Wednesday - October 6, 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.
The major stock market indices continue to trade in a somewhat volatile trading range, with stock prices repeatedly correcting to intermediate-term price support areas and then rallying to price resistance areas; (refer to the chart on the following page). Since our last Mutual Fund letter on August 5, the Dow Jones Industrial Average has risen 5.8%, from its intra-day low of 9,747 on August 13. The S&P 500 Index has risen 5.0% and the Nasdaq Composite Index has risen 5.7%. The Russell 2000 Index, representing small-cap stocks, has risen 8.1% on August 13.
A constant tug-of-war in the market seems to be occurring between long-term investors, who have been willing to buy stocks on price pullbacks, and short-term traders who have repeatedly sold stocks whenever prices have risen. As a result, stocks have traded in a general sideways pattern since the beginning of this year. This should be of no surprise to astute market participants, as both positive and negative economic statistics have competed for the attention of investors over the past several months. The likely outcome for the U.S. Presidential election remains uncertain, and geopolitical events around the world continue to dominate the daily news headlines.
More. . .
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Recent investor polls conducted by the American Association of Individual Investors (AAII) reveal that there are currently about as many investors in the bullish camp as there are in the bearish camp. During the past two weeks, the AAII’s polling of public investors indicated that approximately 42% of those investors were bulls. Meanwhile, approximately 59% of the investors polled by the AAII were either bearish or were expecting a market correction during each of the past two weeks. The overall slightly bearish attitude of investors is understandable, given the persistently high price of crude oil and motor gasoline and the continued uncertainty in Iraq. Recent trading volume reveals investors’ unwillingness to aggressively buy stocks over the past several months, and their uncertainty regarding the future direction of stock prices. Trading volume on the NYSE has been trending downward since late July. In the month of August, a total of 26.614 billion shares traded on the NYSE—the lowest monthly total since November of 2003, when 24.575 billion shares traded. Likewise, trading volume for stocks comprising the S&P 500 Index was the lowest since August of last year. Yet, market internals illustrate that there is underlying (and improving) strength in the market.
One of the strongest planks in the bullish case has been the price action of the daily Advance/Decline Line, which recorded new highs as recently as two days ago (see chart page 5). The number of advances versus declines kept on a cumulative basis represents a record of how all of the stocks listed on the NYSE are performing during a particular market movement. In most instances, the A/D Line will trace out a pattern comparable to the major indexes, i.e., Dow, S&P 500 and Wilshire 5000. As long as the A/D Line is moving in tandem with the key indexes, it does not become significant. Only when it diverges—which is the case at the present time—does it demand attention. Up until the end of June, the A/D Line was moving almost in lockstep with the S&P 500.
It will be recalled that, during the subsequent selloff, the S&P 500 dropped close to -7% from the beginning of July to mid- August and, in the process, took out its May lows which, up to that point in time, represented the low point of the year. Over the same time frame, the A/D Line—although giving ground—held well above its May lows and, during the subsequent rally, recorded a new bull market high. In the majority of instances, the A/D Line has topped out well ahead of the key indexes, which is exactly the opposite of what we have at the present time. The Nasdaq recorded its high of the cycle on January 26th, followed by the Dow, S&P 500 and Wilshire 5000 on February 11th, and by the Russell 2000 and Value Line Geometric on April 5th. The high point for the A/D Line thus far was on September 7th. Although the key indexes dropped below their May lows on the most recent sell-off which ended on August 12th, it should be noted that the majority of stocks held up remarkably well - as is evidenced not only by the A/D line, but also by the low number of stocks that recorded 52-week lows. At the terminal point of the sell-off last May, the number of 52-week lows was over 850 versus less than 150 in August. The high-low differential (which is a 10-day moving average of new highs versus new lows) was over 250 back in May. It barely dipped into negative territory in August and, over the last ten trading sessions, approximately eight times as many stocks that trade on the big board (NYSE) have traded at new 52-week highs versus new 52-week lows.
