Wednesday - September 22, 2004
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1. FEATURED EXPERTS
Here we cast the spotlight on a timely Featured Expert commentary that recently appeared on Zacks.com. Following the article you will find previews of other profitable commentaries with insights and recommendations from leading investment experts.
Oil prices should continue to fall between now and year-end. The summer driving season is over and OPEC just announced a daily surplus of 1.5 million barrels a day.
I still expect a global economic boom. The yield curve is steep and that is always bullish for stocks. The stock market is 30 percent undervalued and a big upside explosion of stock prices is inevitable. We are close to issuing a buy signal for a few stocks, but we need higher volume and follow-through. Let’s be patient.
Market fundamentals are very bullish. It is also very encouraging to see the Smart Money purchasing bargains everyday between 3:00 and 4:00 p.m.
The election outcome is no longer a factor in the market. I still expect a global economic boom. The yield curve is steep and that is always bullish for stocks. The stock market is 30 percent undervalued.
From “How to Profit from the Great Boom Ahead” Special Report
More. . .
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Witness Systems Corporation (Nasdaq: WITS) is a world leader in the contact center management industry. The company provides a proprietary software suite that allows global enterprises to capture customer intelligence and optimize workforce performance. Witness Systems’ multi-award-winning “eQuality Office” software suite enables an organization to capture, evaluate and analyze complete customer interactions, identify performance gaps and then apply targeted electronic learning for continuous performance improvement. By capturing both voice and computer desktop activity and synchronizing them during replay, a company can analyze complete customer interactions as they actually occurred. Witness Systems is expecting earnings of $0.30 per share this year, an 850% increase from last year, while the industry is expecting an increase of 23%. Long-term growth is expected to average 20% annually. Headquarters: Rosewell, GA; Phone: (770) 754-1900; www.witness.com.
Armor Holdings, Inc. (NYSE: AH) is a manufacturer of diversified security products that are used worldwide by military, law enforcement, security and corrections personnel, governmental agencies, multinational corporations and individuals. The company operates under three business divisions: Armor Holdings Products, Armor Mobile Security, and Simula, Inc., a wholly owned subsidiary. Armor Holdings' core markets are military aviation safety, military personnel safety, and land and marine safety. Through Simula, the company provides military helicopter seating systems, helicopter cockpit airbag systems, aircraft and land vehicle armor kits, body armor and other protective equipment for U.S. military personnel, emergency bailout parachutes and survival ensembles worn by military aircrew. The company is expecting earnings of $2.00 per share this year, a 111% increase from last year, while the industry is expecting an increase of 26%. Long-term earnings growth is expected to average 30% annually. Headquarters: Jacksonville, FL; Phone: (904) 741-5400; www.armorholdings.com.
A SUPER ECONOMIC BOOM IS COMING! Momentum investor, Donald Rowe brings decades of experience and helps you utilize The Wall Street Profit System 2005TM to double your money every three years!
Learn more about this newsletter and free trial offer at: http://at.zacks.com/?id=380.
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If you’re looking to put money into this tech stock you may want
to do a little homework before making any moves. Find out the
story on 3Com and whether this is a good time to buy. More...
c) Soft Patch?
Is it a soft patch or a bull reversal? That is what Walter Frank
debates in this featured expert along with three advancing
small-cap mutual funds to consider. More...
Dr. Melvin Pasternak discusses the entrenched negative chart
patterns on the NASDAQ and reviews the science of retrenchments.
Get a primer on technical analysis with the index`s current
predicament as the example. More...
Price Headley informs investors of his turn in sentiment in a
sector that he`d been avoiding and that is now emerging with a
very bullish chart. More...
Dennis Slothower describes the stages the oil and stock markets
have gone through over the last months. Find out what he needs
to see for the stock market to break out and what he expects
from oil, stocks and the election. More...
Featured Expert articles are courtesy of the 60+ leading investment newsletters that have partnered with us to create the Zacks Expert Advice service. Check out the Experts section of Zacks.com daily to find profitable stock picks and timely market commentary at: http://at.zacks.com/?id=1386.
2. WEEKLY COMMENTARY: Screen of the Week
Zacks.com offers 3 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. http://at.zacks.com/?id=1388
“Earnings Acceleration: The Difference Between Good Stocks and Great Stocks”
In good markets or bad, strong earnings are one of the most important things that influence stock prices. But instead of just looking at the most recent quarter’s earnings, try looking for earnings acceleration too.
