Wednesday - July 6, 2005

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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.

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Oil may still continue to weigh on the market until the end of July, when the government’s purchases to fill the U.S. Strategic Petroleum Reserve (SPR) will end. Hopefully, oil prices will begin to drift lower by the end of July.

The Fed funds futures market is pointing to two more quarter point rate increases at the June 30 and August 20 FOMC meetings. Look at just two charts and you have a good idea of what lies ahead. The IBES Valuation Model indicates that the stock market is undervalued by 39 percent. Bond prices may or may not rise to offset some of the market’s undervaluation. The second chart compares the S&P 500 forward-dividend yield of 6.58 percent to the 3.97 percent yield of the 10-year Treasury Note. Both charts clearly indicate that stocks are a far better investment than bonds.

A 35 percent move between now and May 2006 is possible. The market may not lift-off until August or September, but a huge move will eventually unfold.

More. . .

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FEATURED EXPERTS Continued...

Sector leadership continues to shift and change. Stay close to Donald Rowe and his team’s Hotline Updates as they adjust their portfolio of stocks and mutual funds to take advantage of the huge move-up that will eventually unfold. The Energy sector may end up being an investment vehicle for traders.

 
One of Three Buy Recommendations:

Grey Wolf, Inc. (AMEX: GW)is a leading provider of contract oil and gas land drilling services in the United States serving both major and independent oil and gas companies with a premium fleet of 117 rigs. In the combined markets of South Texas, the Gulf Coast, Ark-La-Tex and Mississippi /Alabama, Grey Wolf is a market leader in the region that holds the nation's most significant onshore natural gas reserves. To further that strategy, Grey Wolf expanded its market presence to the Rocky Mountains and West Texas.

 
About Donald Rowe’s The Wall Street Digest newsletter

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=28.

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MORE FEATURED EXPERTS...
 

b) Lazy Hazy Summer Days

Nadine Wong says it appears the market has recognized that biotech has value. More...
 

c) Making Sense of Oil

Joseph Parnes offers his analysis of the volatile oil market and highlights three of his long positions. More...
 

d) Next Stop $61?

Ron Rowland explains that at some level a “tipping point” is reached with energy. Read his commentary and mutual fund info. More...
 

e) U.S. Economy Looking Relatively Good

But John Reese mentions that economic activity around the world may be in some trouble. More...
 

f) Whistling Past The Graveyard

Jack Adamo is concerned about the outlook for gold over the next six to 24 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=1386.

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Zacks.com offers three unique weekly commentaries that all further our mission to help you Profit from the Pros. Today is the latest installment of Screen of the Week from Kevin Matras. Each week, Kevin shares with you another winning screen he has discovered using the Research Wizard software from Zacks Investment Research. Learn more about the Research Wizard at: http://at.zacks.com/?id=1388.
 

“A Return on Equity Strategy for a Return on Your Investment”

This week, I’ll focus on another winning screening strategy that is both easy to build and easy to use with our Research Wizard program.

This one uses the Return on Equity (ROE) as one of the main components in our strategy.

ROE is one of the quickest ways to gauge whether a company is creating assets or gobbling up investors’ cash.

ROE = income / common equity

For instance; if the ROE is 10%, then ten cents of assets are created for each shareholder dollar that was originally invested.

Knowing the company is generating assets on invested capital rather than burning thru it is a great starting point.

 
Parameters:

• ROE >= 10
  (The median ROE value for all of the stocks in the Zacks Universe is under 10. So any companies with shareholder equity less than this benchmark are disqualified.)
   
• Zacks Rank = 1
  (The Zacks Rank (which is considered by many to be the best rating system out there), looks at upward earnings estimates revisions (amongst other things), and will get us into companies whose forecasted earnings are getting stronger.)
   
• % (Broker) Rating Strong Buy = 100(%)
  (Since broker ratings are typically skewed wildly to ‘buy’ and ‘strong buy’, I decided to cancel out any company where the brokers aren’t fully on board.
   
• Price/Sales <= 1
  (A low price to sales ratio (1 and below for example), is usually thought to be of better value, since the investor is paying less for each unit of sales.)
   
• Price >= 5
  (And for good measure, all of the stocks have to be trading at a minimum of $5 or higher. Most money managers won’t touch anything under $5.)

 
Results:

I ran a series of tests over the last 4 1/2 year time span (2001 thru 2004 and YTD for 2005). I rebalanced the portfolio every four weeks and started each run on different start dates so each test would be rebalanced over a different set of four-week periods. This was done to eliminate coincidence and verify robustness.

Over the last 4 years, this strategy has shown an average annualized gross return of 76% a year, with an average win ratio* (*winning periods divided by the total number of periods) of 73%. And it produces on average of 4-5 stocks for your portfolio each month.

In 2001, the average annualized gross return was 59.7%, with an average win ratio of 63%.

In 2002, the average annualized gross return was 89.8%, with an average win ratio of 79%.

In 2003, the average annualized gross return was 106.6%, with an 83% win ratio.

In 2004, the average annualized gross returns were 58.5% with a win ratio of 69%.

And so far in 2005 (YTD -- thru 6/17/05), the average cumulative gross return is 22.4% with a 65% win ratio.

Wow!

This week (7/4/05), there are seven stocks that qualify this winning screen. Here’s three of them;

Give this winning strategy a try in your own portfolio and see how you too can start confidently beating the market. You can do it. Sign up now for your free trial to the Research Wizard stock picking and backtesting program and start making better decisions today! Go to: http://at.zacks.com/?id=1388.

