Thursday - February 24, 2005
Want to view the archive of past issues? Go here.
Get the latest investment alert technology and receive the most up-to-date Profit from the Pros content as it’s published, in Real Time, with no waiting. Learn more about this free tool at: http://at.zacks.com/?id=1517.
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 indices traded slightly lower last week amid a mixed bag of earnings and economic news. Overall, trading was rather quiet late last week, which is fairly typical ahead of a three- day weekend (the markets were closed on Monday, February 21st due to the President's Day holiday in the U.S.).
The bond market is another story. Bond prices have seen a big run-up since the beginning of 2005, with yields dropping briefly back under 4%. That run has come despite the Fed's well- telegraphed plans to continue its policy of gradually raising interest rates.
However, last week's inflation data highlighted the potential vulnerability of the bond market. The 10-year Treasury saw its largest one-day drop in several months. And for the week, the yield on the 10-year bond climbed back above the 4.25% level. Low bond yields, even in the face of some pretty strong economic data, have been a major underpinning for strength in stocks. Looking forward though, if bond yields start to move strongly higher later this year, then that could put pressure on the equity markets.
More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
In addition to closely following the Fed's actions, Wall Street also remains heavily focused on corporate earnings. Although earnings among S&P 500 components are expected to grow this year, analysts expect to see a slowdown from last year's heady pace. Of course, there's still considerable optimism for some sectors, notably technology, heading into the final part of 2005. Specifically, analysts expect growth to reaccelerate in the final quarter of 2005 and into early 2006.
While the technology sector overall may well have trouble meeting earnings estimates throughout the latter part of 2005, stocks leveraged to radio frequency identification (RFID) are likely to see strong growth this year. RFID tags allow retailers to control their inventories more effectively and save considerable time for consumers. In today's "Feature Article" Paul Tracy and his staff take a closer look at this technology and will highlight two stocks that look poised to benefit from the rapid adoption of RFID in coming years.
Checkpoint Systems (NYSE: CKP) produces inventory management and theft-prevention systems for retailers. The company's electronic article surveillance (EAS) tags are small RFID devices that can fit onto almost any product and activate an alarm if an item is stolen. The company also makes RFID tags used to help identify items and manage inventories. The firm's other business lines include closed-circuit television systems (CCTV) employed by retailers around the world, as well as traditional barcoding and price labeling products.
CKP's advantage lies in its well-established position in the RF market, as well as the firm's unmatched relationships with many of the nation's major retailers. For example, CKP recently installed EAS systems throughout all 5,300 CVS drugstores in the U.S. using RFID tags. CKP is also the company behind anti- theft tags at Albertson's and Winn-Dixie supermarkets, as well as apparel retailers like Kohl's and Urban Outfitters.
Tracy sees two main growth drivers for CKP in the coming years. The first is the potential for new contract wins from the likes of Wal-Mart for RFID tags and tag-tracking systems. The second is solid growth in anti-theft RF tags, an area in which CKP is already a market leader.
CKP trades at less than 18 times 2005 earnings. Going forward, Wall Street growth estimates for the company vary wildly, and the firm's earnings growth will be clouded over the next year or so by some special charges. Looking ahead to the long term, however, Tracy and his staff believe CKP can deliver double- digit earnings growth, giving the stock a PEG ratio (P/E-to- growth) of around 1.5. That's not terribly expensive for a stock leveraged to a growing industry like RFID.
Tracy also likes the fact that CKP has very little net debt and solid free cash flows. This will enable the company to extend its lead in the RFID market by spending heavily on research and development (R&D).
The StreetAuthority Market Advisor is an invaluable resource for self-directed investors. With a keen focus on fundamental analysis and an eye for undervalued stocks, editor Paul Tracy sorts through thousands of investing opportunities each week and brings you only those with the greatest potential for both near- and long-term gains. Rather than the news, the Market Advisor delivers profitable investment guidance that you can act on today to improve your own portfolio. Learn more about this newsletter and free trial offer at: http://at.zacks.com/?id=31.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Walter Frank explains that while economic news has been less
than thrilling, the U.S. and world stock markets have managed
to push ahead. Discover what this expert’s growth expectations
are for the markets and read a recent fund profile. More...
Dan Sullivan says that many planks remain in place as far as
the bullish case is concerned. Discover why this expert
believes that there is lots of room for bullish movement and
receive an earnings updates on five companies. More...
