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Thursday - August 23, 2007
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I would like to introduce you to a new trading service we have just launched, Value Trader. Given the market's roller coaster ride over the past few weeks, you may find this new service very appealing.
Value Trader, as the name implies, is designed to identify attractive stocks with low valuations. It combines fundamental analysis with a trading mentality. In creating this service, we sought out a strategy that would beat the market. What we found was a strategy that not only generated an average annual return of 46.4%, but also has considerably less volatility than the S&P 500.
Yes, you read that right - stellar returns and a lower level of volatility. What's not to like?
Wishing you prosperity,
Charles Rotblut, CFA
1. ZACKS RANK BUY STOCKS
Zacks #1 Rank stocks average a 32.2% 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 - DTS (DTSI)
DTS (DTSI) is riding strong home entertainment sales to strong profits. The stock is trading near its 52-week highs despite a weak market. Over the past month, this year's earnings estimates have risen six cents to 50 cents per share. The company has exceeded estimates in six out of the past seven quarters. Six analysts have raised their numbers for this year, while four have done so for next year. Analysts project 20% growth in earnings over the long-term. Read the full analysis on DTSI now!
Air Products and Chemicals, Inc. (APD) exceeded analysts' earnings expectations for nine straight quarters. After releasing strong third-quarter fiscal 2007 results, the company raised its full-year profit guidance to between $4.30 and $4.35 per share. Analysts responded to APD's bullish guidance by upping their earnings estimates. On Mar 15, the Board of Directors raised its quarterly cash dividend 12% to 38 cents per share from 34 cents. The company has a current dividend yield of 1.76%. Read the full analysis on APD now!
Momentum - Anadigics Inc. (ANAD)
Anadigics Inc. (ANAD) is riding strong results to new highs. The stock has more than doubled over the past year. Earnings estimates for this year have risen four cents to 18 cents per share over the past 30 days. Technically, the chart is sound as the price is being supported by all of the moving averages as well as a recent breakout. As long as support around the $15 area holds, investors would be prudent to own these shares. Read the full analysis on ANAD now!
Hess Corporation (HES) recently beat the Street's second- quarter earnings estimate by 21.5% when it posted profits of $1.75 per share. Analysts responded to the company's solid quarter by upping their profit forecasts for both this year and next. Earnings per share are projected to grow 13% over the next 3-5 years. This Zacks #1 Rank stock has a price-to- book ratio of 2.0 compared to 4.6 for the market. Its PEG ratio currently sits at 0.77. HES also pays a dividend, currently yielding 0.68%. Read the full analysis on HES now!
2. Best of the Zacks $100,000 Challenge
Zacks is conducting a nationwide talent search to find the very best stock pickers. The winner gets a $100,000 dream job with Zacks! . Sign up for free to join the competition, or just read what stocks the leading players are trading on the Zacks Challenge Player Blogs.
Here's what the leading players are saying lately:
EUROPEAN ECONOMIC SENTIMENTS DROP...A SLOWDOWN IS COMING
VMARE UP ON ANALYST COMMENT (VMW)
Contestant Blankaflux has steadily advanced her Zacks $100K Challenge portfolio toward the top with some straightforward, by-the-book investing. The Simulator player explained that she is using the Zacks $100K Challenge as a "learning experience."
One thing that Blankaflux has probably learned by now is that her traditional, no-frills strategy, of investing in mostly growth companies that she can understand, can be quite lucrative as evidenced by her current overall return of 40% since the beginning of this year.
This prudent investor is concerned with three main issues when screening for names to buy. She looks at the company, stock and product. Blankaflux explained that the company should show growth, management should be doing a good job, the stock price should not be overpriced and the company should produce a product that is well liked. Such stock-picking methodology has led this contender to invest in Logitech International (LOGI), The Knot, Inc. (KNOT), Apple (AAPL), Google (GOOG) and CROCS Inc. (CROX) to name a few. Take a look at his entire trading history by clicking here.
3. ZACKS EQUITY RESEARCH
During the past four weeks, there have been 153 full-year earnings estimates revised downward for companies classified in Retail-Apparel/Shoe. This equates to an average of about 3.4 estimates revised downward for each company in the group. To put these numbers in perspective, Retail-Shoe/Apparel contains just 1% of companies within the Zacks Rank universe but accounts for 2.5% of all downward revisions.
There are eight Zacks #5 Rank ("strong sell") and 17 Zacks #4 Rank ("sell") stocks within this group; in other words, 55% of the clothing and retailers have a Zacks Rank equivalent to sell or worse. The bearishness reflects disappointing July same-store sales for many retailers including Bakers Footwear Group (BKRS), Pacific Sunwear of California (PSUN) and The Talbots (TLB). The weakness in sales was not universal, however, though economic factors did have some impact. Merchandising mistakes cost some retailers sales as did a shifting of tax-free days to August in Florida and Texas and a later start to the new school year in some counties.
More. . .
All this said, investors should note that Target (TGT) matched earnings expectations and Dick's Sporting Goods (DKS) and Saks (SKS) beat expectations yesterday, so the weakness is not universal. These recent reports also suggest that some retailers are using the economy as an excuse to cover up fashion and/or promotional mistakes.
As many of you are aware, Hewlett-Packard (HPQ) topped fiscal third-quarter expectations last week. The technology company generated non-GAAP earnings of 71 cents per share, six cents above expectations and up from 52 cents a year prior. Revenues rose 12%, after adjusting for currency translations, thanks in large part to a 54% increase in laptop computer sales. HPQ also sold more printers despite the entrance of Kodak (EK) into the inkjet printer market.
