Monday - February 20, 2006
 Want to view the archive of past issues? Go to: http://at.zacks.com/?id=2314. Manage Profit from the Pros subscription: 1. ZACKS EQUITY RESEARCH There has been some buzz lately about the growth potential in health information technology, even though some recent earnings numbers show rather spotty development at this point. To help us sort out this segment, we spoke with senior analyst Greg Aurand, CFA, who covers the medical devices and technology industry for Zacks. There seems to be a real growth story in health information technology. Can you give us some background on this? There are various segments within health information technology. One consists of clinical software for practice management, which allows physicians to better manage their back-office business. Then there’s the health information back-office stuff for payors, which include health plans like United Health Companies (UNH). There is also the combination, small-segment technologies that target physicians as individuals or their small practices. This group is focused on developing more clinical software for affecting outcomes to reduce medical errors. The two fastest areas of growth are in the clinical software for practice management in the back-office segment, which improve the backload handling of reimbursement issues from various health plans the practices have to deal with, and the clinical software packages that combine the back-office stuff with medical records – or electronic health records – which, in my opinion, really do the most good in reducing errors and reducing costs related to those errors. So while it’s great to be able to sell just to the United HealthCares and Blue Cross/Blue Shields of the world, that’s a fairly limited market. These technological expansions will be driving growth because they address small-, mid- and large-cap issues, especially as everyone is re-jiggering according to the new Medicare drug benefit. More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - What exactly do these new technologies do? Back-office systems are focused on getting physicians themselves up to the 21st Century, by improving workload enhancing capabilities, reducing paperwork and so forth. Handling reimbursements for 20 different health plans can get pretty costly. And the markets seeing most of the growth now are the mid- and small-sized businesses. This is mostly due to the smaller firms nor recognizing the benefits of investing in IT early on. Now they’re seeing the fruits of this – improving capabilities and reducing costs – as the medium and large companies had already adopted those practices some time ago.However, even though back-office systems have grown, the health information technology sector is far from saturated; only about 30% of companies are using a system for electronic health records. In my opinion, this group should see the biggest growth in the medical and healthcare field, and remains underpenetrated even compared to back-office systems. What kind of growth figures are you looking at here? Well, it’s kind of hard to gauge growth at this stage. But just by way of example, one of the companies we cover in this space is Allscripts Healthcare Systems (MDRX). Allscripts specializes in electronic health records, and is, in fact, already a leader in the field. This is significant in that there is currently a big legislative push from the federal government to reduce the cost of healthcare. See, this started with firms getting their back-office systems taken care of – reducing costs by reducing paperwork and such – but we haven’t been seeing much reduced cost in providing healthcare itself. By this I mean what it costs to supply a drug to a patient, making sure the patient takes the drug at the right time and at the right dosage, compliance issues, even making sure what’s being prescribed is not the wrong drug. It is estimated that between 90,000-180,000 patients die every year from being misdiagnosed. Kind of ironic in a country where we’re making big strides to cure things like cancer and heart ailments, we’re also killing patients due to basic errors. Again, too much paper bureaucracy is partly to blame here, and lots of times nobody can even read the doctor’s handwriting, and that’s where errors come into play. So these are things that electronic health records technology addresses. So this has already affected positive change where it’s been implemented? Oh, it’s been a huge help. We’ve already seen a big difference. The thing is, will we be able to push physicians into adopting this technology, or will they need to be pulled kicking and screaming? So far we’ve seen a little of both, but just the way physicians began to see the benefit of practice management systems, they’re now starting to see how electronic health records systems help them, too. Plus, there’s the added pressure from the federal government, especially