Thursday - January 6, 2005
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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.
Historically, Kelley Wright and his team have limited their list of Select Blue Chips to the 350 finest. As they go to press with this issue they can’t find 350 stocks that meet their criteria. In fact, they move more stocks to the Faded Blues category each month than they add to the regular pages. Of the stocks that are worthy of the distinction of Select Blue Chip only eleven, or four percent if you prefer, are at their historic level of undervalue. Four percent is not just a low number, indeed, after scouring their vast archives Wright and his team find this is the smallest number of Undervalued stocks at any time in its history.
From their perspective then, their investment universe is deteriorating in the two areas Wright is most concerned; quality and value. In somewhat of a confirmation the traditional measures of value on the Dow such as P/E, dividend yield, book value, pay out and debt are being stretched thin as well. Not coincidentally, Wright thinks, the sentiment measures for professionals as per Investors Intelligence and for individuals per the AAII are disturbing in their excessive levels of bullishness. Correspondingly the VIX Index which for all intents measures the level of fear felt by market participants barely registers a blip. If the VIX was an EKG chart and Wright was a physician, he would be reporting that the patient is dead.
Lastly, Directors serving on the myriad Boards of corporate America are selling like crazy. While Wright wouldn’t give a tinkers diddle for any one of their individual market forecasts, he does take notice when they unload their stock. These anecdotal items are what Geraldine calls “the flutes and the woodwinds,” and prove absolutely nothing. As a contrarian, however, deteriorating quality, disappearing value, excessive bullishness and complacency topped off with energetic insider selling at minimum gives Wright cause to pause.
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Traditionally Wright and his team avoid specific forecasts and will continue that policy with this issue. Their mindset is one where they focus on the market of stocks as opposed to the stock market.
Accordingly they focus on buying companies that meet their criteria and hold them until they sell when they reach Overvalued. For all practical purposes their portfolio is always fully invested. Whether that makes them Bulls, Bears or Fools they will leave for others to argue. Long-term subscribers know they eschew labels as their only real goal is to make money on a consistent basis with the lowest amount of risk possible within the context of principal preservation. This approach doesn’t always gain traction with the Street and its marketing machine but that isn’t why they do the work. They will leave that as well for others to discern.
LSI Industries (NASDAQ: LYTS) was founded in 1976 as a provider of lighting systems to the petroleum and convenience store markets. Over the last several decades the company has diversified into several areas of the commercial image business and grown its lighting product lines. From its headquarters in Cincinnati, LSI divides its operations into two major segments: lighting and graphics.
During the first quarter of fiscal 2005, LYTS saw net sales grow 16% to $68 million, from $59 million during the year earlier. A notable gain was realized from the Lighting Segment, which saw its net sales increase 24% from the same period last year. Net income benefited accordingly, coming in at $0.17/share. The 27% increase from levels experienced last year was also in part due to recent employee reductions, reduced overhead, and improved manufacturing processes.
The company has seen margins squeezed by rising costs for materials such as metals. As a result of cost-cutting measures and sales increases, we have seen what appears to be the start of an earnings recovery. Though one of our smaller companies, LSI has earned a “G” for a strong history of dividend increase. The company also maintains very low debt and strong finances. Shares which are currently priced below the new Undervalue price of $14 (raised from a dividend increase) will remain at historically advantageous buying levels up to a price of approximately $16/share.
Genuine Parts (NYSE: GPC) was founded as a distributor of automotive replacement parts. Over the next 75 years, GPC would also expand its business to include an Industrial Parts Group, an Office Products Group, and an Electrical Materials Group.
At a recent price of $44, Genuine Parts is in a Rising Trend with a 45% downside risk to its Undervalue price of 24, high yield of 5.0%. Since Wright last featured the company in First-January the price has increased $11/share. A number of positive factors continue to bode well for future growth prospects. As many cars sold in the boom of 1990’s begin to exceed the six years in age, GPC will see its market continue to expand. The company also maintains an excellent balance sheet, with very little debt. At current levels, the fairly significant downside risk to Undervalue makes the company an unattractive proposition for initial purchase. However, current shareholders should continue to see measured growth throughout the coming year.
