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Thursday - October 18, 2007
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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 - The Spectranetics Corporation (SPNC)
The Spectranetics Corporation (SPNC) is enjoying explosive earnings growth. Earnings are slated to grow 220% this year, followed by another 235% in 2008. The past two quarters have produced an average positive surprise of 250%. Over the past 90 days, this year's estimates have gone from breakeven to a profit of six cents per share. Analysts are projecting long- term earnings growth of 40%. Read the full analysis on SPNC now!
FPL Group, Inc. (FPL) recently reaffirmed earnings estimates for 2007 and 2008, which are in line with Wall Street expectations. Earnings per share are projected to grow 10% over the next 3-5 years. On Aug 3, the Board of Directors declared a quarterly cash dividend of 41 cents per common share of stock. FPL has a current dividend yield of 2.6%. The company delivered a solid second-quarter and will announce results for the third quarter on October 30, 2007. Read the full analysis on FPL now!
Momentum - PharmaNet Development Group, Inc. (PDGI)
PharmaNet Development Group, Inc. (PDGI) is involved with some interesting early and late-stage studies. Next year's earnings estimates have increased by seven cents just over the past week to $1.65 per share. Analysts are projecting earnings to leap another 49.2% next year. The stock just broke out to new highs, which means there is no overhead resistance. Read the full analysis on PDGI now!
Shares of AU Optronics (AUO) have surged by more than 25% since the stock was last featured a little over a month ago. Corresponding with the price appreciation has been a 17.2% increase in full-year profit projections. As a result, this Zacks #1 Rank ("strong buy") stock continues to trade at discounted valuation of just 13.4x 2007 earnings. Read the full analysis on AUO 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:
LIKE A DEER IN THE HEADLIGHTS AT 5 IN THE MORNING (LDK)
LEARN ABOUT THE POWER OF TRENDS FROM THE COLORADO ROCKIES
J.J. McGrath (aka MackTheKnife) is a diversified investor and trader who primarily deals in options and stock, with a burgeoning interest in certain exchange-traded funds. Highly quotable, informed and energetic, he mentioned the following in his latest interview with us: "Because I believe demographics are destiny, I most finely focus on companies in the energy and health-care sectors."
MackTheKnife's current portfolio includes names like Dendreon Corp. (DNDN), Anika Therapeutics Inc. (ANIK) and Alvarion Ltd. (ALVR). Take a look at his entire trading history by clicking here.
Please provide a detailed explanation of your investment style.
As a diversified investor and trader who primarily deals in options and stock (with a burgeoning interest in certain exchange-traded funds), I focus on companies with compelling growth-and-value characteristics, as well as effective managements. Because I believe demographics are destiny, I most finely focus on companies in the energy and health-care sectors.
On the one hand, I like to see perceived growth in gross revenue, net income, and free cash flow (among other metrics). On the other hand, I like to see reasonable price-to-book, price-to-earnings, and price-to-sales ratios (among other metrics). I also want portfolio companies to have debt-to- equity ratios of 0.5 or less, as well as comparatively favorable returns on assets, capital, and equity. In addition, I am attracted to small-capitalization companies more than I am to large-cap companies.
From time to time, however, I jettison the dictates of my discipline and go with the flow of my research and analysis, which can be rather exhaustive. Like Ralph Waldo Emerson, I also think a foolish consistency is the hobgoblin of little minds.
3. ZACKS EQUITY RESEARCH
The National Retail Federation (NRF) published the results of its 2007 Holiday Consumer Intentions and Actions Survey yesterday. Consumers plan to spend an average of $816.69 on holiday-related shopping this year and an extra $106.67 on themselves. The combined total of $923.36 would represent a 3.7% increase over what consumers spent last year - a growth rate that is viewed as being a little Grinch-like.
For those of you who think retailers play holiday music way too early, here is some bad news. The survey found that 40.3% of percent of respondents plan to start their holiday shopping before Halloween. The upside is that the holiday discounts are likely to occur very early this year. (Wal-Mart (WMT) has already cut prices on toys.)
The survey follows disappointing September sales numbers from several retailers including American Eagle Outfitters (AEO), Chicos FAS (CHS), Children's Place (PLCE), Bebe Stores (BEBE), Nordstrom (JWN) and Talbot's (TLB). Unusually warm weather has deterred consumers from buying winter clothing at the very time that many retailers have begun featuring boots and coats. At the same time, economic concerns are deterring consumers from opening wallets as frequently. Plus, the chatter about holiday discounts might have many a consumer more price conscious than in recent years.
More. . .
Bargain-hunting investors should consider treading lightly.Out of 47 companies within the Retail-Apparel/Shoe industry group, brokerage analysts have raised full-year profit projections on just seven companies over the past seven days (including Zacks #2 Rank stocks Cache (CACH), Gap (GPS) and Mens Wearhouse (MW)). In contrast, brokerage analysts have cut estimates on 22 clothing and footwear retailers.
Last week, I discussed how brokerage analysts had raised their full-year earnings expectations on multiple property and casualty insurers and reinsurers. The optimism has continued over the last seven days with analysts upping both third- quarter and full-year profit projections on Ace Limited (ACE), AllState (ALL), Axis Capital Holdings (AXS) and Chubb (CB). All of these companies will be reporting over the next two weeks with ALL releasing results tomorrow (Thursday) morning. (As I said in last week's Earnings Preview column, I expect ALL to beat expectations.) CB is a Zacks #1 Rank ("strong buy") stock and ACE, ALL and AXS are Zacks #2 Rank stocks.
