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Wednesday - September 14, 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.
`Net space consolidation continues, and Bill Martin and Matt Ragas are well positioned to continue to profit from it.
After bailing out of the Internet space four years ago, Rupert Murdoch’s News Corp. (NYSE: NWS) is coming back in a big way. The media company announced its third acquisition of a `Net company in less than three months, saying this morning that it has agreed to buy online video game network IGN Entertainment for approximately $650 million in cash.
The acquisition of IGN follows NWS’ $580 million cash acquisition of Intermix Media (AMEX: MIX) in July. Last month, NWS bought online sports information provider Scout Media for an undisclosed amount, and the company has reportedly been in talks to acquire privately held search technology provider Blinkx. A week before the MIX deal was made, NWS announced that it was launching a new online unit with the aim of combining the company’s various online properties (FoxNews.com, FoxSports.com, Fox.com, etc.) under one umbrella. NWS CEO Rupert Murdoch said he is now committed to the online space and is willing to spend $2 billion on acquisitions, even though he pulled the plug on the company’s News Digital Media online division in early 2001.
For IGN, the deal puts a quick end to the company’s plans to go public. In mid-July, less than two years after being taken private in a $26.4 million buyout by private equity firm Great Hill Partners (yes, the VCs in this deal minted!), IGN filed for a $200 million initial public offering. IGN had merged with privately held Gamespy, another video game centric online media company, in December 2003, giving the company the scale to go public again. Ahead of the company’s IPO filing, reports indicated that IGN was shopping itself, asking as much as $850 million. Viacom (NYSE: VIA), which was apparently beat out by NWS, and Yahoo (NASDAQ: YHOO) were rumored to be interested at the time.
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According to IGN’s S-1 filing with the Securities and Exchange Commission, the company reported revenues of $28.7 million during the first six months of 2005, up from just $14.1 million a year ago. Net loss for the first six months of 2005 was -$7.5 million, down from -$11.6 million a year earlier. IGN’s second-half revenues in 2004 totaled about $25.9 million. Based on this figure, Martin and Ragas will assume revenue of about $70 million for this year. This works out to a 9.3X revenue multiple for the purchase (assuming less dramatic second-half growth, this multiple would of course be higher).
It remains to be seen whether NWS can transform itself into a new media business. The MIX-IGN assets are very targeted towards the 14-34 year old demographic, specifically men. These assets will work well with NWS’ Fox Broadcasting, Fox Entertainment, and Fox Sports units, but have little to do with the company’s portfolio of newspapers and local television stations. In the past, NWS has had problems identifying rather basic synergies, and the company doesn’t seem to know what to do with, among other investments, Gemstar-TV Guide (NASDAQ: GMST) and NDS Group (NASDAQ: NNDS).
Even after a flurry of deals in the ‘Net space over the past year, the sector has remained hot, thanks in no small part to Murdoch. TheKnot.com (NASDAQ: KNOT), for example, is rumored to be a takeover target, with no less than retail giant Target (NYSE: TGT) mentioned as the probable buyer. While Martin and Ragas do not invest in companies based on the probability of a buyout, they think their portfolios are well positioned for the current takeover environment, as evidenced by their recent success with E-LOAN (NASDAQ: EELN). Considering the premiums being thrown around - EELN was taken out at a 37% premium - Martin and Ragas think one has to be very careful trying to play on the short side in the ‘Net space currently. Murdoch is not done buying, and YHOO, Google (NASDAQ: GOOG), eBay (NASDAQ: EBAY), Microsoft (NASDAQ: MSFT), InterActiveCorp (NASDAQ: IACI), and large offline companies are lurking, ready to pounce on good assets. The surviving dot-coms, by and large, are going to find buyers sooner or later, and buyers are increasingly ‘‘paying up’’ for these companies as they look for new growth avenues.
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Richard Rhodes explains that a Fed pause in September is not a ‘slam dunk’ and he highlights some long positions. More...
Richard Lehmann explains that while it is sad to say, it is true that hurricanes are economically stimulating. More...
Mutual fund expert Dennis Slothower thinks investors need to be skeptical of any rallies right now. More...
Investors are pouring money into China like water, but Ian Wyatt and his team believe returns may be more elusive than many think. More...
Dr. Melvin Pasternak says market participants continue to see the economic glass as half-full rather than half-empty. 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.
And as you read on, you’ll see that I’m still not.
This is largely because of their overwhelmingly bullish bias.
But Broker Recommendations do have their place. And people do still look at them. From small individual investors to large institutional portfolio mangers. (Although I should note, that in general, the changes in the average broker recommendation is a better indicator than the actual recommendation itself.)
Anyway, what I want to talk about today, are companies that receive new analyst coverage.
One of the things that generates analyst coverage is investor interest. How else can you explain the increased analyst coverage for Google (a company that’s been public for only a little over a year) in comparison to companies like GE (public for nearly 40 years) and Microsoft (public for nearly 20 years).
And as new coverage is initiated, it becomes more visible, which in turn means potentially more demand (read higher prices).
This is often the case because analysts almost always initiate coverage with a positive recommendation. (Why write a research report on a company not widely followed only to say it stinks?)
And when it comes to companies with little to no analyst coverage, that one new recommendation can sometimes give portfolio managers the validation they need to build a position. (And the more money they can invest, the more they can potentially influence prices.)
The best way to use this information is to look for companies whose analyst coverage has increased over the last four weeks.
Simply look at the number of analyst recommendations now in comparison to the number of analyst recommendations four weeks ago. An increase in coverage is bullish whereas a decrease in coverage is bearish.
