Monday - October 15, 2007
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Earnings season will start to heat up this week with 12 Dow components scheduled to report. As I state in the Earnings Preview article, I expect good earnings from the majority of these companies (Citigroup being the obvious exception). I also expect the earnings results to drive the major indexes higher.
For those of you who are interested in trading off of earnings surprises, I would suggest reading the latest Investment Ideas article. Zacks.com Growth Stock Analyst Roopak Chakravarty explains the difference between merely beating expectations and issuing a true earnings surprise. It's a great article and can be accessed, for free, on Zacks.com.
Wishing you prosperity,
Charles Rotblut, CFA
1. ZACKS RANK BUY STOCKS
Zacks #1 Rank stocks average a 32% 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 - Intuitive Surgical, Inc. (ISRG)
Intuitive Surgical, Inc. (ISRG) is clearly a heart-warming story. Earnings have been on fire, as evidenced by the fact that it has posted five solid earnings surprises in a row.
Over the past 90 days, this year's estimates have risen 24 cents to $3.06 per share. Analysts are expecting earnings to jump another 37.9% next year. The company sports an awesome net margin of 20.6%, well ahead of the industry's average of 1.1%. Combine that with a 15% ROE and no debt, and you have a stellar winner. Read the full analysis on ISRG now!
Growth & Income - Applied Industrial Technologies, Inc. (AIT)
Applied Industrial Technologies, Inc. (AIT) announced fiscal fourth-quarter earnings of 56 cents per share, surpassing the year-prior 44 cents and topping 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. AIT experienced earnings per share growth of 52% over the past five years. The company's dividend was recently increased by 25%. AIT's current dividend yield stands at 1.9%. Read the full analysis on AIT now!
Momentum - The Nasdaq Stock Market, Inc. (NDAQ)
Listen to the audio podcast on NDAQ through Zacks' Audio Feature:
The Nasdaq Stock Market, Inc. (NDAQ) is benefiting from record trading volume, even when the market went in the tank in August. Over the past 60 days, this year's earnings estimates have increased nine cents to $1.38 per share. Analysts expect earnings to jump another 43.6% next year. The company has exceeded estimates by an average of 20% over the past two quarters. Read the full analysis on NDAQ now!
Value - Horace Mann Educators Corporation (HMN)
Horace Mann Educators Corporation (HMN), a Zacks #1 Rank stock, exceeded analysts' earnings expectations in 11 out of the past
14 quarters. Consensus earnings estimates for both this year and next year are up over the past month. The company has returned value to its shareholders through both dividend payments and share repurchases. HMN has a price-to-book ratio of 1.5. Read the full analysis on HMN now!
Zacks Rank Resources
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
Profit Tracks: Growth and Income
This screen looks for stocks that are paying dividend yields of greater than 8% along with other attractive fundamental attributes. Although this screen is based on a long-term and lower risk approach to investing, it has a history of outperforming the S&P 500.
Here are four stocks that make the grade for the Growth and Income Profit Track:
Centerline Holding Co. (CHC) declared a third-quarter dividend of 42 cents per share in mid-September. The dividend is payable on November 14, 2007 to shareholders of record as of September 28, 2007. Centerline Holding Co. meets the requirements for this Profit Track as evidenced by its current dividend yield of 10.90%. Continue your research on CHC now!
Frontline Ltd. (FRO), a Zacks #1 Rank (Strong Buy) company, recently declared an ordinary dividend of $1.50 per share and an extraordinary dividend of $1.75 per share, totaling $3.25. The record date was October 12, 2007, and the dividend will be paid on or about October 24, 2007. The company satisfies the criteria for this Profit Track with a current dividend yield of 13.47%. Frontline is scheduled to release results for the third quarter on November 30, 2007. Continue your research on FRO now!
HRPT Properties Trust (HRP) offers a current dividend yield of 8.22%. The company recently announced a quarterly dividend of 21 cents per common share. The dividend will be paid on or about November 21, 2007 to shareholders of record as of October 23, 2007. In early August, HRP reported second-quarter funds from operations (FFO) of 29 cents per share. The result was in line with analysts' expectations. Continue your research on HRP now!
MCG Capital Corporation (MCGC) sports a current dividend of 12.14%. The company announced results for the second quarter and declared a third-quarter dividend in late July. The dividend, in the amount of 44 cents per share, will be paid on October 30, 2007 to shareholders of record as of August 23, 2007. Second-quarter earnings per share increased on a year-over-year basis and were nearly 15% ahead of the consensus estimate. Continue your research on MCGC 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 outlines a strategy for how to trade the Zacks Rank in a very practical manner for almost anyone's portfolio. Read more...