Donald Rowe continues to believe the stock market will bottom
during the first quarter and move to new highs by mid-2005.
Discover what this expert is recommending for investments. More...
Dennis Slothower says the market can’t escape the issue of high
oil prices. Discover this expert’s position, and then read
about a recent stock recommendation. More...
Richard Rhodes says it’s important to focus on the longer-term
trends in the markets. Read this expert’s analysis and find out
why weakness might persist longer than anyone expects. 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: All Star Top Picks
Zacks.com offers 3 unique weekly commentaries that all further
our mission to help you Profit from the Pros. Today we will
uncover the current top picks of 5 Star analysts in a hot
sector (a.k.a. All Star Top Picks). Why? First, it makes sense
to tap into industries that have potential to outperform the
market. Second, within that sector you want to be on board the
stocks with the best prospects. To help us uncover these top
picks we employ the keen insights of 5-Star analysts. Who are
they? Check out the "About Zacks All Star Analyst Survey"
This week we explore the Chemicals Industry
Analysts were expecting big things from chemical companies in the fourth quarter, and for the most part, the industry didn’t let them down. Many companies reported profit for the quarter that was at or above Wall Street expectations, citing factors such as improved fundamentals even in the face of higher raw material and energy prices. In fact, the diversified chemicals industry currently has a Zacks Industry Rank of 2.86, according to Nick Raich’s “Weekly Earnings and Sector Update,” which places it 67th out of more than 200 industries.
Banc of America Securities is seeing signs of higher capital expenditures emerging. “As the commodity chemical cycle improves, we are beginning to witness greater willingness among some companies to increase capital investment after several lean years,” according to a February 15th research report from the company.
The current environment in the chemicals industry would certainly make it tempting for companies to finally begin opening those purse strings after being frugal for so long. Demand/supply fundamentals remained tight for commodity chemicals throughout January and February, helping margin expansion. The S&P Chemicals Index has been outperforming the S&P 500 for a while now. On Thursday, February 17, the index closed at 241.48, which is extremely close to its 52-week high of 243.32. The industry has been able to accomplish a good deal when considering the challenges it must face from high and volatile energy prices and raw material costs.
Even though many companies in the industry are at or approaching levels not seen since the 1994-1995 upturn, some analysts expect further upside for selective names. However, it is very apparent that high energy and raw material costs will continue to pressure these companies in 2005. They continue to work on those issues that are controllable, with some doing better jobs than others. Analysts are the most effective resource at an investor’s disposal when it comes to selecting stocks that are able to ride the industry’s waves.
Who are the All Star Analysts of the Business Services Industry? What stocks do they recommend now? The answers to these questions are found in the remainder of this All Star Top Picks article at: http://at.zacks.com/?id=1451.
To see the full All Star Survey with access to all ratings, research and stock picks, then visit: http://at.zacks.com/?id=12.
These are the best stock picks from the best stock pickers in the business. This portfolio only includes stocks recommended by five or more of the 5-Star analysts based on stock picking performance. In 2003 it gained 46.6% nearly doubling the performance of the S&P 500.
See the full portfolio at: http://at.zacks.com/?id=13
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SCREEN OF THE WEEK
Kevin Matras talks about the PEG Ratio and explains how to use
it for finding undervalued companies. This simple screen is up
over 546% since 2001. See how and what stocks are currently
showing up. More...
ZACKS MARKET COMMENTARY
The computer software industry finished 2004 on a strong note,
and the All Stars highlight a few companies that could
capitalize on improving trends in 2005 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
ATI Technologies (ATYT) - Strong Growth in PC Graphics
CNH Global (CNH) - Farm Equipment Demand Falls
Euro-Tech May Face E.U. Growth Concerns
Construction Services Turn Cautious
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 Growth and Income Strategy is pretty straightforward, yet amazingly profitable. The goal is to find solid companies paying out extraordinary dividends. With money market rates being so low, we think many investors will find appeal in this strategy with minimum dividend yield of 8% plus attractive equity appreciation potential. This screen has the least turnover of any of the Profit Tracks and has shown excellent results with both 12 and 24 week holding periods. We know there are those of you who may be worried about too much REIT exposure in this type of strategy. The good news is that we have also backtested this strategy by removing REIT stocks and the results were still outstanding.