Strong Mid-Cap Disciplined (SMCDX ) The $519 million Strong Mid- Cap Disciplined Fund is one of Strong’s most respected funds. Year-to-date through July 14, the Fund had returned 9.78%, placing it in the first percentile of its mid-cap value category, according to Morningstar. The numbers are equally impressive through the years: The Fund’s one-year return of 31.42% placed it in the sixth percentile; its annualized three- year return of 13.58% put it in the seventh percentile; and its annualized five-year return of 14.27% put it in the fifth percentile. As of Aug. 28, the Fund’s year-to-date return is 9.52%, which places it third in its category. Since its inception, the Fund has featured a Lipper Inc. Total Return Ranking of three out of 87. 5.
The Fund’s calendar year return for 2003 was 40.66%, its best one-year total return since the Fund’s inception in 1998. Although the Fund is about to get a new owner (Wells Fargo & Co.), there aren’t a lot of changes on the horizon. Richard Weiss, who heads Strong’s investment department, and who will become a senior investment executive and portfolio manager at Wells Capital Management Inc. (the Wells Fargo asset management subsidiary) is a well-respected, well-regarded manager. And, the Fund’s Lead Manager since April, 2001, Robert J. Costomiris, also will remain at the helm.
This is good news for investors, as Strong’s Mid-Cap Disciplined Fund is one of the strongest in the lineup. The Strong Mid-Cap Disciplined Fund is designed for investors whose primary objective is capital growth. Because the Fund concentrates its investments in stocks of medium-sized companies, the share price may fluctuate significantly over the short term. This makes the Fund an excellent way to enhance the return potential of a more conservative portfolio, as well as to build assets for longer- range goals that are five or more years out. The Fund’s managers seek out securities that they believe are under-researched and attractively valued. Their investment philosophy is based on the belief that economic cash flow is a better measure of a company’s value than earnings per share, and that competitive advantage is at the heart of a successful business. Currently, the Fund’s portfolio is distributed across 86 securities with a median market capitalization of $4.46 billion. As of 6-30-04, 80.6% of the Fund’s net assets were invested in stocks. Compared to the category averages, this Fund is more heavily weighted in Utilities and Media, but has no investments in Telecommunications or Software. Total expense ratio for the Strong Mid Cap Disciplined Fund is 1.50%, on par with the category average.
It’s worth keeping an eye on this Fund to ensure that Wells can demonstrate that it has put policies in place that prevent the past from recurring— namely the mutual fund trading scandal that put Strong under the klieg lights—but better guidance, combined with continued performance makes this Fund a winner on all counts.
Ask yourself this simple question, Do the people you trust for investment advice put their own money on the line? Chartist editor, Dan Sullivan does. With over 33 years publishing his highly successful stock newsletter, he ranks as one of the most experienced and best performing financial advisors in the country.
Learn more about this newsletter and free trial offer at: http://at.zacks.com/?id=37.
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Bill Martin & Matt Ragas highlight a stock whose valuation is
detached from the reality of its corporate profits. Discover why
they are betting its share price will fall. More...
Gregory Spear is looking for evidence of a cyclical bull market
and describes the resistance levels, above which, he would
become convincingly bullish. More...
Dennis Slothower describes the short cycle moves of this market
and highlights the reasons he thinks the odds are against taking
a position on either the long or short sides. More...
Price Headley reviews the economic and chart factors that are
creating a solid bullish bias in one sector. 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
I’ve published this screen a couple of times over the past year and it’s one of my favorite screens to trade.
It’s a price momentum screen that finds stocks on the move. But with a Price to Sales ratio added to it, these movers are still considered ‘bargains’.
Price/Sales ratio < .5 (A low price to sales ratio (below 1.0 for example) is usually thought to be a better value, since the investor is paying less for each unit of sales.)
Average Broker Rating < 2. (Strong Buys and varying degrees of average Strong Buys. I want the analysts on board.)
