Friday - June 23, 2005

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Continuing our closer examination of market industries involved with healthcare issues, recently we spent some time with senior health services analyst Chris Kallos. How have companies he covers been performing of late, and when does he foresee a larger upturn in the healthcare market in general?

How has the market downturn been affecting the healthcare and health services companies within your coverage? Better than average, or worse?

Traditionally, we think of healthcare stocks as being defensive, given the relative stability of underlying drivers. Not surprisingly, the healthcare and health services companies overall which I cover have fared better than most in the recent market downturn.

More. . .

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Zacks Equity Research continued...

There is much speculation that healthcare will be a very strong industry starting some point in the next few years. Would this be a good time to position ourselves in healthcare stocks?

Despite recent volatility in the market, we believe healthcare stocks are still trading broadly in line with fair value. Nonetheless, given the positive demographic trends fueling underlying demand for medical care, we would recommend healthcare stocks to investors with a medium to long-term time horizon.

What sectors within your coverage are most promising these days? And why?

We believe both managed care and medical care services stand to benefit from the ageing population and associated increased reliance on healthcare services. That said, given that the 45-plus age-group is expected to increase by about 24% over the next decade, we expect healthcare facility providers in particular to be the first to gain from growing demand and increasing patient volumes.

Which companies are your top Buy recommendations?

We remain positive and retain Buys on both disease management provider Matria Healthcare (MATR) and ambulatory surgery center provider NovaMed, Inc. (NOVA). We regard the current weakness in MATR's share price as primarily an overreaction to management¹s recently lowered FY06 guidance and an attractive buying opportunity for investors. We also remain positive with NOVA's prospects, given favorable developments on the reimbursement front, and believe diversification into non-eye-related specialty areas such as orthopedics, plastic surgery, and pain management bodes well for new syndications and increasing operating margins.

Looking forward to the second half of 2006, what is your outlook for the healthcare group?

Our primary focus for the second half of 2006 will be on the managed care sector and the impact of both consumer driven plans and the introduction of Medicare Part D to the issue of cost management.

Chris Kallos is a senior Zacks analyst covering the healthcare and health services sectors.

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MORE FROM ZACKS EQUITY RESEARCH...
 

Analyst Blog - NEW!

Get real-time market insights from Zacks Equity Research Analysts. To see their latest posts, click here.

BULL OF THE DAY

National Semiconductor (NSM) - Attractive Entry Point. For full Zacks research report, click here.

 
BEAR OF THE DAY

Del Monte Foods (DLM) - Earnings Constraints. For full Zacks research report, click here.

 
ZACKS INDUSTRY OUTLOOK

Steel Producers Ranked 11th

Despite high raw materials prices, steel producers continue to benefit from U.S. manufacturing and expansion overseas. More...

 
EARNINGS TRENDS

Earnings Trends

Over the long run, the two most important variables for the market are earnings and interest rates; both are heading higher. 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: Recent Price Strength

This screen looks for stocks trading in the upper range of their 52-week highs along with attractive Zacks Rank and Broker Ratings. This strategy proves that the "trend is your friend" with a +35.5% return versus +4.9% for the S&P 500 in 2005.

Here are four stocks that make the grade for the Recent Price Strength Profit Track:

Cowlitz Bancorporation (CWLZ) posted first-quarter earnings of 21 cents per share in late April. The result was ahead of the consensus estimate by almost 11% and eclipsed last year’s 15 cents. The company mentioned that its loan growth continues with strong net interest margins. Cowlitz Bancorporation’s shares are trading near at a 52-week high and have increased in price by nearly 3% over the past four weeks. Continue your research on CWLZ at: http://at.zacks.com/?id=2290.

Interstate Hotels & Resorts, Inc. (IHR) released first-quarter adjusted earnings of 19 cents per share in early May. The result reversed the year-prior loss of three cents and topped the consensus estimate of 13 cents. The company noted that its operating results for both managed and owned hotels continue to exceed the industry average. IHR is trading close to its 52-week high and has advanced in share price by nearly 23% over the past four weeks. Continue your research on IHR at : http://at.zacks.com/?id=2291.

