Thursday - April 7, 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.
On Friday (4/1), the S&P 500 (1172.92) was in full April Fool's costume. The day began with the index moving strongly higher, drawing in buyers. After the release of some important economic data in the morning, however, the market then moved sharply lower for the rest of the session. "April Fool's!"
Friday's volatility was in large part caused by the market's reaction to two inflation-related numbers. Overnight, the S&P futures contract (1177.70) strengthened, signifying a higher opening for stocks. The futures contract then spiked higher on the pre-market release of the employment number. The report showed that the U.S. economy added 110,000 new jobs in the month of March -- well below forecasts for a gain of 220,000 positions. That sent the S&P futures soaring even further, as market participants reasoned that the weaker-than-expected data would put less pressure on the Federal Reserve to raise interest rates at a fast clip.
The S&P rallied strongly in the opening minutes, reaching a peak within the first half hour of trading of 1189.80. At 10:00 AM ET, however, the Institute for Supply Management's report hit the market like a ton of bricks. The wholesale prices number in this report spiked to 73 in March, up from 65 in February. Immediately, inflation fears were rekindled and within roughly an hour the S&P had lost all its gains and then some. The cloud overhanging the market involved fears of "stagflation" -- low economic growth combined with strong inflation. That would be the worst of all possible scenarios for the stock market. As if to emphasize the market's inflation worries, crude oil prices then rallied nearly $2 on the day, closing near a record high of $57.27 per barrel.
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Despite Friday's reversal, as well as the intense volatility of the past five trading days, the S&P actually gained 1.50 points on the week. The candle on the weekly S&P chart is a doji with long upper and lower shadows. A doji is a potential reversal candle. This doji is that much more significant since it almost touched the lower Bollinger band on the weekly chart at 1160.
Despite Friday's sell-off, some occurrences this past week should hearten the bulls. First, the S&P held critical support at 1163 for the second time in 2005. Second, the S&P remains above its Intermediate trendline drawn off the August low near 1060, which intersects the chart at 1160.
Additionally, the period of seasonal weakness, which characterizes the last two weeks of March, is now over. The first two weeks of April are often a strong time for the market. Given the solid growth the U.S. economy delivered in the first quarter, the upcoming earnings season will likely be positive. The strongest earnings are often those of companies that release their quarterly results early in the season. Earnings season kicks off on Wednesday, April 6th when Alcoa (NYSE: AA) announces its results.
The weekly moving averages now provide important resistance and support. The sideways moving 10-week moving average is at 1194 and the lateral 20-week moving average is at 1191. Important resistance is therefore between 1191 and 1194. It is not coincidental that Friday's rally was stopped at 1189.80, just below these resistance levels.
Flowserve (NYSE: FLS) manufactures flow control equipment for use in applications such as oil wells and power generation. Despite the correction in both oil stocks and the S&P, FLS has held steady. Relative strength is excellent. If the S&P stabilizes, then Dr. Melvin Pasternak thinks FLS can test resistance just above $28.
Tiffany & Co. (NYSE: TIF) Dr. Melvin Pasternak previously highlighted shares of this luxury goods retailer at $33.16 after the stock had broken out of a very narrow four-month consolidation. TIF reached a high of $35.25 on Thursday before seeing profit taking on Friday. Relative strength remains strong and the black ADX line is just beginning to accelerate. The stock is overbought, but should have support near $32 on any pullback.
Holly Corp. (NYSE: HOC) is a refiner of crude oil products such as gasoline and jet fuel. The company tends to move higher when crude oil rallies. Holly hit a peak of $39.60 in early March, then pulled back to $34.04. It is now moving to challenge its old highs. ADX and MACD are about to both give buy signals. If HOC can break through $40, then the stock could test $45.
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Kelley Wright believes that the Fed will continue to move Fed Funds higher, which may ultimately drive companies in certain sectors to an attractive range of Undervalue. Read this expert’s investment outlook, along with a pair of stock profiles. More...
Vivian Lewis provides information on global investing and the effects of international politics on stocks and bonds. Benefit from this expert’s commentary and analysis, and then read about a sampling of names from her Buy and Hold portfolio. More...
Mutual fund expert Ron Rowland explains that understanding the inverse relationship between oil and stocks is all you need to know about the markets in the near term. Find out why and learn about a recent merger announcement in the energy industry. More...
By the time Alan Greenspan retires in February 2006, Donald Rowe believes the Dow Jones Industrials and the S&P 500 will be at all-time highs. Don’t miss this expert’s analysis on oil prices and the market. More...
Ian Wyatt says China is the real deal when it comes to both market potential and growth. Read about an operator of online games in China that this expert believes is in the very early innings of a long-term growth trend. 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
S1 Corporation (SONE) - Recurring Revenue Stream
ValueVision Media (VVTV) - Lower Gross Margins
Pfizer's Analyst Meeting Offered Surprises
Machinery Builds for Mining and Farms
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.
Carter’s, Inc. (NYSE: CRI) said it achieved record results in all channels of distribution during fiscal 2004 by strengthening the Carter’s brand, focusing on high-quality, essential core products, and successfully building its presence in the mass channel. Such initiatives helped the company’s earnings per share for fiscal 2004 rise by more than +34% from 2003. Carter’s said it has built a diversified platform for growth that supports continued market leadership in 2005, which, along with a net margin of .06, bodes well for this company’s earnings momentum. To continue your research on CRI, click here.