There are a few factors at play with this group. Hurricane season, though not officially over, has been relatively tame in the U.S. Premiums, much to the chagrin of homeowners, have risen this year. The improvement in the financial markets is also playing a positive role.
Growth investors should note that earnings for many insurance companies are projected to be lower in 2008 than in 2007. There is much speculation that resistance to higher premiums will be a drag on profits. Nonetheless, forecasts for 2008 have been rising, suggesting that next year's decline may not be as bad as originally thought.
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 Hoku Scientific (HOKU), Sanmina-SCI Corporation (SANM), Radware (RDWR) and Interpublic Group of Companies (IPG). To see their latest posts, click here.
Oil Shippers Continue to Thrive
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: Discounted Fundamental Strength
This Profit Track identifies stocks with strong underlying fundamentals and low valuations. These are companies with solid balance sheets and a history of profitability that are reasonably priced. Although conservative in approach, this strategy has generated double-digit returns for five consecutive years.
Avnet, Inc. (AVT) is a distributor of electronic components and computer products. This Zacks #2 Rank stock made the grade for the Discounted Fundamental Strength profit track due, in part, to a current ratio of 1.98 and a debt/equity level of 0.34. The high current ratio implies a higher level of fiscal strength, meaning that the companies on this are more able to take advantage of business opportunities when presented. Recently, Avnet completed its acquisition of the Enterprise Infrastructure Division of Magirus Group and announced a U.S. distribution agreement with Veramark Technologies. Avent is scheduled to report its third-quarter results on Oct 25. Continue your research on AVT now!
Manpower Inc. (MAN) just reported solid third-quarter results, including earnings per share that improved year over year by 35% while beating the consensus by approximately 14%. Revenues increased 15% to $5.3 billion. The employment services company attributed the results to its strong geographic presence, especially in countries such as The Netherlands, Germany and Belgium. In addition to the quarter's numbers, Manpower passed the test for this profit track for several other reasons, including a PEG Ratio of 0.83, a debt/equity ratio of 0.30 and a five-year return on assets average of 4.25%. The company appears to have solid fundamentals while being well-positioned to capitalize on opportunities. Continue your research on MAN now!
Steelcase, Inc. (SCS) is an office furniture maker and a member of the Discounted Fundamental Strength profit track, sporting a PEG Ratio of 0.59, a debt/equity ratio of 0.21 and an average five-year return on assets of 1.61%. The company announced solid second-quarter numbers last month, including revenues that advanced 4.5% to $825.2 million from $789.7 million. Earnings per share also improved year over year and bettered the consensus by more than 4%. Steelcase attributed the results to benefits from improving its operations, along with a focus on more aggressively implementing its growth strategies. Continue your research on SCS now!
Western Digital Corporation (WDC) is scheduled to report its fiscal first quarter results on Nov 1. Earnings estimates for the storage company moved higher last month after the outlook for the quarter was enhanced. The company attributed the positive change to improvements in demand, product mix and pricing. With an average return on assets over the past five years of 19%, Western Digital has been historically profitable and managed assets well to build shareholder value. (The parameter for this profit track only calls for an average ROA of greater than 1.5% over the past five years.) Other factors that give this company Discounted Fundamental Strength includes a PEG Ratio of 0.86, a debt/equity ratio of 0.01 and a current ratio of 1.80. Continue your research on WDC 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. 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...
Comtech Telecommunications Corp. (CMTL) designs, develops, produces and markets innovative products, systems and services for advanced communications solutions. The Company believes many of its solutions play a vital role in providing or enhancing communication capabilities when terrestrial communications infrastructure is unavailable or ineffective. The Company conducts business through three complementary segments: telecommunications transmission, mobile data communications and RF microwave amplifiers. The Company sells products to a diverse customer base in the global commercial and government communications markets. The Company believes it is a market leader in the market segments that it serves.
Shares of Comtech recently reached a 52-week high and are trading slightly below that level.
The company recently announced that its Tempe, Arizona-based subsidiary, Comtech EF Data Corp., was awarded a $1.3 million order for satellite communications equipment from a U.S. government agency. A few days prior to this announcement, the same subsidiary received $2.6 million in orders for satellite communications equipment, which will support an expansion project of a satellite-based cellular backhaul network to remote areas in Asia. Many different other orders have preceded these two.
CMTL posted fiscal fourth-quarter and full-year results in mid- September. The company noted that net sales, operating income, EBITDA, net income and diluted earnings per share for the full year were at all time highs.
GAAP net income for the fourth quarter totaled 63 cents per share. The result outperformed the previous year's 45 cents and topped the consensus estimate by 43%. Quarterly net sales increased to $117.8 million from last year's $100.2 million.
GAAP net income was $2.42 per share for the full year, versus the year-prior $1.72 per share. Annual net sales of $445.7 million was ahead the year-ago $391.5 million.
In commenting on the Company's performance during the fourth quarter of fiscal 2007, Fred Kornberg, President and Chief Executive Officer, noted, "The fourth quarter was an outstanding finish to another record year for Comtech. The fundamentals across all three of our business segments remain solid and we continue to see strong demand for our product and service offerings, as evidenced by the sizable bookings we've received in recent weeks on key programs."
Comtech's P/E ratio of 23.5 compares favorably to the industry's 27.7. Its net margin of 15% crushes the industry's 4%, and CMTL's ROE of 14% dwarfs its industry's 5%.
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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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.
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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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