Wednesday - October 31, 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 - Celestica, Inc. (CLS)
Celestica, Inc. (CLS) is turning around its operations and it is showing up in its results. Earnings estimates for this year have increased over 10% to 16 cents per share over the past 90 days. The past three quarters have produced an average surprise of about 80%. Analysts expect earnings to explode 208% next year. Additionally, the stock is very cheap at only 0.6x book value. Read the analysis of CLS now!
Growth & Income - DeVry, Inc. (DV)
DeVry, Inc. (DV), Zacks #1 Rank (Strong Buy) company, recently reached an all-time high share price after delivering a strong fiscal first quarter. Last Thursday, DeVry announced first- quarter earnings of 40 cents per share, excluding items, more than tripling the previous year's 13 cents. The company, which has topped Wall Street expectations for the past five straight quarters, is expected to grow by 20% over the next three to five years. DeVry beats the industry's growth expectation of 17% over the next three to five years. Read the full analysis on DV now!
Momentum - Sunoco Logistics Partners (SXL)
On Oct 22, Sunoco Logistics Partners (SXL) reported very strong third quarter earnings, beating estimates by 25%.
Within the last 30 days both quarterly and full-year projections have been raised by covering analysts. Share prices recently eclipsed the previous 3-month high and look ready to progress higher and challenge the 52-week high. Read the analysis of SXL now!
Value - Seagate Technology (STX)
Listen to the audio podcast on STX through Zacks' Audio Feature.
On Oct 22, Seagate Technology (STX) is in the sweet spot of the technology sector. This is evidenced by its recent robust quarter. Over the past 60 days, this year's earnings estimates have increased 58 cents to $2.52 per share. This represents an 85% jump over last year. The stock is cheap at only 10x next year's estimates and a price/sales ratio of 1.2. To boot, the stock has a great ROE of 23%. Read the full analysis on STX 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. Learn more about the Research Wizard.
Upgrades and Revisions -- A Winning Strategy for Beating the Market
This week, I'm going to highlight a screening strategy that primarily focuses on stocks with Increasing Earnings Estimates and Rating Upgrades.
Studies have shown that "earnings estimate revisions are the most powerful force driving stock prices." And stocks receiving upward EPS revisions will generally see brokers upgrade their ratings as well.
This screen generates on average only 8-10 stocks per month, has an excellent win ratio and has shown consistently impressive returns, year after year after year.
The Parameters to this Strategy are:
This strategy has beaten the market every year for the last six years and it's doing it again so far this year.
So far in 2007 (YTD through October 2007), this strategy has shown and average gross total compounded return of 31.1%.
This strategy comes loaded with the Research Wizard program and is called Upgrades and Revisions2.
Here are three stocks from this week's list (10/30/07)
AIRM Air Methods Corp.
Get the rest of the stocks on this list and start looking for new stocks on the move. And then start creating your own price targets. You can do it. Sign up now for your free trial to the Research Wizard and start finding better stocks 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 third quarter earnings season now in full-swing, we were interested in taking a snapshot of an industry through the eyes of a senior analyst's coverage. Zacks senior technology analyst Abdul Saleh tells us about the last three reports he has completed for Zacks Investment Research.
As earnings season hits in earnest, what stocks are you particularly interested in this week?
Well, VeriSign, Inc. (VRSN) is expected to release its fiscal Q3:FY07 results on Thursday (Nov. 1). Pro-forma results for fiscal Q2 were below our expectations, but in line with the company's earlier guidance, excluding the impact of its Jamba joint venture.
More. . .
Q2 revenue came in at $368 million, with EPS of $0.25, excluding one-time items and stock-based compensation. ISG revenue was $225 million, driven by better-than-expected security revenue. CSG revenue came in at $139 million (excluding Jamba), roughly flat as the company faced a difficult competitive environment.
Management indicated continuation of their strategic review of identifying opportunities to leverage core competencies. We have adjusted our Q3 and FY2007/2008 estimates, but have maintained our Buy rating ahead of the third quarter results and set a target price of $35.
In light of its disappointment last quarter, what makes you more positive this time around?
We think VRSN is well positioned in spite of the weak Q2 and lack of detailed guidance. The main catalysts going forward are the expectation of margin improvements and the prospect of restructuring to divest non-synergistic business segments. The company's core business remains robust, with its DNL and SSL franchises expected to benefit from a few key drivers over the next few of years (extension of its .com registry with ICANN though 2012 and 10% price increases annually).
