Thursday - May 5, 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.
Over the next five years, investors will have numerous opportunities to more than double their wealth during the 2005-2009 bull market in stocks before the final top in 2010. Three powerful forces will push prices in specific sectors to overvalued levels.
The First Powerful Force is the demographics and spending power of the largest and wealthiest generation in U.S. history.
The 77 million baby boomers born after World War II have been driving economic growth ever since the 1950s. Remember the explosion of toy stores and baby stores in the ‘50s? Then, the explosion of new schools and the shortage of teachers in the 1960s? Let's fast-forward to 1987 and the first bubble in stock prices created by the spending power of this 77-million-baby-boomer generation.
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The next bubble was the 1995-1999 bull market. The Dow Industrials soared from 3,838 on January 1, 1995 to Dow 11,722 by January 14, 2000, after which a slow-motion crash unfolded during 2000-2001-2002. Looking ahead, over the next five years investors will see an oil-price bubble, a housing bubble, and another stock-market bubble that will peak at the end of 2009 or early 2010.
NWhile oil reached $58 a barrel last week, the price per barrel fell to $50 by Monday, April 18. Oil could move back up to $60 a barrel by July and then fall to $40 a barrel. Some analysts think the price of oil could fall to $26 a barrel.
The U.S. government is still purchasing oil daily in the free market to fill the Strategic Petroleum Reserve (SPR), which should be full sometime in July. After which, oil prices should fall to “normal levels.” Traders may anticipate the July event and sell oil futures, which would trigger a sell for the energy, energy services, and natural gas stocks and mutual funds well before then.
The Second Powerful Force is the explosion of economic growth in China, with 1.3 billion people, and India, with almost one billion people. China and India have contributed substantially to the rise in oil prices and a commodity-price boom. Growth in China is slowing, which will facilitate the coming drop in oil prices. However, as economic growth accelerates during the 2005-2009 economic boom, oil prices and commodity prices could both form a second bubble before the 2009-2010 top.
The Third Most Powerful force is the $6 trillion in cash on the sidelines, plus another $1.27 trillion in corporate cash. This enormous economic liquidity will drive stock prices to new high after new high during the 2005-2009 bull market. As stock prices rise, the dollar will also rise, producing a flood of cash into the U.S. from foreign investors, which will fuel the stock market bubble. This liquidity, plus low interest rates will fuel both the housing bubble and the coming bubble boom in stock prices between 2005-2009.
Some analysts say the housing boom is peaking now. But homebuilders continue to report record sales. D.R. Horton (NYSE: DHI) just reported record home sales for the first quarter. The largest U.S. homebuilder's sales climbed 24% to $4.1 billion, as the number of orders increased 6.8 percent to 14,401. Each geographic region reported gains in the number of homes sold and sales dollars. Sales volume also gained sequentially each month. M.D.C. Holding’s (NYSE: MDC) sales just set a new record high.
The parent company of Richmond Homes logged the most home orders for any quarter in its history with 4,546 orders, a three percent rise from last year. Arizona orders were up 27 percent, while Maryland and Virginia markets each logged 17 percent increases. M.D.C.'s backlog rose 11 percent to 7,893 homes, with a value of $2,43 billion, a 17 percent rise from last year. Hovnanian's (NYSE: HOV) contracts climbed 11 percent. The homebuilder cited strong activity in the Southeast and Southwest for a boost in contracts for new houses and condos.
Net contracts gained 11 percent to 1,910 from a year ago, while the dollar value rose 22 percent to $650.4 million. But California values lost 11 percent to $171.3 million and the Northeast sank 27 percent to $89.2 million. Comstock Homebuilding's (NASDAQ: CHCI) new orders rose 86.4 percent and new order revenue more than doubled to $103.3 million. M/I Homes' (NYSE: MHO) contracts for new homes in the first quarter fell 17.8 percent to 1,078, while closings fell 11 percent to 775.
The homebuilder blamed soft market conditions in the Midwest. The real estate boom is being led by the West and the Sunbelt. Currently, weakness has been evident in the Midwest and the Northeast, but that could be weather related. During the current weakness in economic growth and declining inflationary pressures, bond yields have been declining. However, as economic growth gains momentum this fall from falling oil prices, long-term yields could rise, which could slow the housing boom.