Investment Quality Trends is the #1 performing newsletter on a risk-adjusted basis for the past 15 years -- through 1/31/2001 according to industry watchdog, Mark Hulbert, who ranks the top performers in the investment newsletter industry. Find out why we’re #1. Learn more about this newsletter and free trial offer at: http://at.zacks.com/?id=322.
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Don Dion says 2005 could be a year of tremendous opportunity.
Learn how you should play the market this year, and why moving
into funds that own quality stocks is a good strategy. More...
The market was assaulted on numerous fronts Tuesday. Dave
Moenning explains why the bears have made an early charge in
Richard Moroney highlights a steel company that took full
advantage of rising demand and higher selling prices. More...
The banking industry has shown surprising strength in the face
of selling. Price Headley takes a look at the S&P Banking Index
and dispels the myth that these stocks suffer when rates are
f) Fresh Start
Gregory Spear says January could be a pivotal month for the
market. Learn why this expert remains bullish, but is also 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=637.
2. WEEKLY COMMENTARY: Experts Watch
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 Experts Watch from Trace Johnson. Each
week Trace shares winning strategies from leading investment
experts to outperform in any market environment.
To Trend or Not to Trend
Attempts to forecast a full year’s worth of market activity during January have about as much precision and integrity as a monkey throwing darts. Yet, it is useful to spend time outlining your expectations for the year, even in January. According to Dennis Slothower, editor of Stealth Stocks, 2004 represented a uniquely difficult market environment in which to invest due to the oscillation between dominant trends and trading ranges. There are compelling cases to be made both for the market to succumb to a dominant trend in 2005, as well as for it to be constrained in a tight range. The Experts lay out their historic and contemporary cases for each and proffer the stocks and strategies they will pursue in '05.
According to Slothower, a trend is a consistent move over a period of time, and he likes to take a big picture look in order to discern that trend. 50-, 100-, and 200-day moving averages, as well as Bollinger Bands are useful for determining the nature of the trend in which the market finds itself. It is a losing proposition, Slothower thinks, to attempt to pick stocks and buck the trend, as "a rising tide lifts all boats" and stocks tend to fall together. However, trends of varying term lengths can work in opposition to one another, and economic cycles tend to have longer periods of frequency than trading trends.
Presently all three major indices sit below their all time highs and the levels where they traded 5 years ago. The Dow Industrials is just -5% below its levels of a half decade ago while the NASDAQ and the S&P 500 are down -55% and -17% respectively. These factors persuade Dennis Slothower that the Federal Reserve will likely step in and aggressively support the market through loose monetary policy in order to propel the indices to a growth rate more amenable to the Fed's expectations.
Click here to read the full article with commentary and
recommendations from leading market experts. http://at.zacks.com/?id=14
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SCREEN OF THE WEEK
Kevin Matras goes over his ‘Return on Equity’ (ROE) strategy
that showed an average annualized gross return of over 89% in
2002, 110% in 2003 and over 60% in 2004. See how and get three
new top picks. More...
ALL STAR TOP PICKS
The summertime blues are over for biotech, and the All Stars
have five recommendations to give your portfolio a shot in the
arm for the New Year. 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
McGraw-Hill Companies (MHP) - Continued Solid Growth
SanDisk Corp. (SNDK) - Slowing Demand, Excess Inventory
Transportation Costs Hinge on Fuel Prices
Two- to Three-Year Outlook Strong for Metals
The Markets Prepare for Fourth Quarter Numbers
4. TRADING STRATEGIES: 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…
This Profit Track goes to the heart of fundamental investing by finding companies with healthy earnings. The main ingredients are the search for Earnings Growth and Net Profit Margins. Then for good measure we make sure earnings estimates are moving higher which is a strong indicator of future performance and that brokerage firms are positively rating the stock.
