Thursday - March 24, 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.
There is little doubt that we are in a secular period of conservative ideals. We saw it in the election results last year and we can see it on the fashion runways in 2005. Not only are women’s hemlines down considerably lower than just last year, the styles and colors shout a conservative attitude. Oh, the styles are certainly pretty enough and their softness accentuates femininity, but they are also an indicator of a low- risk mentality. This implies the odds of a strong bull run are probably fairly low and that investors will continue to focus on “value.”
If there are any bubbles created at all, Paul McWilliams and his team suspect they will be in the defensive sectors such as natural resources because too many continue to pile on the already well-loaded bandwagon. Remember, a fair percentage of the higher costs for natural resources and commodities are attributable to the low value of the US Dollar. If (when) the dollar builds strength, these costs should moderate and the stocks tracking those sectors will likely fall back from current highs.
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One of the more interesting things Paul McWilliams noticed this week was when he visited his local bank. It’s a very conservative locally-owned bank that doesn’t pay particularly high interest rates for CD’s, but it is convenient for him and the balance of what he gets for his business is worth the tradeoffs. However, if what he was handed along with his deposit slip is an indication, something has changed. This bank that normally is a half percent behind the leader is now offering the best CD deal he has seen in quite some time.
If McWilliams assumes his rather stoic bank hasn’t taken to misleading advertising and inserted some hidden gotcha into this offer, it’s clearly telling him they think interest rates are going much higher in the not too distant future. This is very much in-line with what McWilliams and his team have been forecasting for 2005. Some are even suggesting the FOMC (Federal Open Market Committee) will move short-term rates up by 0.5% during either the March or June meeting. While they don’t rule this out, they believe monetary goals can be accommodated by a continuation of the quarter point rate hike trend we’ve seen since the middle of 2004. Watch out though, not only does the FOMC report this week, but we’ll also get the February PPI and CPI data on either side of the meeting. It’s a very rare case when we get all three in one week and any bad news is likely to weigh heavily on the market.
Since we won’t start hearing Q1 earnings reports until the second week of April and the SIA (Semiconductor Industry Association) report for February sales could easily come in below broad expectations, McWilliams and his team are well prepared for a dicey market for the next several weeks. Their hopes are that fear will remain on center stage and that it will create some opportunities for them to put some of their cash to work. However, unless they see a desperate bottom, they are not likely to move below 15% cash at this time.
Model Portfolio and Focus Stock Updates
Catalyst (NASDAQ: CATS):It appears far more investors than McWilliams and his team thought possible are seeing CATS in a light similar to theirs. The net result is the price for CATS moved up 2.9% last week while virtually every other semiconductor company went down. Due to the fact their operating structure will likely keep CATS profitable in even the worst market conditions (they maintained profitability throughout the last down-cycle), and if when the up-cycle reemerges gross margins are likely to move up to the mid-40% range, McWilliams and his team see CATS as fitting well in their focused tech portfolio. Their relatively strong balance sheet should keep the downside risk to a buck or so while the upside could easily be high single or low double digits.
Intersil (NASDAQ: ISIL):The trend towards conservative value bodes well for the analog / mixed-signal (AMS) sector. It’s not that these stocks are trading at traditional value prices, but that the companies are generally able to make money in even the worst markets. What McWilliams and his team particularly like about ISIL is they believe the market is misjudging how quickly and dramatically profits will ramp. They think ISIL will roughly double their operating profit margin during the next few years and, during the same time span, roughly double sales. This implies the company’s bottom line will grow about 4x. In their calendar Q4 review they suggested something around the order of 3.8x. Not only this, but we feel ISIL will likely develop some extremely durable differentiation during the next two years. This will further enhance their ability to traverse market cycles with minimal pains.
Texas Instruments (NYSE: TXN) is the one focus stock that McWilliams would most like to build a larger position. He’s been watching very closely as it hovered in his accumulate range, and McWilliams may make a gentle buy under $26 in the near future. However, he’s hoping for some catalyst of fear to scare the price down a few bucks further.
