Wednesday - September 27, 2006
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1. ZACKS RANK BUY STOCKS
Zacks #1 Ranked stocks average a 32.4% annual return. Every day on Zacks.com we highlight four new 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 Ė Old Dominion Freight Line (ODFL)
Old Dominion Freight Line (ODFL) has exceeded earnings estimates in six consecutive quarters. Year-to-year growth has routinely exceeded 30% over that time period. Seven analysts have raised their estimates for this year, while six have done so for next year. Over the past 60 days, this year's estimates have increased 5.3% to $1.97 per share. Read the full analysis on ODFL now!
Growth & Income Ė American Eagle Outfitters, Inc. (AEOS)
American Eagle Outfitters, Inc. (AEOS), a Zacks #1 Rank stock, has not reported a negative earnings surprise over the past 16 quarters. The company recently upped its third-quarter 2006 earnings per share guidance to between 56 cents and 58 cents. A new line called aerie by American Eagle launched in mid August should help fuel further sales growth. Strong cash flows from operating activities have led to a current dividend yield of 1.0%. Read the full analysis on AEOS now!
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Momentum Ė Lions Gate Entertainment (LGF)
Lions Gate Entertainment (LGF) is turning things around. On Aug 9 the company reported EPS at minus three cents per share, an 86% improvement over 2005ís loss of 21 cents per share. The EPS number was a 67% positive surprise over analystsí expectations. Sales dropped almost 19% to $172.5 million, but income rose 74% to a loss of $3.6 million. Read the analysis of LGF now!
Value Ė Alliant Energy Corporation (LNT)
Alliant Energy Corporation (LNT) exceeded analystsí earnings estimates for five consecutive quarters by an average margin of 45.2%. This Zacks #1 Rank stock recently upped its 2006 earnings per share guidance. The Board of Directors authorized a $200 million share repurchase plan in early August and declared a quarterly dividend of 28.75 cents per share in mid July. LNT has a price-to-book ratio of only 1.7, compared to 5.2 for the market. Read the full analysis on LNT now!
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. Click here to learn more about the Research Wizard.
ďUsing Common Sense to Manage your PortfolioĒ
This week Iíd like to focus on evaluating your holdings, monitoring your watchlists, getting rid of losing stocks and hanging onto (and getting into) winners.
As the title suggests, thereís no particular magic in making money (or keeping it), just good old-fashioned common sense. The trick is exercising it!
If youíve used our Research Wizard program even for a short amount of time, then you have either built your own proven, profitable Screening Strategies or selected a few of the Pre-defined Strategies that come with the program.
But that doesnít mean your work is over.
Whatever your stocks are, whether they be actual holdings or stocks under consideration, donít stop monitoring the fundamentals.
If an initial criteria for getting into a stock was a low Debt to Equity ratio, but that ratio subsequently changes to an unacceptable level (a level that would not have put it on your radar screen in the first place), you should consider exiting and looking for a new stock to replace it. One that currently does meet your criteria.
Letís say for instance that you use the Zacks Rank as a timing indicator and you look at the Zacks #1 (Strong Buy) Rank for immediate movers. If in a few weeks, as Zacks aggregates EPS Estimate Revisions, it sees that the prospects for the companyís earnings are to deteriorate and degrades its Rank to a Zacks #3 Rank or Zacks #4 (Sell) Rank, take note and consider dumping it.
Sure it was a Zacks #1 Rank, but itís not a Zacks #1 Rank (or Zacks #2 (Buy) Rank) anymore.
Think about it; if you never would have gotten into a Zacks #3 Rank or Zacks #4 Rank in the first place, why would you now want to hold onto one?
Thatís using your common sense.
What if youíre a momentum investor and you generally look for stocks trading within 10% of its 52-week high (a great item by the way) and it suddenly falls below that level? Well, if youíre only interested in focusing on stocks within 10% of its high and itís now 15% or 20% (or more) off its high, ... move on. The momentum has seemingly shifted and so should your focus.