Earnings are the single most important metric for a company. Combine that with a healthy Net Profit Margin and you find a screen that generated +58.5% gain in 2001 and an even more incredible +103% return in 2003.
AAR (NYSE: AIR) is a leading provider of products and value- added services to the worldwide aviation/aerospace industry. Last month, AAR reported increased fiscal second quarter net income and sales, fueled by continued robust sales supporting the U.S. defense efforts, increased sales of parts and services to commercial aviation customers and lower interest expense due to reduced borrowings. This company, which carries a Zacks Rank of 2, had earnings growth from the prior year of +140.74%. AAR appears to have healthy earnings moving forward, which has earned it a place on this Profit Track. To continue your research on CMC, click here.
Giant Industries (NYSE: GI) is engaged in the refining and marketing of petroleum products. Giant Industries’ positive EPS change from the prior year is +209.29%. Good overall performance from each of its strategic business units helped put together a strong third quarter performance, which includes a positive earnings per share surprise of more than +53%. The Zacks #1-Ranked company sees factors that could contribute to a continued strong financial performance in the fourth quarter. Giant Industries has a lot going for it, including a position on Earnings and Margins profit track. To continue your research on ISSR, click here.
OYO Geospace (NASDAQ: OYOG) designs and manufactures instruments and equipment used in the acquisition and processing of seismic data and the commercial graphics industry. OYO Geospace finished off a very good fiscal 2004 with solid fiscal fourth quarter results. Net income reversed a year-ago loss and came in at 9 cents per diluted share, which was also above the consensus by about +80%. The company said fiscal 2004 saw an improved demand for its seismic exploration and reservoir monitoring products, especially in its foreign markets. Its change in EPS was +408.82%, and the company believes the foundation for its continued growth is in place. To continue your research on OLCB, click here.
All the Profit Track strategies were created and backtested using the Research Wizard software from Zacks Investment Research. If you like this Upgrades and Revisions strategy, but want to narrow down the list of stocks and even improve the performance, then you should start a free trial to the this powerful stock picking tool. Learn more about the Research Wizard and Free Trial offer at: http://at.zacks.com/?id=1370
5. ZacksAdvisor.com TIMELY BUY of the WEEK
Autodesk has creative designs on moving past the desks of architects. The company is a provider of computer-aided design (CAD) software. Its flagship AutoCAD product is used primarily by architects and engineers to design, draft, and model products and buildings. Autodesk's other products include geographic information systems for mapping and precision drawing software for drafting. The company also develops multimedia tools for digital content creation, including applications for animation, film editing, and creating special effects. Autodesk in late 2003 said it would cut costs by closing offices and laying off up to 650 employees, or about 18% of its workforce.
According to company statistics, Autodesk is the sixth largest PC software company in the world with over five million users of its products worldwide. The company’s flagship AutoCAD product is the leading, fully automated design and drafting platform in the industry in terms of market share, with an installed base of over three million users. Autodesk’s main markets are extremely competitive, as barriers to entry are low and technology is changing rapidly. While the market in which AutoCAD competes is relatively mature, Autodesk also competes in large and growing markets such as lifecycle management for critical business management. The company is also expanding its presence in leading emerging market regions such as China.
We believe Autodesk is well positioned for additional upside as it enters fiscal 2005. The company is building momentum as it introduces new products and continues through the current AutoCAD upgrade cycle, which is a traditional driver of the stock. In addition, the company is just beginning to benefit from an increased focus on operating profitability, which combined with improved revenue growth, is leading to enhanced operational leverage. Longer term, we believe that the success of the AutoCAD subscription program and annual upgrades for AutoCAD should lead to increased visibility and reduced volatility for revenue and earnings.
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=1424.
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