The euphoria of a bull market in stocks could extend the housing boom into 2006, 2007, and possibly 2008. If bond yields rise very slowly, housing prices could just level out at the then current levels. However, that is a best-case scenario and not very likely. We had a housing bust and price correction in 1980, 1981, and 1982. There was no correction in home prices during the 2001-2002 bear market in stocks because low interest rates sparked a refinancing boom and extended the housing boom.
The 2010-2014 period will be deflationary oriented with falling stock prices and falling real estate prices. Deflationary periods are never kind to consumers with too much debt! Pay off the credit cards and substantially reduce mortgage debt during this great boom ahead. Ideally, you should be debt-free well before the end of 2009. In summary, oil and commodities are close to bubble tops now. However, oil and commodities could experience another bubble during the Great Boom Ahead.
The housing bubble is real. Arizona, Nevada, the Southwest, the Southeast and the Sunbelt are experiencing rapid growth. Prices are rising at double-digit rates month after month. Demand is especially strong in Florida, as almost 1,100 people move to Florida every single day. The housing bubble will probably not end well for those who are over extended with too much mortgage debt. The 2005-2009 bull market will probably not lift off until oil prices peak and Wall Street is comfortable with interest rates.
At the moment, the economy seems to be slowing, which concerns investors, traders and Wall Street. Will the Fed continue to push Fed funds up to a level that will derail the recovery? Donald Rowe thinks Fed Chairman Greenspan is too ambitious to create that scenario. However, Wall Street will, nevertheless, wait for proof.
A SUPER ECONOMIC BOOM IS COMING! Momentum investor, Donald Rowe brings decades of experience and helps you utilize The Wall Street Profit System 2005™ to double your money every three years! Learn more about this newsletter and free trial offer at: http://at.zacks.com/?id=380.
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Richard Rhodes provides his views on Tuesday’s FOMC statement and updates his Paid-to-Play portfolio. More...
Vivian Lewis offers a look into her global portfolios to help you add some international exposure. More...
Find out why mutual fund expert Dennis Slothower believes the market is poised to correct this week. More...
e) Funky Fed
Gregory Spear says that the slowing economy is bothering Wall Street more than long-term inflationary trends. More...
Find out why Jim Collins says growth stocks should do well over the next 12 months. 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
BULL OF THE DAY
Consolidated Graphics (CGX) - Increasing Share in Printing.
UST, Inc. (UST) - Earnings Below Expectations.
Momentum Reverting in Mediterranean
Home Construction Stocks Moderate
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 provides an attractive shorter term trading strategy for those who want a stock’s price momentum to be in their favor. Then just to be sure, we also want the fundamentals to be sound as well. The end result is a strategy that has been consistently beating the market each of the last three years. The key element in this screen is finding stocks currently on the move and that are trading in the upper ranges of their 52-week highs.
This screen looks for stocks trading in the upper range of their 52-week highs along with attractive Zacks Rank and Broker Ratings. This strategy proves that the “trend is your friend” with an average annual return of +48.1% over the last four years compared to only +1.1% for the S&P 500.
AAR Corp. (NYSE: AIR) has seen its stock price advance about 7.16% over the past four weeks and is currently trading within a very close range of its 52-week high. In mid-March, the company said it experienced sequential and year-over-year sales growth during its fiscal third quarter. AAR noted particular strength in its Inventory and Logistic Services segment. The company’s profits exceeded the consensus estimate by approximately 8% and outperformed its year ago result. The company commented that it had an eventful quarter that, among other positives, included significant new business wins and strong growth in international markets. To continue your research on AIR, click here.
Badger Meter, Inc. (AMEX: BMI) reported record first-quarter earnings and sales in mid-April. Net sales increased 9.7% from the year prior, while earnings per share not only improved, but also beat the consensus estimate by about 104%. The company attributed its strong performance to its proprietary Orion® automatic meter reading (AMR) system for the residential water utility market. It is no surprise that this stock, which has experienced a price increase of approximately 27.51% over the past four weeks, is trading at its 52-week high as of this writing. To continue your research on BMI, click here.