Edited by twenty-plus-year semiconductor and technology industry veteran Paul McWilliams, Next Inning provides unbiased technology and semiconductor analysis. Its model portfolio has returned over 230% since inception in 2002. McWilliams, named by SmartMoney Magazine as one of thirty Most Influential Investors in 2000, provides clear, reasoned and well-researched analysis, cutting through the hype to bring subscribers the most up-to-date investment insights in the world of semis and techs. Learn more about this newsletter and free trial offer at: http://at.zacks.com/?id=1840.
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Richard Moroney says that shrewd investors can still find a
number of quality stocks available at low valuations. Learn
about the valuation metrics that best predicted outperformance
and take a look at some value names. More...
Bill Martin and Matt Ragas explain that Willis Group has moved
quickly to take market share from larger rivals as it emerged
relatively unscathed from the insurance brokerage scandal. Read
these experts’ analysis of the insurance broker. More...
Dennis Slothower provides an update on market activity, stating
that a lot depends now on what the Fed does and how bad
inflationary pressures are assumed to be. Read this expert`s
analysis and benefit from his advice. More...
The stock market remains poised to outperform, according to
Donald Rowe, but is stalled at the moment. Find out what’s
keeping the market down and when it will resume its upward
Jim Collins believes investors should use this stock market lull
to kick out weaker positions before the first quarter earnings
season. Read his analysis on energy prices and inflation, along
with company news for four stocks. 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. 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
Intevac, Inc. (IVAC) - Dominating Its Market
CenturyTel, Inc. (CTL) - Uninspiring Outlook for 2005
Interest Rate Hikes Threaten REITs
Insurance Stocks Offer Stability
3. 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 has generated a return of +371.9% in the last 4+ years compared to -1.7% for the S&P 500.
Here are 3 stocks that make the grade for the Earnings and Margins Profit Track
Community Bancorp, Inc. (NASDAQ: CMBC) posted fourth quarter earnings per share of 45 cents in late January, which marked a +10% improvement over the year-earlier quarter and a more than +2% advance over the consensus. The company said results in the quarter continued its success throughout 2004, showing solid growth and, more importantly, outstanding earnings. For the full year, Community Bancorp reported earnings per diluted share of $1.71, which was approximately +20% ahead of 2003. With a net margin at .20, and solid earnings performances for the quarter and year, Community Bancorp appears to be a healthy company with a lot of running room for the future. To continue your research on CMBC, click here.
ElkCorp (NYSE: ELK) reported fiscal second quarter earnings per share of 71 cents in late January, which topped the consensus by more than +18%. Furthermore, the company stated that it now expects fiscal 2005 earnings of between $2.40 and $2.50 per share, or about +20% ahead of its prior guidance. ElkCorp said it experienced increased shingle demand in the majority of its markets during the quarter, and expects that demand to stay strong throughout the fiscal year, especially in the Southeast. In addition, to its solid quarterly results, ElkCorp’s earnings per share in its most recently completed year was +51.43% better than the previous year, and the company has a net margin of .04. To continue your research on ELK, click here.
Thomas & Betts Corporation (NYSE: TNB) has a profit margin of .06 and year-over-year growth of +126.98%, suggesting that this profitable company is strong fundamentally and moving in the right direction. Fourth quarter earnings per diluted share reached 40 cents, beating the consensus by more than +11%, while net sales rose +14.5% to $400.1 million. The company said it offset higher commodity costs through disciplined price management and on-going operational improvements. Meanwhile, the quality of its brands and the value of the services it offers distributors continued to strengthen the competitive position of its core electrical business. Looking forward, Thomas & Betts expects to maintain positive earnings momentum in each of its business segments. To continue your research on TNB, 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
4. 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 Hotels Industry
According to Smith Travel research, revenue per available room advanced by +8.9% industry-wide for the week ending March 12th. Bolstered by improving fundamentals, including the return of the business transient, such optimistic news has practically become the norm of late for the hotels industry. Several analysts believe the space is in the midst of a positive trend, reminiscent of the early 90s, which could signal that 2005 expectations are too conservative. There are several indicators suggesting that this is not wishful thinking by the analysts. The hotels industry currently holds a Zacks Industry Rank of 2.67, according to Nick Raich’s “Weekly Earnings and Sector Update,” placing it 34th out of more than 200 industries.