And donít convince yourself to hang onto your losers either. If you got into a stock expecting great things and itís now down 8% to 10%, get out. Donít let your love of a stock (or denial) ruin your portfolio. Almost every big losing trade anybody has ever had in their portfolio (such as losses of 50%, 60% or even 90% or more), could have been exited when they were just beginning to crumble.If you get out and it zips back up, you can always get back in if you want. But if it keeps going down, youíre now out and free to look for new opportunities. So once youíve found the items that have proven to work well for you in picking profitable stocks, be sure to monitor those values. And if they no longer meet the winning criteria, get rid of them fast and find new ones that do. And the Research Wizardís backtesting feature is the best way to do that! Backtest your strategies to see what works and what doesnít. Here are three new stocks that look great and that are currently coming up on some of our best screening strategies:
Remember the key to successful screening is in discovering those screens that have produced profitable results in the past. And thatís exactly what you get with the powerful Screening and Backtesting ability of Research Wizard.
Take note: Backtesting isnít available in all screeners (in fact itís rarely available in any screener), but it is available in the Research Wizard.
So sign up now for your free trial to the Research Wizard and pick and choose from some of our profitable strategies or put your own ideas to the test and start making better decisions today.
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. ZACKS EQUITY RESEARCH
With geopolitical tensions seeming to simmer down a bit over the past month, we were interested in finding out from senior Aerospace and Defense analyst Jon Kolb if he was still strongly favorable to Defense industry stocks. While we were at it, we got his view on the Aerospace market as well.
For a while now you've been bullish on Aerospace and Defense. Has your outlook changed at all?
I could make the case that on a company-by-company basis I change my outlook relatively often. However, if I understand what you mean by this question, the short answer is no. And my thinking is that our bullish outlook on Aerospace & Defense [A&D] is not likely to change in the foreseeable future.
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Individually, Aerospace is open to re-evaluation at any time, but with the Defense component, I believe companies in this space will outperform for the long term. The unfortunate reality is that there are always likely to be geopolitical tensions and confrontations, just as there will always be a large number of people on the planet every year needing to travel far, for either business or pleasure. Actually, unfortunate or otherwise, these realities do represent significant opportunities for investors.
Is the anticipation of an eventual down-cycle being pushed further out based on relatively new geopolitical tensions with Iran and elsewhere?
While I agree with your notion that any pending A&D industry downturn may be further postponed due to Iran, North Korea, or whichever country makes news headlines next, I think the world in which we now live is that national defense and Homeland Security will be permanent active entities in our lives. Personally, I do not anticipate much of a downturn post-Iraq, and therefore a down-cycle in the Defense industry doesnít look very likely from my perspective.
Defense stocks seem as if they would work as "defensive" plays, if you'll pardon the expression. Can Aerospace stocks be thought of in a similar way?
Well, if you consider a good "defensive" play to be a company, industry or market segment that faces relatively stable and constant demand for its products or services throughout every stage of the business cycle, then Defense stocks are indeed - for lack of a better word - defensive. The vast majority of revenue generated by defense contractors comes from government entities. Governments tend to be relatively immune to the business cycle since they are less beholden to pressures in the market that other industries are.
But Aerospace is more cyclical and more closely tracks macroeconomic factors. Besides which, planes tend to have relatively long lives, and no airline is going to buy new planes when passenger traffic is declining. So no, I do not consider aerospace as a good place for investors to park their money during a market decline or possible recession if they want to protect their principal value.
To read the complete Analysts Interview, click here.
Jon Kolb is a senior analyst covering the Aerospace and Defense industries for Zacks Equity Research.
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Real-time market insights from Zacks Equity Research Analysts. Stocks featured recently include ConocoPhillips (COP), Radyne Corporation (RADN), Praxair (PX) and ACADIA Pharmaceuticals (ACAD). To see their latest posts, click here.