in light of Medicare expanding with its new drug benefit. About a year ago, the president started pushing the idea about the need for a reduction in medical errors. Not only the president, but Congress is even buying into it. About mid-summer last year there was a bill – still in subcommittee, by the way, but I do expect it will pass eventually – that would basically mandate health information technology on a nationwide basis. The bill is called the “Wired for Healthcare Quality Act,” and it receives full bipartisan support. It is sponsored by both Republican Bill Frist – a former surgeon, by the way – and Democrat Hillary Clinton. Even Ted Kennedy helped sponsor this bill. There is a lot of interest in modernizing and improving Medicare, and the private sector will be getting on board with this, too, if it’s going to be connected with Medicare. And this plays right into what companies like Allscripts are already doing. I take it you’ve got a Buy recommendation on Allscripts? Yes, I do have a Buy on Allscripts (MDRX). The company, as I say, specializes in electronic health records, and it’s also affiliated with a practice management software company. Therefore, it’s got the capacity to attach to the growth of that segment of the market, as well. Allscripts does feel they’ll do better, ultimately, if they can offer their own practice management system, and this is the reason behind acquiring A4 Health Systems, which allows Allscripts to offer a “complete package,” so to speak. But it can be considered a benefit for Allscripts that it can offer either health information technology system, independent or dependent on the other company. Another nice thing about electronic health records, by the way, is that it can give you access to your medical records on-line. Not only that, but in the case of last year’s Vioxx issue, one practice was able to notify all its patients who had been prescribed Vioxx to stop taking it immediately. So this technology not only helps reduce errors and other problems, but it can also help prevent future problems at the same time. It is these types of things that make connectivity and technology really pay off in the healthcare market. So where do you draw the line between a company like Allscripts and one that offers similar solutions, like Quality Systems? Well, for both Allscripts and Quality Systems (QSII) I expect long-term growth of around 25-30%. Quality is still a rather small and rather young company, and it may still show growing pain disruptions if its backlog doesn’t hit at the right time or it doesn’t close a particular deal at the end of a quarter, such as what happened when the company recently released its earnings. Allscripts now has a much more consistent and visible backlog for the next 4-6 quarters, and it has great visibility in its revenue outlook for the next year, year and a half. A few years ago, Allscripts was similar to the way Quality is now: not disclosing its backlog because it has not yet built and supported its base for the next few quarters. We know the company’s growth, but we don’t know if it’ll make its quarterly numbers. Plus, Allscripts still trades at a discount to its peers, largely due to the fact that it doesn’t have its complete package developed yet. But both Allscripts and Quality have great growth outlooks; near-term, it’s simply a matter of which company should be trading ahead of or trailing its peer group. Greg Aurand, CFA is a senior analyst covering the medical devices and technology group for Zacks Equity Research. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Analyst Blog - NEW! Get real-time market insights from Zacks Equity Research Analysts. To see their latest posts, click here. Biogen Idec (BIIB) - Core Business Performing Well. For full Zacks research report, click here. Embratel, ADR (EMT) - Disappointing Q4 Results. For full Zacks research report, click here. A Positive Story in 2006 Growth Expected to Slow Sharply in the First Quarter
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... Profit Tracks: Discounted Fundamental Strength 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 continued to handedly beat the S&P 500. Celadon Group Inc. (CLDN) recently released its fiscal second-quarter results and announced that its Board of Directors declared a 3-for-2 stock split. Earnings per share totaled 48 cents, about 9% above the consensus estimate and ahead of the year prior result. The Zacks #1 Rank (Strong Buy) company noted that it produced record revenue, net income, and earnings per diluted share on strong operating results across nearly all measures. CLDN has low levels of debt as evidenced by its debt/equity level of 0.06. The stock also has appealing valuation based on its PEG ratio of 0.60 and price/sales multiple of 0.73. Continue your research on CLDN at: http://at.zacks.com/?id=2254. EZCORP, Inc. (EZPW) has a PEG ratio of 0.69 