Molecular Devices Corporation (NASDAQ: MDCC) has a net margin of .12 and showed positive earnings per share growth in its most recently reported year, passing the two most important parameters of this Profit Track. In early February, this Zacks #2-ranked company posted solid fourth quarter results, thanks to a strong performance in both its life sciences and drug discovery product families. In fact, its life sciences family experienced its best quarter ever, due to the successful launch of its SpectraMax M5 reader and the continued success of the SpectraMax M2. Molecular Devices believes that both of these markets will remain stable in the near-term, suggesting that its earnings and margins should remain healthy moving forward. To continue your research on MDCC, click here.
The Middleby Corporation (NASDAQ: MIDD) recently called 2004 a successful year as it concluded with positive sales momentum, due, in part, to the impact of its new products. Along with a net margin of .09, its year-over-year positive earnings per share surprise of almost +49% shows that this company’s earnings are really cooking. The Middleby Corporation, which acquired the assets of Nu-Vu Food Service Systems division from Win-Holt Equipment Corporation early this year, plans to continue its initiatives to develop products focused on energy savings, speed of cooking and automation as it moves through 2005. To continue your research on MIDD, click here.
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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 Schools Industry
Education is big business. In fact, the post-secondary education industry is a $350 billion market that has experienced tremendous growth over the past several years. But recent regulatory issues and slowing growth have cooled off the space’s momentum. Nevertheless, several analysts believe the industry’s fundamentals are solid, with the opportunity and capability to continue generating profit for shareholders. The schools industry currently has a Zacks Industry Rank of 2.67, according to Nick Raich’s “Weekly Earnings and Sector Update,” which places it 40th out of more than 200 industries.
The growing importance of a college education, or some sort of post-high school training, is one of the major catalysts of this space. Students coming out of high school are greeted with a jobs market where a degree is mandatory to secure a high-paying position with good benefits. Furthermore, persons older than the average student, who have already been in the workforce for years, are finding it useful to go back to school in order to keep up with the fast-paced and highly competitive environment. Whether they’re young or older, the post-secondary education industry has become one of their more attractive options.
In addition to a favorable macro-environment, post-secondary education companies are also finding the demographics appealing. The children of the baby-boomer generation are graduating high school right now, and will continue to be walking down the aisle for a bulk of this decade. As a result, the annual enrollment growth rate is expected to increase at a higher degree over the next eight years compared to the past eight years. State budgets have suffered from a slew of problems in recent years, causing tuition to skyrocket in many cases. Many of these recent graduates will no doubt opt for a more fiscally manageable and quicker program from a company in this industry, while also enjoying fringe benefits such a smaller teacher-to-student ratio followed by job placement.
But as any investor or business already knows: the market giveth and the market taketh away. As with state institutions, a majority of students attending for profit, post-secondary education schools receive financial aid. Therefore, these companies are beholden to the federal government or some other sort of agency. Besides the obvious pain-in-the-neck that such regulations bring, the industry has suffered through a flurry of investigations and lawsuits from various plaintiffs, including federal and state governments. While no Enron-type of story has emerged, it nonetheless is an unattractive development for the space. Furthermore, as evidenced by the relatively few acquisitions made in 2004 compared to 2003, growth has slowed recently as competition becomes fierce.
Every industry has a downside though, but compared to some other spaces, the post-secondary education industry appears to be in a rather enviable situation. Nevertheless, investors should be aware of regulatory concerns and other potential obstacles before getting involved. Analysts can keep watch for such conditions while pointing you toward the companies that are making real headway in this growing space.
Who are the All Star Analysts of the Computer Storage 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 shows you how to find great growth stocks at an excellent value. This strategy has shown an average annualized gross return of nearly 20% in 2002, over 91% in 2003, and more than 39% in 2004. Get 3 of its newest picks. More...
ZACKS MARKET COMMENTARY
Zacks has already started tabulating first quarter results. Nick Raich explains what to expect and which industries to watch. More...
5. ZacksAdvisor.com TIMELY BUY of the WEEK
Formed by the merger of Conoco and Phillips Petroleum, ConocoPhillips is the third-largest integrated oil and gas company in the US, behind Exxon Mobil and ChevronTexaco. The company explores for oil and gas in 29 countries, and has proved reserves of 7.8 billion barrels of oil equivalent, excluding 0.3 billion barrels of Syncrude (a Canadian oil sands resource). It has a refining capacity of 2.6 million barrels per day and sells fuel at more than 17,000 outlets in the US under the 76, Circle K, Conoco, and Phillips 66 brands. The company also has a chemicals business, and gas gathering and processing operations. Its emerging businesses include fuels technology and power generation.
Management has remained focused on bringing the company’s return on capital employed (ROCE) in line with the peer group of global oil integrateds. In order to achieve this goal, management has been busy restructuring the business portfolio by divesting non-core assets, reducing balance sheet leverage, and instituting greater capital discipline. We believe that management has done an excellent job thus far in executing this plan. This is evident from the roughly $4.7 billion worth of asset sales since the merger, and sales of approximately $900 million this year. Strong cash flows as a result of these asset divestitures and the robust commodity-price environment, coupled with disciplined capital outlays, helped the company pay off substantial amounts in debt.
Our positive outlook on COP shares reflects our expectation that ConocoPhillips is well positioned to bridge the gap with the oil majors, given management’s track record of execution thus far. We believe that the stated goals are realistic and achievable, particularly in the current favorable macro environment. We think that further progress on the execution front will be the key catalyst to drive the share price higher. Estimates are too low for this company and the shares are headed higher.
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.
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