Volt Information Sciences, Inc. (VOL), a Zacks #1 Rank (Strong Buy) company, recently established a new 52-week high. The company’s shares have experienced a healthy 51% increase during the last four weeks. Volt Information Sciences recently reported fiscal second-quarter earnings of 59 cents per share, exceeding analysts’ expectations by almost 79% and surpassing the year-ago total of 29 cents. Continue your research on VOL at: http://at.zacks.com/?id=2292.

World Acceptance Corp. (WRLD) meets the criteria of this Profit Track with a share price that has experienced approximately 8% growth over the past four weeks and is trading near its 52-week high. In late April, the company announced fiscal fourth-quarter earnings of 96 cents per share, beating the previous year’s 73 cents and outpacing the consensus estimate by almost 16%. WRLD stated that its record results were due to strong loan growth, a lower provision for loan losses as a percent of total revenues and improved operating margins. Continue your research on WRLD at: http://at.zacks.com/?id=2293.

To see the full list of stocks that currently pass this winning screen, go to http://at.zacks.com/?id=2294.

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=2295.

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SCREEN OF THE WEEK

Don’t Trade the Headlines

Kevin Matras explains why using a backtested trading strategy is the only way to go: http://at.zacks.com/?id=2289.
 

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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 – AngloGold Ashanti Limited (AU)

AngloGold Ashanti Limited (AU) is enjoying the fruits of soaring gold prices. Earnings estimates have been soaring for both this year and next year. 2006 estimates have vaulted 30% over the past 60 days to $1.92 per share, while 2007 estimates have jumped 34% over the same time frame. The stock is currently trading at 16.1x next year's estimates of $2.69, slightly below the long-term growth rate of 17.38%, giving the stock a PEG ratio of 0.93. Read the full analysis on AU at: http://at.zacks.com/?id=2505.

Growth & Income – FactSet Research Systems, Inc. (FDS)

FactSet Research Systems, Inc. (FDS) recently reported record revenues in the third quarter of fiscal 2006. The company increased revenues and grew profits for the past nine years. The Board of Directors recently increased its quarterly dividend by 20%. FDS has a return on equity of 28% compared to the industry average of 17%. Read the full analysis on FDS at: http://at.zacks.com/?id=2506.

More...

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Zacks Rank continued...

Momentum – Newell Rubbermaid (NWL)

Newell Rubbermaid (NWL) looks quite capable of moving higher and setting new all-time highs. NWL is a month away from reporting results for its Jun 2006 quarter, and anticipation is high. The company has returned a positive earnings surprise for the last 10 quarters, including the eye-popping 292% positive earnings surprise in the March 2006 report, released on Apr 27. NWL reported at that time EPS of 47 cents per share vs. 32 cents last year and a 292% positive surprise. Income rose 96% from the year earlier quarter to $129.9 million. Read the full analysis on NWL at: http://at.zacks.com/?id=2507.

Value - Valero Energy Corporation (VLO)

Valero Energy Corporation (VLO), a Zacks #1 Rank stock, announced the highest first-quarter earnings in its history back in late-April. The company increased revenues for the past seven years. Analysts have become increasingly optimistic about the company’s future earnings potential. VLO has a price-to-book ratio of 2.3, compared to 3.9 for the market. Its return on equity of 33% dwarfs that of the industry average. Read the full analysis on VLO at: http://at.zacks.com/?id=2508.

Zacks Rank Resources

• View All Zacks #1 Rank stocks: Go to: http://at.zacks.com/?id=2297.
   
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• Zacks Options Trader: Combine the timeliness of Zacks #1 Rank stocks with the explosive profit potential of options. Learn more at http://at.zacks.com/?id=2695.
   
• Zacks Wealth Management: Own all the Zacks #1 Ranked stocks in a portfolio managed by Zacks. Learn more at: http://at.zacks.com/?id=2533.

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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.

 
a) John Reese, Editor of The Validea Hot List
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Since John Reese and his team’s last issue, both the S&P 500 and the Validea Hot List have declined. The Hot List was down 5.1%, while the S&P 500 was up 2.3%. Year-to-date, the Validea Hot List continues to handily outperform the S&P 500: 17.2 percent against 0.6 percent. Since the inception of the Validea Hot List, it has risen 160.1 percent, versus a gain of 25.6 percent for the S&P 500.