and a price/sales multiple of 0.95. The company also has no debt and a solid current ratio of 5.20. EZPW recently reported fiscal first-quarter earnings of 50 cents per share, outpacing last year’s 37 cents and surpassing the consensus estimate by almost 14%. The company mentioned that its quarterly results were outstanding with its signature loan business making the largest contribution to earnings growth. Continue your research on EZPW at: http://at.zacks.com/?id=2255. EMS Technologies, Inc. (ELMG) sports a PEG ratio of 0.81 and a price/sales multiple of 0.67. The company recently stated that it expects earnings from continuing operations of $1.05 to $1.15 per share for 2006. Analysts are in agreement as evidenced by current estimates of $1.11 per share, which is approximately 14% above the level of three months ago. In early November, the company posted third-quarter earnings from continuing operations of 29 cents per share, which was well ahead of the previous year’s result. Continue your research on ELMG at: http://at.zacks.com/?id=2256. Quanex Corp. (NX), an industry-leading manufacturer of value-added engineered materials and components for the vehicular products and building products markets, will announce fiscal first-quarter results on Feb 23. The company said it expects to report earnings per share from continuing operations in a range of $1.00 to $1.05. This guidance is in line with current analysts’ estimates of $1.04 per share, which is nearly 37% above one month ago. NX meets the criteria of this Profit Track with its current ratio of 1.60 and a debt/equity level of .20. Continue your research on NX at: http://at.zacks.com/?id=2257. To see the full list of stocks that currently pass this winning screen, go to: http://at.zacks.com/?id=2258. 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=2307 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Kevin Matras combines some of his winningest strategies to create a Custom Consensus screen: http://at.zacks.com/?id=2259. 3. ZACKS RANK BUY STOCKS Every day on Zacks.com we highlight four Zacks Rank Buy stocks. Each individual stock is chosen based on how well they match the criteria for the four main schools of investing: Aggressive Growth, Momentum, Growth & Income and Value. Aggressive Growth – Kenexa Corporation (KNXA) Kenexa Corporation (KNXA) reported total revenue of $65.6 million, an increase of 42% when compared to $46.3 million in the prior year. KNXA has exceeded estimates in its prior two quarters by an average of 19%. Estimates for 2006 have increased 11.5% to 87 cents over the past 60 days. Read the full analysis on KNXA at: http://at.zacks.com/?id=2510. Growth & Income – Martin Marietta Materials, Inc. (MLM) Martin Marietta Materials, Inc. (MLM), a Zacks #1 Rank stock, recently reported strong fourth-quarter and full-year 2005 results. The company also issued earnings per share guidance above analyst’s estimates for the first quarter and full year of 2006. EPS are forecasted to grow 20.0% over the next 3-5 years. MLM has a current dividend yield of 1.0%. Read the full analysis on MLM at: http://at.zacks.com/?id=2511. More...
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Momentum – Ohio Casualty (OCAS) Ohio Casualty (OCAS), a Zacks #1 Rank stock, delivered a powerful earnings report while the market was clearly expecting something less robust. Strong earnings, strong income growth and a market that was leaning the other way, make OCAS our Momentum stock of the day. Read the full analysis on OCAS at: http://at.zacks.com/?id=2512. Value – W.R. Berkley Corporation (BER) W.R. Berkley Corporation (BER), a stock that we first featured on Dec 16, 2005, has continued to impress. The company recently reported record profits in 2005 and has now exceeded analysts’ earnings expectations for the past 10 quarters. BER has grown revenues for 10 years running. The stock has a price-to-book (P/B) multiple of 2.9. The company is still rated a Zacks #1 Rank stock. Read the full analysis on BER at: http://at.zacks.com/?id=2513. Zacks Rank Resources
4. FEATURED EXPERTS Here we cast the spotlight on a timely Featured Expert commentary that recently appeared on Zacks.com. The early Roman historian Cornelius Tacitus, in the first century, noted that in all things there is a law of cycles. In that regard, not much has changed in the last 2000 years. Not only is the market still cyclical, but subsectors of the market are themselves also cyclical. Over the 1926-2004 period, small-company stocks have outperformed large company stocks by a little more than 2% per year, on average (Source: Ibbotson & Associates). However, along the way there have been multi-year cyclical periods favoring small company stocks over large. From Dec 1973- July 1983, the stars were aligned for small-company stock investors. On average, small-stocks beat large-caps by 10.9% annually except for 1980, when both