Studies have shown that almost all of the most successful stocks in the past had displayed accelerated earnings BEFORE their most impressive price moves.
Sideways ‘percentage earnings growth’ (even if they’re good) or decelerating ‘percentage earnings growth’ (strong or not) can potentially signal a period of consolidation (or slowdown) which in turn can flatten out prices or send them lower. But increasing ‘percentage earnings growth’ (consistently improving from the company’s prior percentage of earnings growth) can often be the difference between good stocks and great stocks.
In this screen, I’m focusing on increasing ‘percentage earnings growth’ and projected ‘percentage earnings growth’.
I want the last two quarter over quarter % EPS Growth periods to be greater than the previous periods and the next projected quarter over quarter % EPS Growth period to be greater than the previous period as well.
Expressed as;EPS % Growth (Q0)/(Q-1) > EPS % Growth (Q-1)/(Q-2)
EPS % Growth (Q-1)/(Q-2) > EPS % Growth (Q-2)/(Q-3)
EPS % Proj. Growth (Q1)/(Q0) > EPS % Growth (Q0)/(Q-1)
(In addition to that, I’m only including stocks greater than or equal to $5 with an average daily share volume of 50,000 or more.
Current Price >= $5
There are 9 companies on this screen this week. Here’s 3 from that list;
So when a company reports earnings, take a look at their numbers, and then see how their current % EPS Growth stacks up to their previous period’s % EPS Growth (and the period prior to that). Moreover, take a look at how their Earnings Growth is forecasted in their next reporting period as well.
Again, with statistics suggesting that accelerated earnings typically appear BEFORE the most impressive price moves of a stock, this is definitely a screen worth watching for finding winning stocks on the move!!!
Additional Screening Tactic:
Another screen I like running in regard to earnings, deals with Increasing Earnings (if not necessarily the % of EPS Growth).
In this one I’m looking for each of last 8 quarters of Earnings (that’s right -- 8 quarters) to be greater than the previous quarter’s Earnings. This one isn’t so much concerned with the increasing percentage of earnings growth, but rather, the simple increase of earnings from one period to another.
The thing that makes this screen so tough (i.e., a great stock picker), is that it demands a consistency of excellent performance from a company over an extended period of time.
I also want this quarter’s Estimate Earnings to be greater than last quarter’s Actual Earning’s and the following quarter’s Estimated Earnings to be greater than this quarter’s Estimated Earnings.
Price and volume are the same as the other one; >= $5, and avg. 20-day volume >= 50,000.
This screen will produce a larger list of stocks. It’s currently showing 32. Here’s 3 from that list with excellent uptrends;
(In the Research Wizard program, the report that’s generated will have the last 8 quarters lined up in the row, from left to right, with the latest quarter (8 quarters ago) to the most recent quarter. It also continues out with the current quarter’s estimated EPS (Q1) and the following quarter’s estimated EPS (Q2). With this display, you can instantly see the EPS trend.)
This strategy will typically find stocks with fantastic earnings consistency and a history of beating earnings expectations.
See for yourself and start finding the best stocks with the best earnings today. Sign up now for your two week free trial to the Research Wizard stock picking and backtesting software. http://researchwiz.zacks.com
Want to know what it picks next week? Then sign up for your free trial to the Research Wizard stock picking software now.
All the Screen of the Week strategies are created and backtested using the Research Wizard software from Zacks Investment Research. Learn more about the Research Wizard and Free Trial offer at: http://at.zacks.com/?id=1388.
Discover all the Free Screening Tools on Zacks.com at: http://at.zacks.com/?id=1389.
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As the election roar grows rapidly louder it helps to take the
market’s pulse and get a historical perspective. Find out how
one Tuesday in November could impact your investments and get
top Expert picks. More...
ALL STAR TOP PICKS
There's a lot of concern regarding retail in the market, but some companies are bucking the trend and could be compelling for investors. The All Stars have five fashionable recommendations that you may want to consider. More...
3. BEST OF ZACKS INDEPENDENT RESEARCH
The analysts from Zacks Independent Research create a mountain of insightful equity research everyday of the week. Here you will find the best of that information recently published on Zacks.com.
