks that currently pass this winning screen, go to: http://at.zacks.com/?id=1365.

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 this powerful stock picking tool. 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=1993

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Here you`ll discover a Zacks #1 Ranked stock hand selected by Ben Zacks to outperform the market over the next 30 to 90 days. This week`s Timely Buy is…
 

ConocoPhillips (COP)

Formed by the merger of Conoco and Phillips Petroleum, ConocoPhillips is the third-largest integrated oil and gas company in the US, behind Exxon Mobil and ChevronTexaco. The company explores for oil and gas in 29 countries and has proved reserves of 7.8 billion barrels of oil equivalent, excluding 0.3 billion barrels of Syncrude (a Canadian oil sands resource). COP has a refining capacity of 2.6 million barrels per day and sells fuel at more than 17,000 outlets in the US under the 76, Circle K, Conoco, and Phillips 66 brands. The company also has a chemicals business, and gas gathering and processing operations. Its emerging businesses include fuels technology and power generation.

Management has remained focused on bringing the company’s return on capital employed (ROCE) inline with the peer group of global oil integrateds. In order to achieve this goal, management has been busy restructuring the business portfolio by divesting non-core assets, reducing balance sheet leverage, and instituting greater capital discipline. We believe that management has done an excellent job thus far in executing this plan. This is evident from the roughly $4.7 billion worth of asset sales since the merger, and sales of approximately $900 million this year. Strong cash flows as a result of these asset divestitures and the robust commodity-price environment, coupled with disciplined capital outlays, helped the company pay off substantial amounts in debt.

Our positive outlook on COP shares reflects our expectation that ConocoPhillips is well positioned to bridge the gap with the oil majors, given management’s track record of execution thus far. We believe that the stated goals are realistic and achievable, particularly in the current favorable macro environment. We think that further progress on the execution front will be the key catalyst to drive the share price higher. It’s worth noting that analysts have been continuously upping their estimates for this year and next. The 2005 full year estimate for profits of $7.83 per share is a $1.42 more than the projection made just three months ago.

This company has a brilliant management team that warrants holding the stock for the long-term. Oil prices are soaring due to a fundamental supply/demand imbalance in the world, and exogenous shocks such as Hurricane Katrina. As a result, energy prices are likely to stay high for the foreseeable future and the company will benefit greatly from that. COP recently bounced off support at $60, aided by sustained high prices for crude. Yet, the stock is cheap, selling at 8.3X estimated earnings for this year. With another solid earnings report under their belt more investors will take notice. The market continues to underestimate the earnings power of major oil companies, as well as the durability of high crude oil prices. Many analysts guess that current estimates for oil companies are only pricing in crude oil in the $40’s, which is well below the current price. The longer energy prices endure at these levels, the more analysts will have to raise their numbers going forward.

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Thanks, in part, to favorable demographic trends and expanded Medicare reimbursements, Zacks Equity Research has a positive outlook for the medical care industry. In fact, earnings could grow 15% to 20% for the industry over the medium term due to a favorable pricing environment and stable inflation.

“Medical care organizations will benefit from continued volume growth, innovative plans designed to moderate cost increases (along with higher consumer co-payments), better claims handling (leading to improved reimbursements from insurers), and expanded Medicare coverage and reimbursements,” wrote Zacks Equity Research analyst Chris Kallos in a research report.

But investors are wondering how to capitalize in such a large and complex industry. One of the brightest lights comes from the ambulatory surgery center (ASC) space, which also has a positive outlook from Zacks Equity Research. ASCs are not hospitals, but do provide health surgery services on an outpatient basis. Such organizations have helped the outpatient/home care industry attain a Zacks Industry Rank of 2.97, according to Nick Raich’s “Weekly Earnings and Sector Update,” which places it 94th out of more than 200 industries.

”Growth (in the ASC market) accelerated over the 1990s, fueled by a combination of advances in medical technology and an increasing focus on lower-cost alternatives to the provision of healthcare under managed care,” said Kallos.

In addition, Kallos stated that the structured equity-based partnership model has further enhanced uptake of the ASC concept by offering increased service differentiation, improved scheduling of procedures, and cost management at the physician level.

The future is promising as well. ASCs are breaking from their historically limited offerings into more complex procedures such as vascular surgery and more involved orthopedic procedures. Given the preference of ASCs over traditional hospitals for many patients, this could be another positive for the industry and its investors.

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PREVIOUS WEEKLY COMMENTARIES….
 

SCREEN OF THE WEEK

Creating a Custom Consensus of your Winningest Screens

Kevin Matras combines some of his winningest strategies to create a Custom Consensus screen: http://at.zacks.com/?id=1410.
 

OTHER TOOLS FROM ZACKS

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At the heart of Zacks Investment Research is the Zacks Rank investment philosophy that continues to vastly outperform the market. Our Zacks #1 Rank (Strong Buy) List has produced the following results for investors:

• +33% average annual return since 1988 versus +12% for S&P 500
• Outperformed S&P 500 in 16 of the last 17 years
• +43.8% total return from 2000 to 2002 – the worst bear market in over 60 years.
• +28.8% in 2004

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, by visiting: http://at.zacks.com/?id=1424.

Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=1423.

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We hope you enjoyed this issue of "Profit from the Pros", And we look forward to visiting with you again next week.

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Editor-in-Chief
Zacks Profit from the Pros

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