Thursday - December 15, 2005
 Want to view the archive of past issues? Go to: http://at.zacks.com/?id=2337. Manage Profit from the Pros subscription: 1. ZACKS EQUITY RESEARCH After years of struggling through an industry down-cycle, semiconductors appear to be strengthening again. To help us sort out where we should take this knowledge, we spoke with senior semiconductor analyst Ken Nagy to guide us through. How were third quarter earnings for the semiconductor industry in general? Did fabrication plants outperform other sectors? We believe that the semiconductor manufacturing industry has begun a new up-cycle, after reaching a trough in the first quarter of 2005. The robust bookings from the last three consecutive quarters are an early indicator. That said, there are two camps here: If a company has earned its profits by ratcheting up capacity, then it was an excellent quarter. On the other hand, if a company has earned profits as a result of semiconductor spending, those companies may be waiting another quarter or two for their good news, as managers have limited spending. The chip fabrication plants, or "fabs," remain a strong player in the industry as costs have shot up. Capital outlays for bringing the most advanced fabrication plants on line have increased from $1 billion in 1997 to $2.75 billion in 2003. This is expected to accelerate to $6 billion by 2007. These increasing costs stem from higher price tags on the highly sophisticated production equipment that enable semiconductor manufacturers to produce state-of-the-art chips. More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Do you expect the up-cycle for semiconductors to continue through 2006? How long do you anticipate it will last? A few years ago, we would have simply looked at corporate spending, but we believe that there is a fundamental shift in the semiconductor industry from corporate IT to consumer demand. According to the SIA, more than 50% of the $213 billion in 2004 semiconductor sales went into products purchased by consumers, rather than corporate IT departments. This proportion will continue to grow in the years ahead, as consumers all over the world are captivated by the richness and portability of digital media. Advances in computing, digital media processing and wireless technology are enabling the industry to create lifestyle-changing devices and gadgets that could only be imagined a few years ago. The changing nature of customers will affect every aspect of the business, from product design to marketing and demand forecasting. There has been a bit of M&A activity in the industry. Do you see this continuing? In short, yes I do. First off, semiconductor firms as a whole have very high cash balances and low debt at this point in time, which is creating many good opportunities to invest in other technologies by acquiring companies that will help spread their product offerings. Consider also that it is much easier to buy a technology through a merger than to spend on R&D that often does not lead to anything. What Buy recommendations would you make for us today? We currently have a Buy on FormFactor (FORM), which is the market leader in advanced wafer probe cards used to test semiconductor wafers during the manufacturing process. The company has a very strong growth profile. September quarter revenue and EPS were well-above expectations. Bookings were up 9% sequentially to an all-time high. The company is no longer capacity-constrained, and we expect margins to expand from here. The company’s technology is leveraged towards leading-edge 300mm and sub-110nm nodes, which are ramping quickly throughout the industry. Production capacity will be expanding throughout the year as the company's new plant ramps capacity. This new plant began shipping product during the second quarter, accounting for 15% of total sales. The plant is expected to run at full capacity by the end of 2005. Since both plants are operating during the transition, there are non-permanent incremental costs that will disappear, thus improving margins. What should investors keep mindful of about semiconductors as 2005 winds to a close? It's not just supply and demand that are important in semiconductors. Sometimes technology can take the industry on a wild ride. Take, for instance, the case of Varian Semiconductor (VSEA), which competes in the semi-tool industry. The semi-tool industry can be divided into high energy/low current products, medium energy/medium current products and low energy/high current products. The fastest-growing category - high current - accounts for 50% of total industry revenue, medium current accounts for about one-third of the total, and high energy is about 17%. Varian sells in all spaces, and its tools cross the segments, using common parts and software tools, and affording valuable cost-saving opportunities. As technology nodes get smaller (less than 90nm), batch technology breaks down and destroys some chips, which hurts yields. This is a relatively new problem at smaller technology nodes, yet once introduced many companies have gone back and checked old problems, only to find out that this may have been a problem at larger nodes as well. Varian, on the other hand, uses a double-magnet ribbon system which is a single wafer producer. The Varian product does not damage the chips. Largely due to this, VSEA has grown its market share dramatically in the last 6-12 months, while the rest of the industry is now playing catch up. So issues such as this - how new technologies can have unforeseen consequences - should be a major factor for investors getting into semiconductors. The best method is to notice when certain companies adapt to a particular technology favorably. Ken Nagy is a senior analyst covering the semiconductor industry for Zacks Independent Research. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - BULL OF THE DAY National Semiconductor (NSM) - Exceeded Estimates. For full Zacks research report, click here. MannKind Corp. (MNKD) - Lots of Competition. For full Zacks research report, click here. All Eyes on the New Year Zacks Industry Rank for the Week of Dec 12