NutriSystem, Inc. (AMEX: NSI), a Zacks #1 Rank company, recently stated that 2005 started off with a bang. First quarter revenues roughly matched full year 2004 revenues. This company’s first-quarter earnings surpassed the consensus estimate by almost 67%. NutriSystem’s stock price has climbed about 68.25% during the past four weeks and is trading at its 52-week high. The company also mentioned that based on its first quarter, it believes it will continue to accelerate revenue growth and improve its operating margins in 2005. To continue your research on NSI, click here.
All the Profit Track strategies were created and backtested using the Research Wizard software from Zacks Investment Research. If you like this screening 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. ZacksAdvisor.com TIMELY BUY of the WEEK
The Black & Decker Corporation (BDK)
The Black & Decker Corporation (BDK) is a global marketer and manufacturer of quality products used in and around the home and for commercial applications. The Corporation is one of the world's leading producers of power tools, power tool accessories, and residential security hardware, and the Corporation's product lines hold leading market share positions in these industries. They are a major global supplier of engineered fastening and assembly systems. They are also one of the leading producers of faucets in North America.
Several factors warrant the addition of BDK to the Focus List. They recently raised their first quarter earnings guidance to $1.33-$1.35 per share from $1.05-$1.10 per share. Management cited strong sales in its North American power tools and accessories business. The increased sales came as a result of healthy existing home sales. A robust construction cycle and a broadened product portfolio should continue to benefit BDK.
5. WEEKLY COMMENTARY: All Star Top Picks
Zacks.com offers three 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 Transportation Services Industry
There’s no way that the transportation services industry holds enough profit potential for investors, especially with oil prices at historically high levels. Right? There are several All Star analysts that would disagree with this assessment, even though it appears logical when filling up the tank. But these experts believe that there’s money to be made with select transportation stocks and the Zacks Industry Rank concurs. According to Nick Raich’s “Weekly Earnings and Sector Update,” the transportation services industry has a rank of 2.83, putting it 67th out of more than 200 industries.
It’s certainly a fact that this industry has its fair share of challenges right now. Oil pumping past $50 a barrel, and its inevitable impact on the economy, is just the most visible problem. The space must also grapple with the seasonally soft first quarter and unfavorable comparisons. Such factors have caused the S&P transport industry to dramatically underperform the S&P 500 thus far in 2005. These factors have caused a good deal of apprehension among investors toward transportation services, but as any savvy investor knows, emotion can often be a detriment in investing.
“We believe we’re seeing a typical market over-reaction on the downside,” according to an April 15th research report from UBS. “We think cool heads will prevail…and likely make money.” This feeling is shared by many other analysts as well. The transportation industry has taken it on the chin of late for the above-mentioned factors, but that just opens up an attractive buying opportunity for fearless investors.
Analysts see some solid industry fundamentals for transportation services companies and expect good first quarter performances for a number of them. With valuation now at an even more favorable level, investors that have been around the block are watering at the mouth. Some companies in the space have been effectively dealing with the high price of oil through a number a methods, including passing the buck onto customers. Furthermore, if the GDP continues to move in the direction many economists believe, then there should be ground to be gained. It may not be as vibrant a space as in the recent past, but it’s certainly no where near the doomsday scenario that many investors believe.
But the transportation services industry does have trouble with which to contend. The tough part will be pinpointing those companies that will be able to move forward in such difficult circumstances. Analysts are the best way that investors can tell the difference between the survivors and those that will be hurt from the headwinds. By using their insight, investors have a good chance of finding the quickest route to their goal.
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 combines some of his winningest strategies to create a Custom Consensus screen. Get three stock picks: http://at.zacks.com/?id=1410.
ZACKS MARKET COMMENTARY
Nick Raich believes investors are nervous that future earnings estimates will be reduced. Discover why Raich has found no evidence to support this theory: http://at.zacks.com/?id=1415.
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 Rank (Strong Buy) List has 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, by visiting: 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
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