small-caps and large caps performed approximately equally well (both indices gained a little more than 30% that year). Jim Oberweis and his team would be remiss if they didn’t mention those multi-year cycles favoring big caps. Consider the period of Jan 1994-Dec 1999. All segments of equities performed well, but the largest, safest companies delivered exceptional returns. Large company stocks delivered 24.5% average annual gains versus 14.6% for small caps. Although we know that the deck is stacked in favor of small-caps over the very long term, the intermittent cycles can be painfully long. What is it that drives these cycles? Are they possible to predict? Where are we now? Satya Pradhuman, Director of Small-Cap Research for Merrill Lynch, in his book Small-Cap Dynamics, points to long-term factors and short-term factors that drive relative small-cap performance. Perhaps the single biggest long-term factor is economic growth. According to Pradhuman, smaller firms have greater economic sensitivity than large-caps and thus tend to outperform large-caps when the economy experiences periods of rapid growth. To find a strong economy, look for sharply increasing industrial production. An appreciating currency is also likely to be a sign that the local economy is strong. An appreciating dollar has historically correlated well with small-cap outperformance. Additionally, watch inflation. Inflation, per say, is not good for equities. However, on a relative basis, rising prices appear to be correlated with small-cap outperformance. Note that inflation which is attributable to a exchange rate/ interest rate imbalance, as opposed to strong economic growth, may prove to be a misleading indicator. Lastly, in the long term, valuations will also play an important role. A high-growth economy does not imply favorable stock market returns if everyone knows it and stock prices already reflect such growth. In the short term, Pradhuman asserts that changes in market volatility should be closely observed. Periods of declining market volatility tend to favor small-cap stocks. Changes in market volatility affects the willingness of investors to assume risk; hence, when investor appetite for risk increases, small-caps tend to outperform. Historically, there has been an inverse correlation between market volatility and investor appetite for risk. One way to measure market volatility is the CBOE Market Volatility Index, known as the VIX. The index is available under the ticket VXO. During the last three years, market volatility as measured by the VIX has steadily declined, and consistent with Oberweis and his team’s theory, small-cap stocks have performed quite well. In the very short term, exogenous shocks (i.e. Sept. 11th, Asian flu, etc) are bad for small-caps, as such events tend to drive investors to safe havens of stability and liquidity, such as cash and large-company stocks. However, shocks are by definition unpredictable and thus there are very limited actions we can take on this variable. Where are we now? According to Ibbotson and Associates, small-caps have outperformed every year since 1999. On a valuation basis, small-caps as a whole may not appear cheap. However, the outsized valuations are almost entirely among the value segment of the small-cap indices. High growth small-cap stocks appear to still be trading at slightly above-average valuations, but still within a normal range. Market volatility has been on a downward trend. Furthermore, the year has started out with a bang. The Model Portfolio appreciated 9.3% in the first month. All else equal, in the short run, these type of returns will likely ATTRACT investor interest, not deter. In the short run, times look pretty good for small-cap growth investors. The momentum is clearly in our favor. However, there are still some clouds on the horizon. Think about the long term variables discussed above. Industrial production? Yes, we’ve seen decent growth lately, but what do you expect over the next five years? U.S. currency? Recent trends notwithstanding, Oberweis and his team continue to expect that the dollar will decline against Asian currencies over the next five years. Those are disturbing trends that Oberweis and his team think require careful consideration and present a strong case for international diversification. Think about China. Oberweis and his team foresee very strong gains in Chinese economic growth as measured by industrial production, gains which are not currently reflected in Chinese stock market valuations. Predicting changes in the large-cap/small-cap cycle is challenging. There are two reasonable approaches. First, one might assess the risk of a change using the criteria above. If you are right 6 out of 10 times, you’ve done a great job. The other strategy is to simply remaining fully invested, pick good stocks, and accept the volatility of the cycles. Many, if not most, people try