”After three years of unprecedented challenges, the travel industry is booming, especially in the United States and Asia, as people travel again for business and pleasure,” said Chairman and CEO of Marriott International J.W. Marriott Jr., That statement was made during Marriott’s year-end report on February 8th, when the company announced record diluted earnings per share from continuing operations for 2004.
The industry took 9/11 on the chin, as many potential travelers decided to cancel their trips in response to the uncertain environment. Furthermore, the economic malaise forced companies to cut down on expenses, and business trips were one of the first items to be shelved. But times do change, and a steadier economy has caused a spark for hotels. The above-mentioned study from Smith Travel also showed that revenue per available room growth was above the industry average for some of the largest and most important markets, including New York, Orlando, Washington D.C. and Los Angeles.
”We see continued attractive investment opportunities in the lodging sector given improving industry fundamentals,” according to a February research report from Bear Stearns. “We forecast growing U.S. lodging demand in 2005 given expanding corporate travel budgets and accelerating large-group conference bookings.”
But there’s a lot to consider when investing in the hotels industry, and a favorable environment isn’t enough to ensure success. Factors such as the locations of hotels, the type of clientele and, of course, business models can go a long way in deciding which companies rise to the top. For example, many believe that hotel companies with greater exposure to urban areas and big business centers could have the best chance to capture the growing momentum. Analysts can help you steer toward those specific companies with the ability and wherewithal to attract the most travelers. With the analysts’ help, you may want to fill some vacancies in your portfolio with companies from the hotels industry.
Who are the All Star Analysts of the Brokerages 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. Since inception in July 2002 it has gained +38.7%
outpacing the +27.3% return of the S&P 500. See the full
portfolio at: http://at.zacks.com/?id=13
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SCREEN OF THE WEEK
Kevin Matras looks at how to minimize your portfolio’s market
risk and volatility by using the ‘beta’ measure. See how stocks
with low betas outperformed the market on average over the last
three months while stocks with higher betas lost on average over
3 times as much as the market. More...
ZACKS MARKET COMMENTARY
Nick Raich says first quarter earnings growth should fly past
the current consensus, depending on the oil situation. Discover
the industries in the best position. More...
5. ZacksAdvisor.com TIMELY BUY of the WEEK
The Children’s Place Retail Stores, Inc. (PLCE)
The Children’s Place Retail Stores, Inc. is a specialty apparel retailer offering value-priced apparel and accessories for newborns and children up to age 10. The company designs, sources, and retails exclusive, private-label merchandise under The Children’s Place brand.
The company recently knocked the cover off the ball by reporting same store sales of 21% vs. the estimate of 10% for the month of December. This caused a nice bump in the stock price and was a sign that management is executing nicely. This is a great reason to buy this stock, along with the fact that it is a timely buy.
Children's Place Retail Stores Inc. has agreed to buy Walt Disney Co.'s ailing chain of Disney Store in North America, giving Children's Place added presence in the newborn to 10- year-old market. A Children's Place subsidiary will hold the 313 Disney Stores and will have the exclusive right to operate the chain in the United States and Canada under a long-term license agreement. Disney Store North America will continue making toys and apparel with Mickey Mouse and other Disney icons, and will begin paying royalties to Disney on the second anniversary of the deal's close. "By combining the Disney brand with our retail expertise, we believe we can increase sales, produce significant margin expansion and leverage operating expenses, resulting in increased earnings power for our shareholders," Children's Place CEO Ezra Dabah said in a statement.
PLCE sports a long term growth rate of 18.60%, which is a bit shy of the 20% rate characteristic of growth stocks, however, estimates for the company have been on the upswing, and it is a Zacks Rank #1, which indicates strong earnings momentum.
The stock has been performing very well of late, and that in the face of a terrible broader market. That shows solid interest from institutional investors.
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.
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