It’s typically more bullish if the increase went from none to one or if the coverage was minimal to begin with. (Going from 25 to 26 isn’t going to have the same impact because that 26th analyst isn’t discovering something ‘new’.) But increased coverage is better than decreased coverage –- assuming the coverage is positive of course.
Here’s a screen to try:
There are 16 stocks that made it thru this week’s screen (for the week of 9/12/05.) Here are three of them:
Get the rest of the stocks on this list and see what new stocks the analysts are talking about. And don’t stop there. Try finding companies with no coverage four weeks ago that are finally being looked at today.
Most screeners won’t let you search for the number of analysts covering a stock, let alone comparing the amount of coverage they had weeks or even months ago. The same goes for changes in the Average Broker Rating and Estimate Revisions. But you can with the Research Wizard. And you can backtest it all. Find out how to pick the right stocks right now by learning more about our free trial to the Research Wizard stock picking and backtesting program. 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
St. Joe Company (JOE) - Attractive Entry Point.
Hanger Orthopedic (HGR) - Margins Under Pressure.
Expect Flat REIT Pricing
Semi's Second Half Potential
Estimates Appear to be High
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...
Many investors prefer stocks priced below $20 because the low prices allow them to accumulate more shares. Fortunately, lower prices do not necessarily mean lower quality.
This strategy identifies stocks priced below $20 that are trading at discount valuations and have a Zacks Rank of #1 ("Strong Buy") or #2 ("Buy"). The stocks identified by this search strategy trade at price-to-sales (P/S) multiples of 1.0 or below. The strong Zacks Rank is indicative of positive revisions in earnings estimates.
Combining these characteristics can result in high-dollar returns. In 2004, this strategy generated a stellar +54.8% return. Equally impressive, the strategy has a win ratio of nearly 75% for the past 4-1/2 years.
American Equity Investment Holding Company (NYSE: AEL), an insurance company, recently delivered a strong earnings report. Second-quarter earnings were 33 cents per share, meeting the consensus estimate and exceeding last year’s results by 32%. The stock is currently trading around $11 per share with a price-to-sales ratio of .79. The company has earned $1.18 over the past 12 months. To continue your research on AEL, click here.
Aftermarket Technology Corp. (NASDAQ: ATAC) a consumer goods company, recently reported strong second-quarter results. Earnings came in at 36 per share, six cents, or 20% ahead of expectations. The stock is trading around $17.75 per share, with a price-to-sales ratio of .92. Over the past 12 months, the company has earned $1.41 per share. To continue your research on ATAC, click here.
EZCORP Inc. (NASDAQ: EZPW), a Zacks #1 Rank (Strong Buy) stock, posted fiscal third-quarter earnings of 16 cents per share, surpassing last year’s two cents and exceeding the consensus estimate by 60%. The stock is currently trading around $18 per share, with a price-to-sales ratio of .83. The company has earned $1.04 over the past 12 months. To continue your research on EZPW, click here.
Movado Group Inc. (NYSE: MOV) recently reported fiscal second-quarter earnings of 33 cents per share. The result topped the consensus estimate by 18% and outpaced last year’s second quarter. The stock is currently trading just below $20 per share, with a price-to-sales ratio of .81. Over the past 12 months, Movado has earned $1.09 per share. To continue your research on MOV, 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.
Have you ever wanted to test out a new investing strategy without actually putting your own money at risk? Would you like to see how good an investor you are compared to others? Do you think if given the chance you could prove to your friends that you really are the better investor? How would you like the opportunity to manage a $100,000 portfolio?
If the answers to any of these questions is yes, or if you simply would like a tool to help you learn how to invest, then you'll love the latest addition to Zacks.com - the Simulator. http://at.zacks.com/?id=1987.
Simulator gives you the opportunity to manage a $100,000 portfolio. You simply enter buy and sell orders; Simulator does the rest. It keeps tracks of all your transactions, calculates your performance throughout the trading day, and ranks your returns against other investors.
Simulator acts just like a real online brokerage. You can buy and sell stocks. You can place market, limit, buy stop, and sell stop orders. You can even short a stock. If you like, you can even request to have trade confirmations emailed to you. And just like with your broker, you'll be charged commissions on each trade and paid interest on your cash balances.
Simulator automatically tracks your performance. On a single, easy-to-read page, you'll be able to see all the stocks in your portfolio, the price you paid for each stock, the current trading price, and both the percentage and dollar amount gain or loss on each investment. It's just like having your own $100,000 brokerage account.
The great thing about Simulator is that it makes "paper-trading" very easy. You can test out a new investing strategy without risking any of your own money. If the strategy doesn't work, you haven't lost a dime. Better yet, since you can create multiple portfolios, you can test multiple strategies at the same time. And if you find a strategy that really works, Simulator gives you the chance to show off your stock picking skills.
In addition to replicating an online brokerage account, Simulator allows you to track your performance against others. Simulator tracks the performance of every portfolio and ranks them accordingly. Pick the right stocks and everyone will know you're the best.
You can choose from a variety of games including Zacks (the largest game), Growth Stocks, Value Stocks, Day Trade, and Aggressive. Just click on the "Join a Game" link in Simulator and you'll immediately be able to start trading stocks.
You can also challenge your friends to test their investing skills. Simulator allows you to create an invitation-only private game. When you create your own game, you specify the initial balance of the account (options range from $1,000-$1 million), whether margin can be used, whether short-selling is allowed, and even whether U.S. or Canadian dollars should be used.
Simulator is completely free. There is absolutely no charge to join an existing game or set-up your own game. Try Simulator today by going to: http://at.zacks.com/?id=1987.
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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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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Regards and Happy Investing,
Charles Rotblut, CFA
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