3. ZACKS EQUITY RESEARCH
Calling for new record highs seems rather trivial these days with the Dow holding above 14,000, but it is very possible that the blue-chip average's ascent could continue. The third full week of October will be highlighted by reports from 12 Dow members: 3M (MMM), Altria Group (MO), Caterpillar (CAT), Citigroup (C), Coca-Cola (KO), Honeywell (HON), IBM (IBM), Intel (INTC), Johnson & Johnson (JNJ), J.P. Morgan Chase (JPM), Pfizer (PFE) and United Technologies (UTX). At least one brokerage analyst has raised his quarterly profit forecast within the past week on five of these of companies. In addition, nine out of these 12 companies topped second-quarter expectations. Finally, expectations have been worsening for Citigroup and it is possible that the market could withstand a weak report and downbeat conference call from the financial conglomerate.
Of course, there will be more than just these 12 Dow members reporting. In total, we have confirmed earnings reports from 268 companies, 83 of which are S&P 500 members. Large-cap stocks will dominate the earnings calendar for the next 14 days, followed by multiple reports from mid- and small-cap companies.
Friday is an options expiration day. It is also the anniversary of the 1987 crash.
More. . .
The New York Fed's manufacturing index, published on Monday, will be the week's first economic report. Tuesday features September industrial production and capacity utilization and the National Association of Homebuilders' October housing index. September CPI and housing starts will be released on Wednesday. Thursday will bring the Conference Board's September Leading Indicators index and the October Phili Fed survey. No economic reports are scheduled for Friday.
Third-Quarter Earnings Performance
As of Thursday evening, 75 companies within the S&P 1500 (S&P 500, S&P Midcap 400 and S&P SmallCap 600) had reported earnings. This is hardly a large enough sample to draw any conclusions from, but for those of who are curious, positive surprises are leading negative surprises by a margin of 1.6:1.
Median company growth is running at 9.5%. The growth rate is within the range I would expect for the entire earnings season, though I do expect a higher proportion of positive surprises as earnings season goes on. (The ratio could temporarily worsen over the next week given that multiple banks are scheduled to report.).
Companies That Could Issue Positive Earnings Surprises during the Week of Oct 15 - 19
As I discussed in last Wednesday's Industry Rank Analysis column, brokerage analysts have been raising forecasts on multiple property and casualty insurers recently, including Allstate (ALL). The lack of a major hurricane striking the U.S. this year, the rebound in the financial markets and higher premiums are all likely behind the bullishness. In the specific case of ALL, roughly one-third of the covering analysts have raised their third-quarter profit projections during the past two weeks. The revisions have resulted in a 11-cent increase in the consensus estimate to $1.65 per share. The most accurate estimate is even more bullish at $1.75 per share. Investors should be aware, however, that over the past four quarters, this insurer has missed expectations two times and topped expectations two times. Allstate is scheduled to report on Thursday, Oct 18, before the start of trading.
Despite the adverse affect of high fuel prices, Continental Airlines (CAL) is expected to report good third-quarter earnings. The airline achieved record load factors in September and estimates that it achieved an increase in consolidated revenue per available seat mile of between 4.5% and 5.5%. (Load factor measures how full a plane is; the higher the load factor is, the more likely the plane is going to feel cramped.) The bullish September numbers caused three of the 10 covering brokerage analysts to raise their third- quarter forecasts. The consensus earnings estimate of $2.12 per share is 10 cents above the average forecast of a month ago. The most accurate estimate is more bullish at $2.16 per share. CAL has topped expectations for four consecutive quarters. Continental Airlines is scheduled to report on Thursday, Oct 18, before the start of trading.
Charles Rotblut, CFA, is the senior market analyst for Zacks.com. He can be reached at email@example.com.
Real-time market insights from Zacks Equity Research Analysts. Stocks featured recently include Aladdin Knowledge Systems (ALDN), PetSmart (PETM), Petrobras (PBR) and HSBC Holdings (HBC). To see their latest posts, click here.
4. FEATURED EXPERTS
Here we cast the spotlight on timely Featured Expert commentaries that recently appeared on Zacks.com.
"X" Marks the Spot: Xenoport
OTHER TOOLS FROM ZACKS
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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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