An Addition to the Hot List

First Community Bancorp (FCBP)

This Southern California-based bank gets high grades from Reese and his team’s interpretation of two guru strategies. One of the gurus is Peter Lynch.

The Peter Lynch Strategy

The Lynch strategy, based on Reese’s interpretation of Peter Lynch's writings, categorizes First Community as a "fast-grower" because its growth (which is 30.91%) is greater than 20%.

The Lynch strategy's famous P/E/G ratio, which looks at the P/E ratio relative to the growth rate, is 0.60. To pass this test, the P/E/G has to be 1.0 or less, which is true for First Community.

This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. The desired growth rate ranges from 20 percent to 50 percent, and First Community's EPS growth rate of 30.91% fits the bill.

The Lynch strategy uses the equity/assets ratio as a way to determine a financial intermediary's health. First Community's E/A ratio of 17.0% is above the 5% minimum this strategy requires and is extremely healthy. The return-on-assets ratio is used to measure a financial intermediary's profitability. First Community's ROA of 1.77% is above the minimum 1% that this methodology looks for.

A Sampling of the Hot List

Abercrombie & Fitch Co. (ANF)is a specialty retailer that operates stores selling casual apparel, such as knit shirts, graphic t-shirts, jeans, woven shirts, shorts, as well as personal care and other accessories for men, women and kids under the Abercrombie & Fitch, abercrombie, Hollister and RUEHL brands. As of January 28, 2006, the Company operated 851 stores in the United States and Canada. During the fiscal year ended January 28, 2006 (fiscal 2005), A&F purchased merchandise from approximately 246 factories and suppliers located throughout the world, primarily in Southeast Asia and Central and South America. In fiscal 2005, the Company did not source more than 5% of its apparel from any single factory or supplier. A&F pursues global sourcing that includes relationships with vendors in 40 countries and the United States.

Tower Group, Inc. (TWGP) offers a range of specialized property and casualty insurance products and services to small to mid-sized businesses and to individuals in New York State and the surrounding areas through its wholly owned subsidiaries, Tower Insurance Company of New York (TICNY), Tower National Insurance Company (TNIC) and Tower Risk Management Corporation (TRM). TICNY is a property-casualty insurance company. TNIC is a property and casualty insurance company. TRM is a non-risk-bearing insurance services company that produces, through its managing general agency, business on behalf of other insurance companies. The Company's commercial lines products provide insurance coverage to businesses, such as retail and wholesale stores, grocery stores, restaurants, artisan contractors, and residential and commercial buildings, while its personal lines products focus on modestly valued homes and dwellings. Tower operates in three segments: Insurance, Reinsurance and Insurance Services.

 
About John Reese’s The Validea Hot List newsletter:

Invest with the confidence of knowing that your decisions have been validated by strategies of Wall Street legends that have proven to outperform the market. The Validea Hot List contains a portfolio of stocks that pass our interpretation of the strategies of the world’s most astute investment minds, including Graham, Lynch, Zweig, Buffett and others. Validea’s extensive research has shown that when these strategies agree, the result is market beating returns and low levels of risk. http://at.zacks.com/?id=2404.
 

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MORE FEATURED EXPERTS...

b) Conditions for a Bull Market

Donald Rowe expects a bull market under certain conditions. Discover what they are and check out a recommendation. More...
 

c) Global Growth Continues

Mutual fund expert Walter Frank explains the recent global sell off and provides an outlook for the U.S. economy. More...
 

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 Ranked (Strong Buys) have produced the following results for investors:

• +33% average annual return since 1988 versus +11.9% 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.
• +18% in 2005

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=2296.

Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=2297.

FREE PORTFOLIO TRACKER

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• Broker Recommendation changes
• Earning Estimate revisions
• Earnings Announcements
• Zacks Rank changes

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 to help take definitive action to improve your portfolio's performance. Did we mention it's free? Get started now!

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

Senior Market Analyst
Zacks.com

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 Zacks Performance Rank performance is the total return of equal weighted simulated portfolios consisting of those stocks with the indicated Zacks Rank net of fees. Results reflect the reinvestment of dividends and other earnings. Simulated results do not represent actual trading and may not reflect the impact that economic and market factors might have had on decision-making if an adviser were actually managing a client's money.

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.

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