Cash-flow metrics continue to be encouraging, with FCF of $69 million in Q2 (Operating cash-flow of $100 million and Capex of $33 million). New management has indicated that operating cash flow will likely remain at the current level in the upcoming quarters and that future capex will be curtailed.
VeriSign is trading at 33.3 times our 2007 earnings estimate of $1.04 per share. As the Internet spreads to mobile devices, we see VeriSign tapping this growth market with an array of value-added services. Moreover, we believe the company has substantial growth opportunities in the areas of intelligent supply chains, real-time publishing and interactive television. Ergo our target price at $35. This is derived by applying a target P/E multiple of 34.0x to our 2007 EPS estimate, which we think is justified given the company s growth prospects.
Has there been any disappointing news in your coverage regarding quarterly earnings reports?
Supertex (SUPX) released its fiscal Q2:08 results recently. Revenues of $22 million were down 17% from a year ago, but in line with our estimate. On a sequential basis, revenues were up 6% as Electro-luminescent (EL) driver sales to the company's largest customer rebounded in the second quarter. GAAP EPS of $0.32 was $0.03 short of our estimate of $0.35.
Management's outlook for the second half was disappointing as revenues are projected to be flat or modestly up sequentially. The company also indicated that there could be a short-term pause in the ramp up of the company's LED driver sales. We have adjusted our revenue and EPS estimates for FY2008 and FY2009 and maintain our Sell rating on Supertex, Inc. with a target price of $32.
Abdul Saleh is a senior technology industry analyst for Zacks Equity Research.
Real-time market insights from Zacks Equity Research Analysts. Stocks featured recently include Motorola (MOT), Valero Energy (VLO), Sony (SNE) and Power Integrations (POWI). To see their latest posts, click here.
Listen to the audio podcast for the Earnings Preview through Zacks' Audio Feature.
Paint the season black. After a string of good reports, earnings growth is back to double digits. More...
4. ZACKS WEALTH MANAGEMENT
Every week, Zacks Wealth Management provides informative articles on how to build and protect wealth. Todayís topic is:
A couple of weeks ago we discussed the optimal level of risk based upon various personal criteria. In that discussion (or any discussion) there are major assumptions we make about the performance of various asset classes. It is important that we keep in mind that these historical numbers are based on many years worth of data. Obviously, if one's time frame is shorter, we may want to take a second look at these longer- term performance numbers. What matters most at this point in your life is not what has happened, but what will happen and whether you will come out ahead at the right time.
Your portfolio performance matters most during the period when you have the most invested. As professionals, we tend to make the mistake of quoting historical market returns based upon decades worth of data whereas the average person plans his or her life in three, five, or ten year segments at best. Some studies have shown that since 1925, large and small-cap stocks combined have lost money 31% of the time over one-year rolling periods; over five years they have lost money 13% of the time. Only over 20 year rolling periods did they not lose money. So what is the best way to utilize various asset classes within a shorter-time frame?
Remember the basic principle of investing - "buy low, sell high"? If you are in the growth stage of your wealth, add to the asset class that has been underperforming. This is contrarian in nature, and opposite of what most of the investing public does in chasing returns, but will have a significant impact on long-term returns. That is why rebalancing is so important, especially if it is not done very frequently.
It is more challenging for those of you who are already in retirement and in the distribution phase of your assets. Regardless, the same principle applies. If the bond portion of your portfolio is outperforming equities, when taking money out of your portfolio, you may want to take it from the bond assets and allow for the equity portion to recover.
It is always wise to have a cushion built up in cash and cash- related positions so you are not forced into a situation of having to draw assets out when the market has corrected. This amount should generally range from three to six months worth of living expenses.
The bottom line is this: separate your decisions of what to invest in or draw from based upon the relative performance of the various asset classes in your portfolio. In the long-run, this will have a dramatic impact on the actual returns of your portfolio and will also keep your portfolio from becoming too unbalanced.
Jonas Zamora is a Certified Financial Planner™professional. You may contact him at firstname.lastname@example.org
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.
5. 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:
LOOK FOR GPS IN THE MAINSTREAM (GRMN)
Beris (Rank #63 with $178,698)
Sell Puffing Statoil Temporary (STO, COP, CVX, TOT, XOM)
BLOOD IN THE STREETS AT WELLCARE PLANS INC. (WCG)
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.
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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 ADRís.
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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