BULL OF THE DAY
AGCO Corp. (AG) - Worldwide agriculture manufacturer http://at.zacks.com/?id=1392
Delta Air Lines (DAL) - Serious possibility of bankruptcy http://at.zacks.com/?id=1393
Health Facilities: Waiting for Recovery
Electronics Industry - Neutral
Economic Growth Projected To Rebound
4. TRADING STRATEGIES: Model Portfolios
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 feature our 2 exclusive model portfolios on Zacks.com (All Star Analyst and Brokerage Buy List). See below for highlighted stocks currently in these profitable portfolios.
This exclusive portfolio contains only those stocks recommended by 5 or more of the best stock pickers on Wall Street based upon performance (aka All Star Analysts). Here are 2 stocks currently appearing in the All Star Analyst Portfolio.
Carnival Corporation & plc (NYSE: CCL) is the largest cruise vacation group in the world, with a portfolio of 13 cruise brands in North America, Europe and Australia. Building on record numbers in the second quarter, Carnival recently announced another record quarter in Q3. The company stated that the most recent record quarter was a testament to the success of the merger with P&O Princess Cruises last year. It was their best quarter ever and the first time they have earned more than a billion dollars in a single quarter. Net income of $1.03 billion, or $1.23 diluted EPS, on revenues of $3.2 billion for its third quarter ended August 31, 2004 compared to net income of $734 million, or 90 cents diluted EPS, on revenues of $2.5 billion for the same quarter in 2003. The good news doesn't appear to be fleeting as several All Star analysts believe the company is on track to achieve a record increase in revenue yields this year while absorbing an extraordinarily high +17% capacity increase. It's smooth sailing for CCL so far and the horizon looks promising as well. To continue your research on CCL, click here.
C-COR (Nasdaq: CCBL) is a top-tier global provider of optical packet and digital video transport communications products; end- to-end fiber-to-the-premise systems; comprehensive OSS solutions; and high-end technical outsourced field services--all supporting cost-effective delivery of voice, video, and high- speed data over advanced broadband networks. Several top All Star analysts have come on board and are recommending the company as a long-term core holding. Last month, the company reported its financial results for the fourth quarter and fiscal year 2004, ended June 25, 2004. Net sales for the fourth quarter of fiscal year 2004 were $64.2 million compared to $52.0 million for the same period last year and $58.4 million in the third quarter of fiscal year 2004. That was a +23% and +10% gain respectively. The company stated that, "Along with posting solid current results, we have maintained our focus on the future by investing in three strategic acquisitions that add product lines to the company's portfolio. While we expect these investments to add to earnings in the long term, our earnings forecast for the next quarter reflects increased operating expenses and integration costs associated with the acquisitions. We expect the integration of these acquisitions to be substantially completed by the end of calendar year 2004." After a peak in February, the stock looks to be headed in the right direction. To continue your research on CCBL, click here.
Which brokerage analysts are the best stock pickers in their field and what stocks do they recommend today? Find out here with the Zacks All Star Analyst Survey, the best way to find those rare few analysts whose recommendations are worth following. http://at.zacks.com/?id=1419
Long-term investors take note. The stocks in the portfolio must be on the core recommended list of at least three of the top 14 brokerage firms. These stocks tend to be large-cap, "blue chip" companies and is for conservative, long-term investors.
ConocoPhillips (NYSE: COP) is a major international integrated company with operations in 49 countries. In late July, COP reported second quarter net income of $2.1 billion, or $2.97 per share, compared with $1.2 billion, or $1.73 per share, for the same quarter in 2003. Total revenues were $31.9 billion, versus $25.6 billion a year ago. Overall, the company’s operating performance for the quarter was good, but there were opportunities to do better," said Jim Mulva, president and chief executive officer. "Due to unscheduled downtime, we did not realize the full potential of our assets in a high price and high margin environment. The company did make further progress in strengthening its balance sheet, with its debt-to-capital ratio declining from 32% to 29% during the quarter. With improving fundamentals and production volumes, analysts at three top brokerage firms have COP on their Focus Lists. To continue your research on COP, click here.