to emotionally guess (rather than fact analyze) the cycle and blow it. Many extrapolate the recent past and assume it will persist. Confidence tends to be highest when we approach the inflection point. When it seems like that either small-caps or large-caps will NEVER come back into favor, it probably won’t be long before they do. Oberweis’ favorite example is an article written by value-manager Bill Fouse in 1989 called “The Small-Cap Hoax,” which questioned whether small-cap stocks really would outperform over long periods. It was 6-years into a large-cap cycle, a point at which it was easy to agree with him. Of course, it was wrong. The article was published shortly before small-caps regained leadership and charged forward to beat large caps by an average of 13% annually over the next four years. Based in Irvine, Calif., Comarco (CMRO) is a leading provider of wireless test solutions for field test applications, ChargeSource(R) universal mobile power products and wireless emergency call box systems. Comarco’s industry-leading Seven.Five(TM) wireless test system for field test applications allows cellular telephone system operators to improve the quality of their cellular phone service through voice, video and data benchmarking and system optimization using advanced QoS algorithms and a unique multi-technology RF scanner. Seven.Five’s (TM) open architecture supports both current cellular operating system technologies and the new 3G systems being implemented all over the world. In the company’s latest reported third quarter, sales increased approximately 103% to $13.6 million versus $6.7 million in 3Q04. Hoku Scientific (HOKU) engages in the design, research, and production of membrane electrode assemblies (MEA’s) and non-fluorinated membranes for proton exchange membrane (PEM) fuel cells. Hoku’s MEA’s and membranes are used in the automotive and stationary markets. The company has significant relationships with Nissan Motor Co. and Sanyo Electric and has begun manufacturing 11 fuel cell systems (in conjunction with IdaTech LLC) for the U.S. Navy. The company recently completed all technical milestones in its contract with Nissan and recently announced a new material transfer and collaborative testing agreement with Sanyo. In December 2005, Hoku completed the installation and testing of its new manufacturing facility, which will allow the company to fill higher volume orders for its MEA’s. In the company’s latest reported third quarter (fiscal 2006), sales increased to $1.7 million versus a negligible amount of sales third quarter of fiscal 2005. Hoku reported earnings per share of $.03 in the latest reported third quarter versus a loss of $.03 in the same quarter of last year. The Oberweis Report is a proprietary investment advisory letter specializing in stocks of extraordinarily rapidly growing companies. Each issue contains new stock recommendations along with a review of those previously recommended stocks that have yet to be sold. http://at.zacks.com/?id=2449. 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 stocks (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=2309. Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=2266. FREE PORTFOLIO TRACKER Do you believe that these events affect stock prices?
If you answered yes, then how are you staying on top of these changes for your stocks? If you are one of the 45,000 investors who wake up every morning to the Daily Portfolio Updates emails from Zacks.com, then you are all set. If not, then sign up now to get this vital information sent to you daily and improve your portfolio's performance. Did we mention it's free? Get started now by going to: http://at.zacks.com/?id=2310 We hope you enjoyed this issue of "Profit from the Pros", And we look forward to visiting with you again next week. REFER-A-FRIEND If you enjoy this e-mail newsletter, then please pass it along to a friend. Simply forward them the link below to sign up for their own free subscription. If you're reading a forwarded copy, sign up for your own, so you get this wealth of information every week. Just click here. THANKS! Regards and Happy Investing, Charles Rotblut, CFA p.s. What is the mission for Zacks Profit from the Pros? Click here to find out how we will help you become a more successful investor. *The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor's. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security. To contact us by mail: Zacks Investment Research To unsubscribe from receiving "Profit from the Pros" e-mail newsletter, click here. | |||||||||
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Zacks #1 Stocks on the Move 05/17/2013
| Company Name | Symbol | %Change |
|---|---|---|
| VIASAT INC | VSAT | 19.35% |
| OLD SECOND B | OSBC | 5.76% |
| GAMCO INVEST | GBL | 4.61% |
| CORNING INC | GLW | 4.47% |
| SYNCHRONOSS | SNCR | 4.23% |
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