2. 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. Bluegreen Corp. (BXG), a leading provider of leisure products and lifestyle choices, has a PEG ratio of .70 and a price/sales multiple of .74. In early November, the company reported third-quarter earnings of 60 cents per share. The result outpaced the previous year’s 54 cents and exceeded the consensus estimate by approximately 11%. Total sales increased to $166.8 million from $161.9 million year-over-year. To continue your research on BXG, click here. Hartmarx Corp. (HMX) announced fiscal third-quarter earnings of 18 cents per share in late September. The result eclipsed last year’s 14 cents and matched the consensus estimate. The company commented that changes in product mix, efficient utilization of owned manufacturing facilities, and refinements to its offshore sourcing have enabled HMX to improve operating margins for each of the first three quarters. Hartmarx has low levels of debt as evidenced by its debt/equity level of .38 and a current ratio of 3.27. To continue your research on HMX, click here. Ingram Micro Inc. (IM) recently reaffirmed its earnings guidance of 47 cents to 50 cents per share for the fourth quarter, which is in line with analysts’ expectations. In late October, the company posted third-quarter non-GAAP earnings of 36 cents per share, beating last year's 21 cents and jumping ahead of the consensus estimate by roughly 16%. The world's largest technology distributor sports a debt/equity level of .21 and a current ratio of 1.54. To continue your research on IM, click here. MGP Ingredients, Inc. (MGPI) is pioneer in producing and marketing value-added proteins and starches derived primarily from wheat. The Zacks #1 Rank (Strong Buy) company, meets the criteria of this profit track with its current ratio of 1.98 and a debt/equity level of .12. In early November, the company released fiscal first-quarter earnings of 23 cents per share. The result was also ahead of the consensus estimate by almost 92% and topped the year ago total. MGPI mentioned that its improved first quarter performance was driven by increased sales of distillery products. To continue your research on MGPI, 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 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=2359 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Price Targets and 'Multiple' Expansion Kevin Matras shows you how to create your own price targets and how to estimate your stocks' future earnings multiple: http://at.zacks.com/?id=2360. 3. ZacksAdvisor.com TIMELY BUY of the WEEK 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… Harris Corp. (HRS) Harris Corporation (HRS), based in Melbourne, FL, has evolved from a diversified electronics company to one that is focused on communications. In 1999, Harris spun off its Lanier office products division. HRS also sold its semiconductor division, which later became Intersil. The company is a global provider of communications equipment and services for government and commercial customers. Harris has strong market share positions in broadcast equipment, high-frequency and multi-band “man-pack” tactical radios and ground-based military satellite communications terminals. Some of Harris' important products include transmission equipment for microwave, satellite, and wireless communication; digital network broadcasting and management systems’ network test and management equipment and software; mobile radio networks; and air traffic control systems. The company's four operating segments are Government Communications (which generated around 59% of fiscal 2004 revenue), RF Communications (17%), Microwave Communications (13%), and Broadcast Communications (11%). The commercial units serve a diverse clientele, including radio and television broadcasters, utilities, construction companies, and oil producers. By geography, 80% of 2004 sales were to U.S. customers with the remaining 20% coming from foreign sources. More...
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Harris has a strong market position in the government communications sector, with a broad product line and an enviable win rate on government contracts (over 60% historically and over 80% in recent quarters). The two defense electronics divisions (Government Communications and RF Communications) have seen a noticeable pickup over the past couple years as overall defense spending has increased dramatically and a major effort to upgrade the military’s communications infrastructure is underway. Notable successes include the company’s Falcon II radios, which are being widely used by U.S. Special Operations forces, the U.S. Army and various NATO and “Partnership for Peace” countries. The company has several big opportunities on the commercial side. For one, the Broadcast Communications business should get a boost from the U.S. Government’s mandate which will require all TV broadcasters in the U.S. to upgrade to digital technology by the end of 2006 or whenever digital television penetration reaches 85%. While most of the nation’s 1,700 commercial and public broadcasters have ordered some of the necessary equipment to make this conversion, activity should pickup as the deadlines approach. Another promising long-term opportunity is in the area of digital radio. In part spurred by competition from satellite radio, as well as broadcasters’ desire to find new revenue streams, we expect many radio stations to invest in digital technology over the next 1-2 years. Given its strong market position, Harris should be one of the major beneficiaries. Analysts have been significantly raising estimates after the company reported strong fiscal first-quarter 2006 earnings and raised guidance. Strength in their RF Communications segment was a big contributor to earnings and recorded its 17th consecutive quarter of double-digit sales growth. Over the past 60 days, estimates have increased 9.6% to $2.05 per share for the year ending June 2006. The stock is trading near a 52 week high. HRS is expanding its production capacity in the RF Communications segment going into the second half of Fiscal 2006.