IBM (NYSE: IBM) is the blues of blue chip technology names. The company uses advanced information technology platforms to deliver customer solutions. Back in July, IBM announced that second-quarter 2004 diluted earnings per common share were $1.16 from continuing operations compared with diluted earnings of 98 cents per share in the same period of 2003, an increase of +18%. Second-quarter income from continuing operations was $2.0 billion compared with $1.7 billion a year ago. Revenues from continuing operations for the second quarter were $23.2 billion, up +7% compared with the second quarter of 2003 revenues of $21.6 billion. IBM team delivered another fine quarter, which demonstrated the power of our business model and the advantages of our continued focus on serving enterprises and institutions around the world. Corporate spending looks to be hitting its stride and Big Blue has the endorsement of four of the top brokerage firms as a Core Recommendation thanks to its diversified position and consistent performance. To continue your research on IBM, click here.
5. ZACKS TOOLBOX
Zacks.com is first and foremost a free resource to help you make more profitable stock picks. In this space each week, we will provide insights into various tools and data points provided on Zacks.com, and how to use them to improve your portfolio’s performance.
Perhaps the most often used (and abused) stock research item is the Average Broker Recommendation (ABR). Let’s dig into the ABR and learn how to employ this information to make better investment decisions.
What is the ABR? It is a simple statistic that tries to synthesize all Wall Street research into an easy to digest form. Lets take a look at the example of the ABR for General Electric (GE). Currently there are 17 brokerage firms that have a rating on GE with 10 Strong Buys, 3 Buys, 4 Holds and 0 Sells. Now we layer on a weighting system from 1 to 5 with Strong Buy being a 1. This adds up as follows
10 Strong Buys x 1 = 10
28 Total Points divided by 17 brokerage firms with ratings = 1.65 ABR
On the surface an ABR of 1.65 sounds pretty good as it is saying that the average brokerage firm believes that GE is somewhere between a Strong Buy and a Buy. However, before you place your life savings in this stock you may want to read this next paragraph…
The ABR of a stock is virtually worthless in helping you pick good stocks. How’s that? The usual assumption by investors is that the better the ABR (closer to 1) the more likely they are to profit with the stock. However, our studies over the years show a very minor correlation between ABR and results. In fact, when the market is going poorly, the stocks with the best ABRs dramatically underperform the stocks with the worst ABRs.
We don’t know the exact reason why this is the case, but the general assumption is that when everyone on the street is recommending a stock, then it will probably be priced too high and more likely to fail miserably on any bad news. Conversely, an out of favor stock will probably already be trading at a steep discount and any turnaround will create a nice bounce for the stock.
So, now you’re probably thinking to yourself the key to eternal happiness is to find stocks with the worst ABRs. Unfortunately we don’t recommend that either because over the long haul these stocks will underperform the average stock (meaning that both the best and worst ABR stocks underperform the market).
The good news is that we have indeed found an effective way to invest using the ABR. Our research has uncovered that stocks with the biggest positive change in ABR over the last month will outperform the market. We call this the “Piggyback Strategy”. Here are the results of the test for the 10 year stretch from April 1992 to March 2002
Top 10% of ABR Changes = 18.3% average annual return
There are some great free resources on Zacks.com to take advantage of these changes in ABR to find some potential winners as well as stocks to avoid.
Pre-Defined Screen: Best Change in Avg. Broker Rec 1 Week http://at.zacks.com/?id=1501.
Pre-Defined Screen: Worst Change in Avg. Broker Rec 1 Week http://at.zacks.com/?id=1502.
Profit Tracks: Upgrades and Revisions Strategy. These are stocks that are enjoying both positive estimate revisions and brokerage rating upgrades. This strategy has handily beat the market over the last 4 years. Learn more at: http://at.zacks.com/?id=1503.
Analyst Recommendations Research Report: This research report gives details on the break down of recommendations for any stock. Here is a link to view the report for GE. Once there you can enter any ticker symbol to get the Analyst Recommendations report for the stock you want. http://at.zacks.com/?id=1504
Want more insight on the Piggybacking Strategy? Mitch Zacks covers it in detail in his critically acclaimed book “Ahead of the Market”. To learn more about this book and special 30% discount go here: http://at.zacks.com/?id=1505
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, our #5 Ranked stocks (Strong Sells) have 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 at: http://at.zacks.com/?id=75.
Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=72.
We hope you enjoyed this issue of "Profit from the Pros", And we look forward to visiting with you again next week.
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Regards and Happy Investing,
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*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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