Avg. 20 Day Volume >= 50,000 (It has to be tradable.)
Percent Change in Price over 24 weeks Top# 20. (Looking for the top 20 price performers out of the list above.)
Percent Change in Price over 12 weeks Top# 10. (Looking for the top 10 price performers out of the list above.)
Percent Change in Price over 4 weeks Top# 3. (Looking for the 3 best price gainers out of that list above.)
In 2001, the average annualized gross return was over 135% with an average win ratio (winning periods) of 66%. (Portfolio is rebalanced every 4 weeks.)
In 2002, the average annualized gross return was over 250% with an avg. win ratio of 70%.
In 2003, the avg. annualized gross return was over 280% with an avg. win ratio of 79%. (WOW!)And so far in 2004, the YTD average gross return (thru 9/17/04) is 29.4% with a 67% win ratio. Aside from the big returns, one of the main benefits of this screen is that it generates the same number of qualified stocks each period (3).
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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The Experts weigh in on why trend-picking is difficult in any
market, let alone this one. Discover two stocks with multiple
ALL STAR TOP PICKS
Kevin Matras shares 3 screening strategies that use Price and Volume to generate profits and cut losses. Discover these strategies and 9 stocks currently making the grade. 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
Charles River Assoc. (CRAI) - Huge third quarter
CarMax (KMX) - Tough road vs. new cars
Specialty Retail: Approach with Caution
Media Companies - Neutral
Will GE and Alcoa Affect the Markets This Week?
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.
General Electric Corp. (NYSE: GE) is one of the largest conglomerates in the world. The company recently announced a regular quarterly dividend of 20 cents per outstanding share of common stock. The dividend is payable Oct. 25, 2004 to shareowners of record at the close of business on Sept. 27. The ex-dividend date is Sept. 23. In July the company announced that its second quarter 2004 earnings were $3.9 billion, or +3% higher than second quarter 2003. Excluding non-cash earnings from GE's principal pension plans, earnings increased +9%. Earnings per share for the second quarter of 38 cents exceeded their previous guidance of 37 cents, as 9 of 11 businesses contributed double-digit improvements to earnings and first-half cash from operating activities grew +61% over last year. GE completed major portfolio moves during the second quarter, closing the Amersham acquisition, the NBC Universal merger and the successful initial public offering of Genworth Financial. These changes, along with the continued build-out of their growth platforms, gives GE a great set of businesses for the future. GE looks to be a company that is very popular with the All Stars and brings good things to investors through its dependable dividend and stock strength.To continue your research on GE, click here.
Jabil Circuit, Inc. (NYSE: JBL) is a worldwide independent provider of electronic manufacturing services. Revenue for the fourth fiscal quarter of 2004 increased +25% to $1.6 billion compared to $1.3 billion for the same period of fiscal 2003. Jabil's fourth quarter of fiscal 2004 core earnings increased + 32% to $54.7 million, compared to $41.4 million for the fourth quarter of fiscal 2003. The company was very pleased with the results and plans to grow their business with the steady trend to outsourcing and believe 2005 will be another strong year. Jabil management also reiterated guidance for its first fiscal quarter of 2005, indicating they currently expect revenue to range from $1.75 to $1.85 billion and core earnings per share to be in a range of 30 and 32 cents per diluted share, depending upon levels of production. With growth across the board and solid prospects heading into fiscal 2005, it is no wonder several top All Star analysts are recommending JBL. To continue your research on JBL, 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.