This Profit Track looks for stocks that are paying dividend yields of greater than 8% along with other attractive fundamental attributes. Although this a longer term and less risky screen, it has still beaten the S&P 500 every year including +49.2% in 2003 and +19.5% in 2004 (YTD, thru 12/3/04).
American Capital Strategies Ltd. (NASDAQ: ACAS) has a dividend yield of approximately 8.46%, which is enough to capture the attention of investors. Upon closer inspection, investors would also find its fourth quarter numbers attractive, as net operating income per diluted share reached 74 cents, which was above the consensus and year-ago performance. In fact, the company said 2004 was a benchmark year for its capitalization with more than $2 billion of capital raised. American Capital Strategies appears to be a stable and secure company that is rewarded its shareholders with a solid dividend yield. To continue your research onACAS, click here.
American Home Mortgage Investment (NYSE: AHM) achieved success in executing its business plan during the fourth quarter, as evidenced by sharp year-over-year advances in earnings per diluted share and revenue. The company said net interest income, origination activity, and servicing revenue all grew ahead of plan. But American Home Mortgage Investment also offers a dividend yield of about 8.64%. This Zacks #2-ranked company operates in a challenging industry, but has good momentum moving forward. To continue your research on AHM, click here.
Thornburg Mortgage, Inc. (NYSE: TMA) delivered a solid operational performance in 2004, despite tough market conditions. According to the company, its market capitalization grew +32% in 2004, while total assets increased +53%, loan originations advanced +8%, and book value rose +16%. In addition, Thornburg Mortgage has a current dividend yield of about +9.67%, while this profit track only calls for a yield of +8%. With solid results and an above average dividend, Thornburg Mortgage looks to be on the right track. To continue your research on TMA, 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
Aetna Inc., based in Hartford, Connecticut, is one of the nation’s leading healthcare organizations providing health benefit plans primarily to Fortune 1000 customers. The company offers healthcare, dental, pharmacy, group life, disability, and long-term care benefits in the U.S. serving approximately 13 million medical members, 10.9 million dental members, 7.4 million pharmacy members, and 12.3 million group insurance customers as of December 31, 2003. The company has a nationwide network of more than 600,000 healthcare services providers, including over 362,000 primary care and specialty physicians, and 3,626 hospitals. The company operates through three business segments: Health Care, Group Insurance, and Large Case Pensions.
Growth in sales, higher customer retention, and enrollment growth will continue to drive revenue for the company. Aetna has been able to reduce operating expenses through cost control initiatives, such as withdrawal from certain unprofitable commercial HMO and Medicare products in some markets, changes to underwriting practices, improving the efficiency of claims payment processes, and significant job cuts. The company has particularly improved its medical loss ratio (MLR), which represents the costs of healthcare services and other benefits as a percentage of premium revenue. Higher Medicare reimbursement rates, stemming from the Medicare Reform Bill, have complemented these improvements.
AET reported 4th quarter earnings and they were fabulous. It said its operating income excluding gains from what the company described as a "favorable development of prior-period health care cost estimates," rose to $1.82 per share in the latest quarter from $1.32 a year earlier. That beat the Zacks estimate by 3 cents. They also raised guidance, boosted their dividend, and issued a 2-1 stock split. Absolutely excellent report.
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.
Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=1423.
FREE PORTFOLIO TRACKER
Do you believe that these events affect stock prices?
If you answered yes, then how are you staying on top of these changes for your stocks? If you are one of the 45,000 investors who wake up every morning to the Daily Portfolio Updates emails from Zacks.com, then you are all set. If not, then sign up now to get this vital information sent to you daily to help take definitive action to improve your portfolio's performance. Did we mention it's free? Get started now!
We hope you enjoyed this issue of "Profit from the Pros", And we look forward to visiting with you again next week.
If you enjoy this e-mail newsletter, then please pass it along to a friend. Simply forward them the link below to sign up for their own free subscription. If you're reading a forwarded copy, sign up for your own, so you get this wealth of information every week. Just click here. THANKS!
Regards and Happy Investing,
p.s. What is the mission for Zacks Profit from the Pros? Click here to find out how we will help you become a more successful investor.
*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.
To contact us by mail:
Zacks Investment Research
To unsubscribe from receiving "Profit from the Pros" e-mail newsletter, click here.