4. 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.
Investors like companies that grow sales and profits, and with good reason. But delivering growth year-in, year-out is tough. Only 18 members of the S&P 500 Index have managed 15 consecutive years of growth in sales and per-share profits. Solid business models: To grow steadily over the long haul, a company must develop a business model able to weather economic and social change. Good management: Consistent sales and profit growth requires operational and financial discipline, as well as the ability to adapt to changing markets. Such discipline and flexibility are hallmarks of effective management. Intuition tells us that companies with consistent and strong sales and profit growth should make good investments. Research, however, provides a warning. While shares of companies delivering strong growth tend to deliver above-average returns, historical growth rates are not good predictors of future stock-market returns. All too often, yesterday’s leaders become tomorrow’s laggards. Consider Coca-Cola (KO), Bristol-Myers Squibb (BMY), and Cisco Systems (CSCO). Shares of Coca-Cola and Bristol-Myers peaked in the 1990s, when profit growth began to slow after years of solid gains. To guard against investment in fading leaders, look at expectations. Determine whether consensus profit estimates are reasonable in light of historical growth rates, recent operating performance, and industry trends. Also consider value, favoring steady growers that trade below historical average valuations. Cisco shares rose at an annualized rate of more than 105% in the five years ended March 2000. At that point, the shares were so expensive that the ensuing slowdown in sales and profits had a catastrophic effect. Cisco languishes 77% below its 2000 highs. One of Moroney and his team’s favorite 15-year growers is reviewed below. Fiserv (FISV) provides technology and services to financial companies, including check processing and information management. The evolution of the financial sector — increased automation, industry consolidation, and expansion of the services offered by financial institutions — has forced Fiserv to drastically change the breadth and nature of its own services. Fifteen straight years of growth in sales and profits suggests the company has managed that change well. Over the last 15 years, Fiserv’s sales have increased at an annualized rate of 23%, while per share profits rose at a 21% clip. Amgen (AMGN) is a global biotechnology company that discovers, develops, manufactures and markets human therapeutics based on advances in cellular and molecular biology. They manufacture and market four human therapeutic products, EPOGEN(R) (Epoetin alfa), NEUPOGEN(R) (Filgrastim), INFERGEN(R) (Interferon alfacon-1) and STEMGEN(R) (Ancestim). Biomet (BMET) and its subsidiaries design, manufacture and market products used primarily by orthopedic medical specialists in both surgical and non-surgical therapy, including reconstructive and fixation devices, electrical bone growth stimulators, orthopedic support devices, operating room supplies, general surgical instruments, bone cements, and bone substitutes. The company markets its products through independent, commissioned sales representatives, direct sales representatives, and specialty medical product dealers in tens of countries worldwide. Medtronic (MDT) is the world's leading medical technology company, pioneering device-based therapies that restore health, extend life and alleviate pain. Primary products include those for bradycardia pacing, tachyarrhythmia management, atrial fibrillation management, among others. Medtronic operates its business in one reportable segment, that of manufacturing and selling device-based medical therapies. The company does business in more than 120 countries. The company's product lines include cardiac rhythm management, neurological and spinal, vascular and cardiac surgery. Walgreen (WAG) is a national retail pharmacy chain and considered the leader in innovative drugstore retailing. Walgreens pioneered many store features that are becoming standards in the industry. Among those concepts are: Computerized pharmacies, Point-of-sale scanning, Freestanding stores with drive-thru pharmacies, and Intercom Plus, Walgreens advanced new pharmacy computer and workflow system. Intercom Plus allows pharmacists to spend more time counseling patients by assigning administrative tasks to pharmacy technicians. Get clear Buy, Hold and, yes, SELL advice from one of the nation’s oldest and most successful investment newsletters. Our in-depth analysis and advice have been helping subscribers weather market volatility since 1946. http://at.zacks.com/?id=2406. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Ian Wyatt highlights some acquisitions. Read about a leader in online perishable goods, a gaming giant, and an online horse wagering company. More... Mutual fund expert Walter Frank highlights two obvious year-end trends, the surprising economic strength and Fed tightening. More... 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 Rank (Strong Buy) List has 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, by visiting: http://at.zacks.com/?id=2350. Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=2351. FREE PORTFOLIO TRACKER Do you believe that these events affect stock prices?
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Zacks #1 Stocks on the Move 05/23/2013
| Company Name | Symbol | %Change |
|---|---|---|
| WESTELL TECH | WSTL | 6.67% |
| STEIN MART I | SMRT | 5.38% |
| ALLIANCE FIB | AFOP | 5.21% |
| DAWSON GEOPH | DWSN | 4.33% |
| MARRIOTT VAC | VAC | 3.27% |
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