American International Group, Inc. (NYSE: AIG) is the world's leading U.S.-based international insurance and financial services organization, the largest underwriter of commercial and industrial insurance in the United States, and among the top- ranked U.S. life insurers. In September AIG declared a quarterly cash dividend on the company's common stock of 7.5 cents per share, payable on December 17, 2004 to shareholders of record on December 3, 2004. Analysts will be awaiting the third quarter’s financial results. July saw the company announce that second quarter 2004 net income rose +25.7% to a record $2.86 billion or $1.09 per share, compared to $2.28 billion or 87 cents per share in the second quarter of 2003. Second quarter 2004 net income excluding realized capital gains (losses), increased +19.2% to a record $3 billion or $1.14 per share, compared to $2.52 billion or 96 cents per share in the same period of 2003. These stellar results may explain why four of the top brokerage firms have listed AIG on their Focus Lists. To continue your research on AIG, click here.
Exxon Mobil Corporation (NYSE: XOM) is a major manufacturer and marketer of basic petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics and a wide variety of specialty products. Exxon Mobil is engaged in exploration for, and mining and sale of coal, copper and other minerals. In July, Exxon Mobil reported second quarter results continuing on a strong first quarter. Net income was $5.790 billion (88 cents per share), an increase of $1.620 billion, or +39%, from the second quarter of 2003. Earnings in the second quarter, excluding accounting changes and special items, were a record. Revenues and other income for the second quarter of 2004 totaled $70.693 billion compared with $57.165 billion in 2003. Exxon Mobil's Chairman Lee R. Raymond stated that "Second quarter earnings, excluding accounting changes and special items, were a record and improved in all parts of the business.” There are many predicting continued strength in this sector making XOM attractive to those who want to participate with one of the Blue Chips of the group. Three top brokerage firms are currently recommending XOM as a Core Holding for long-term investors. To continue your research on XOM, 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.
Every three months the entire investment community enters the hallowed grounds of Earnings Season. Which companies will exceed expectations and reward shareholders? Which stocks implode under the weight of their earnings disappointments? Is there any way to know which is which before it happens? When you consider that earnings are the #1 determinant of stock prices, then you will understand why this is the most important time of year to pay attention to news on your stocks.
Earnings season will begin in earnest this week and continue through early November. One of the true strengths of Zacks.com is our coverage of all things earnings related. Here are some of the free tools that you can use from the site to stay on top of earnings announcements for the stocks that matter to you.
Earnings Report Date: When are your companies reporting their earnings? And what is the EPS estimate? 2 ways to find out.
How to Spot Potential Earnings Disappointments: There is no sure fire way to spot stocks that will fail during earnings season. However, there are ways to improve your odds. In general, stocks that have disappointed in past quarters are more likely to disappoint in future quarters. Plus stocks that have seen lower expectations leading up to their announcement date also tend to fall short of the mark more often. The clues to both of these items can be found on the “Estimates” research report. Here is the link to see that page for IBM and you can go from there to research any of your stocks at: http://at.zacks.com/?id=1504.
How to Spot Potential Earnings Surprises: This is the inverse story from above. Those stocks that have reported positive surprises in the past are more likely to do so in the future. In addition, earnings estimate increases leading into earnings season is a very good indication as well. However, the simplest way to find these winners is by following the Zacks Rank which concentrates on these same variables. You can either look at the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=1551. Or screen for Zacks #1 Ranked stocks with the highest past earnings surprises through our custom screener at: http://at.zacks.com/?id=1535.
Daily Email Updates: Certainly you can come to Zacks.com everyday to track down important earnings updates, or you can have the information sent to you every day via email. When you set up a free portfolio tracker on Zacks.com it also establishes you to receive our Daily Email Updates that provide all key changes to the stocks you are following including; estimate revisions, upcoming earnings dates, actual earnings reports, broker recommendation changes and the Zacks Rank. To start your Daily Email Updates go to: http://at.zacks.com/?id=1550.
Earnings Home Page: This is where we have consolidated all of our earnings resources to help investors stay on top of earnings season. Beyond the tools noted above you will also find Earnings headlines and EPS Surprises updated in real time. Bookmark this page and tune in every day during earning season to find which losers to cut and which stocks are showing breakthrough results. The Earnings Home Page is part of our Research section of the site at: http://at.zacks.com/?id=1549.
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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