HPQ upped its fiscal 2007 guidance and now expects revenues of $103 to $103.2 billion and non-GAAP earnings of $2.86 to $2.87 per share. (Previously, the company had forecast revenues of $100.5 to $100.9 billion and non-GAAP earnings of $2.75 to $2.77 per share.) Nearly all of the covering brokerage analysts raised their forecasts for fiscal 2007 profits in response, sending the consensus estimate 11 cents higher to $2.88 per share. Forecasts for fiscal 2008 were also revised higher, moving the consensus estimate nine cents higher to $3.21 per share. HPQ is a Zacks #2 Rank ("buy") stock and is classified in Computer-Mini.
To read the complete Industry Rank Analysis, click here.
Charles Rotblut, CFA is the senior market analyst for Zacks Equity Research.
Real-time market insights from Zacks Equity Research Analysts. Stocks featured recently include Palm (PALM), Chalco (ACH), Saks (SKS) and Xtent (XTNT). To see their latest posts, click here.
Pipelines Key in Biotech Investments
Listen to the audio podcast of Earnings Trends through Zacks' NEW Audio Feature.
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...
Profit Tracks: Return on Equity
One of the quickest ways to gauge whether a company is creating assets or gobbling up investor's cash is to look at their Return On Equity (ROE). The fast moving ROE Profit Track screening strategy from Zacks.com has generated an impressive return of +21.4% in 2005. In 2006, it continued to outperform the S&P 500, returning +27.0% versus the S&P 500 rise of +16.7%.
Applied Industrial Technologies, Inc. (AIT) is currently trading a couple dollars below the 52-week high that was established earlier this month. AIT recently announced fiscal fourth-quarter earnings of 56 cents per share, outperforming last year's 44 cents and eclipsing the consensus estimate by 19%. Net sales for the fourth quarter increased by 4.7% on a year-over-year basis. The company noted that fiscal 2007 was a record sales year, though the economic expansion was less robust than it was a year ago. Continue your research on AIT now!
Bunge Ltd. (BG) satisfies the criteria of this Profit Track as evidenced by its ROE of 12.28 and its price to sales ratio is 0.32. In late July, the company reported second-quarter results, stating that strong second-quarter earnings were driven by a good performance in agribusiness and outstanding results in BG's fertilizer operations. Bunge's earnings per share were 44% ahead of the consensus estimate. Continue your research on BG now!
Olin Corp. (OLN) released second-quarter earnings of 48 cents per share in late July. The result topped the year-prior 45 cents and exceeded the consensus estimate by approximately 31%. Sales in the second totaled $839.1 million, improving on the previous year's $826.4 million. Olin Corp. offers a ROE of 19.90 and a price to sales ratio of 0.47. Continue your research on OLN now!
Schnitzer Steel Industries, Inc. (SCHN) posted fiscal third-quarter earnings of $1.47 per share, a third-quarter record. The result, which was reported in early July, surpassed the year-ago total of $1.11, excluding a charge, and beat the consensus estimate by 37%. The company noted that its Metals Recycling segment posted record quarterly revenues as it continued to benefit from robust export markets for recycled metals while maintaining a high level of throughput at its processing facilities. SCHN's ROE is 19.00 and its price to sales ratio stands at 0.62. Continue your research on SCHN now!
To see the full list of stocks that currently pass this winning screen, 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”.
Kevin Matras explains why you should look for stocks with new analyst coverage. Click here.
5. ZacksElite.com TIMELY BUY of the WEEK
Here you'll discover a Zacks #1 Rank stock hand selected by Ben Zacks to outperform the market over the next 30 to 90 days. This week's Timely Buy is...
Sotheby's Holdings, Inc. (BID) is one of the world's second largest auctioneers of fine arts, antiques and collectibles, offering property in collecting categories, among them paintings, jewelry, decorative arts, and books. Sotheby's Holdings, Inc is the parent company of Sotheby's worldwide auction businesses, art-related financing and private sales activities. The Company operates in countries, with principal salesrooms located in New York and London. The company also regularly conducts auctions in other salesrooms around the world, including Australia, Hong Kong, France, Italy, the Netherlands, Switzerland and Singapore.
The company recently released financial results for the second quarter, noting that it delivered the highest second quarter results in company history. Earnings per share were a record $1.64, versus the year-ago total of $1.17. The earnings result was also ahead of the consensus estimate by 9%. Record revenues of $339.5 represented a 37% year-over-year increase.
"These past six months have been historic by all standards," said Bill Ruprecht, President and Chief Executive Officer of Sotheby's. "In this six month period we earned more than in any full year in our history. We believe that these results validate our strategy, demonstrate the significant operating leverage in our business model and highlight our ability to execute in a strong art market. They reaffirm our commitment to our clients, our employees and our shareholders. And, very importantly, they reaffirm our commitment to profitability."
Analysts are bullish on BID, bringing current full-year 2007 earnings estimate up to $2.75 per share, up from last month's $2.63.
The company's net margin of 21% is well above the industry's average of 5%, and its ROE of 14% is also above the industry's average of 12%.
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.
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Regards and Happy Investing,
Charles Rotblut, CFA
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*Zacks Rank performance is the total return (price changes + dividends) of equal weighted portfolios, consisting of those stocks with the indicated Zacks Rank, assuming zero transaction costs. These returns are not the result of a backtest; these are actual returns since 1988. The stocks in the Zacks Rank portfolios were available to Zacks clients before the beginning of each month (monthly rebalancing). Performance results from 1988 through September 2006 are based on a subset of all Zacks Rank stocks that excludes stocks covered by only one analyst and ADR’s.
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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At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1986 it has nearly tripled the S&P 500 with an average gain of +26% per year. These returns cover a period from 1986-2011 and were examined and attested by Baker Tilly, an independent accounting firm.
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