4. ZACKS WEALTH MANAGEMENT
Every week, Zacks Wealth Management provides informative articles on how to build and protect wealth. Todayís topic is:
The most common question I hear from clients is ďDo I have enough money to retire? Will my assets last?Ē Daunting questions that need careful reflection and planning. To help, I have outlined a step by step process so you can know the answers to these pressing questions.
Step 1: Determine how much money you will need from your invested assets when you retire. To do this you will have to deduct social security and any other forms of income from your target.
For example, letís say you are a 55 year old couple with a household income of $100,000. Your retirement plans are also worth $500,000. You want to retire at age 65 with the ability to maintain the same income. Your Social Security benefits could be around $48,000 per year if both spouses receive the maximum. So $100,000 minus $48,000 will give you a deficit of about $52,000.
Step 2: Determine a withdrawal rate that will give you the best probability of seeing that money last.
I recommend you limit your annual withdrawal rate to between 4-5%. This will increase your chance of having an income you canít outlive - meaning your deficit is covered and you provide yourself an opportunity for a raise at the inflation rate or better.
Step 3: Determine how much you need to accumulate in your portfolio to generate the additional annual income?
Letís say you decide to draw out 4% of your retirement fund per year. Figure out the lump sum you need to retire by dividing $52,000 by 4% ($52,000/.04). The resulting answer is $1.3 million is needed to generate $52,000 a year. If you want to be more aggressive at a 5% withdrawal rate you would need $1.04 million ($52,000/.05). The withdrawal rate you choose is also dependent on how much you have saved and how close you are to retirement.
Also, how you are invested will play a big role in this step. If you are too conservative, you may not get there, too aggressive, you have the potential of going two steps backwards in a market downturn. If you go for the $1.3 million, the gap is $800,000($1.3 million - $500,000 saved in the retirement plan). You will, therefore, need to save around $15,223 per year for 10 years assuming an 8% return.
Step 4: Choose the right investments in order to give you the best probability of getting to your goal.
If you have a large gap to cover or if you want more out of the portfolio in the future, you may need more equity exposure. If you are willing to live on less then you could be more balanced between fixed income and equities and cash.
Step 5: Avoid being overly greedy or overly fearful.
Markets will fluctuate day to day, quarter to quarter, and year to year. Your retirement may last 25-30 years and you need to look at the big picture. With that in mind, consider setting aside an emergency fund with one to two years worth of expenses in cash. If the market is in a correction phase, youíve got a safety net. Your advisor can help guide you into a portfolio allocation that can smooth out the peaks and valleys of your retirement moneys.
There are many variables to a retirement plan including savings, other income, withdrawal rate, rate of return on investments. If you are diligent and figure out what your income needs will be based upon the pension and/or social security you will receive and how much capital you need to cover your income needs, youíll know how much to save depending on your projected rate of return. That is retirement planning in a nutshell.
This article is provided for informational purposes only and does not constitute legal or tax advice. Zacks Investment Management, Inc. is not engaged in rendering legal, tax, accounting or other professional services. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.
CFP Board, a nonprofit regulatory organization, fosters professional standards in personal financial planning so that the public values, has access to and benefits from competent and ethical financial planning. CFP Board owns the certification marks CFP®, Certified Financial Planner™ and federally registered CFP (with flame logo), which it awards to individuals who successfully complete initial and ongoing certification requirements. CFP Board currently authorizes more than 50,000 individuals to use these marks in the United States. For more about CFP Board, visit www.CFP.net.
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MITCH ZACKS ON THE MARKETS
Relatively strong earnings should push the market higher: http://at.zacks.com/?id=2995.
5. FEATURED EXPERTS
Here we cast the spotlight on a timely Featured Expert commentaries that recently appeared on Zacks.com.
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.
Or view the full list of Zacks #1 Ranked stocks.
FREE PORTFOLIO TRACKER
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Regards and Happy Investing,
Charles Rotblut, CFA
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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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