All the Screen of the Week strategies are created and back-tested using the Research Wizard software from Zacks Investment Research. Learn more about the Research Wizard free trial offer and our new special report “Top 10 Stock Screening Strategies” at: http://at.zacks.com/?id=1388.

Discover all the Free Screening Tools on Zacks.com at: http://at.zacks.com/?id=1389.
 

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
 

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Earnings & Sector Update from Nick Raich, Director of Research for Zacks, is an example of the in-depth analysis provided by Zacks Equity Research. This weekly article explores the important trends in recent and upcoming earnings data. It is a must read for any investor seeking to buy into the hottest industry sectors and avoid those out of favor. See the full report at: http://at.zacks.com/?id=1363.
 

Earnings and Sector Update

Second quarter earnings season will soon be the main focus for investors. Many view Alcoa’s upcoming earnings release as the unofficial start to earnings season because the company is usually the first Dow component to release results for the quarter ended June 2005. At Zacks, we actually start the clock ticking for second quarter earnings sooner. We include companies that have released results for the quarter ended May 2005 as second quarter 2005 figures. Therefore, there have already been 30 companies in the S&P 500 that have announced second quarter 2005 results.

So far, 80% of those S&P 500 companies have met or exceeded estimates. The average company had earnings growth of 7% over last years second quarter. The current second quarter 2005 consensus estimate is for 9% earnings growth. Our best estimate is final second quarter 2005 earnings growth of 12% for the S&P 500. We base this view on the solid past earnings momentum and the relatively positive guidance we have seen since companies announced first quarter results.

The Materials, Energy and Industrials sectors had the best earnings growth in the first quarter. Once again, these three sectors should show the highest year-over-year gains in earnings during the second quarter of 2005. Current expectations are for each sector to see over 20% earnings growth. The earnings laggards for the second quarter are expected to be Consumer Discretionary and Staples, with earnings growth projected to be in the low single digits for each sector.

This week will still be rather light on the earnings front as only 115 companies should report earnings. Ten of those companies will be in S&P 500. Although we expect the majority of companies to meet or exceed their estimates, if oil prices continue to rise, we believe forward guidance will not be raised after companies release results. If this occurs, it will not be good for a rising stock market. We caution, without the raised earnings guidance, the market could face near-term selling pressure.

More at: http://at.zacks.com/?id=1363.

Table of Contents for Rest of the Report

• Companies in the Spotlight: 1 Buy and 1 Sell
• S&P Sector Scorecard
• S&P Companies That Reported Earnings Last Week
• This Week In Earnings
• Key companies reporting this week
• Zacks Rank By Industry
• Earnings and Sales Growth - Actual and Estimated for the S&P 500

Read this weeks' full report at: http://at.zacks.com/?id=1363.
 

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BULL OF THE DAY

Canadian National Railway (CNI) - Strong Revenue Growth. For full Zacks research report, click here.

 
BEAR OF THE DAY

CenturyTel, Inc. (CTL) - Uninspiring Outlook. For full Zacks research report, click here.

 
ZACKS ANALYST INTERVIEW

Tech Industry Relies on Innovation

Integrating more functionality onto a single chip is a key ingredient for successful semiconductor firms. More...

 
ZACKS INDUSTRY OUTLOOK

Apparel Sales Bolstered by Economy

Profit margins for most industry players are trending higher, in part due to currency influences. More...

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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:
 

Zacks Rank #1 and #5 Additions

The Zacks Rank is a powerful stock indicator whose #1 Strong Buy stocks have risen by an average annual return of 32.8% since 1988 versus 11.9% for S&P 500. And just as important, it tells you which stocks to sell now (Zacks #5). Since 1988 the S&P 500 has outperformed the Zacks #5 Rank Strong Sells by 155.5% annually (11.88% vs. 4.65% respectively). Learn more about the Zacks Rank following this section.

Below you will find all the stocks added to the Zacks #1 and #5 Ranked lists this week.

 
Zacks #1 Rank List: 65 New Additions (alpha by ticker)

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Zacks #1 Rank List continued...

To see the full list of Zacks #1 Ranked stocks (approx. 200 stocks), then click here.

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Zacks #5 Ranked List: 78 New Additions (alpha by ticker)

More. . .

Zacks #5 Rank List continued...

To see the full list of Zacks #5 Ranked stocks (approx. 200 stocks), then click here.

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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...

 
Profit Tracks: Recent Price Strength

This Profit Track provides an attractive shorter term trading strategy for those who want a stocks 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 3 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 weeks 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 4 years compared to only +1.1% for the S&P 500.

 
Here are four stocks that make the grade for the Recent Price Strength Profit Track

Atrion Corp. (NASDAQ: ATRI), a Zacks #1 Rank stock (Strong Buy), recently reported a strong earnings report. Fiscal first-quarter earnings were $1.23 per share, ahead of the consensus estimate by 43%. Given this positive momentum in earnings, it is not surprising that shares of Atrion are trading at a 52-week high and have advanced in price by about 13% over the past four weeks. To continue your research on ATRI, click here.

Laidlaw International (NYSE: LI), a transportation and healthcare services company, posted fiscal second-quarter earnings of 20 cents per share compared to four cents per share, a year prior. Given a share price increase of almost 9% in the past four weeks and a current share price that is right at its 52-week high, LI is proving that the trend is your friend. To continue your research on LI, click here.

LCA-Vision Inc. (NASDAQ: LCAV), a Zacks #1 Rank stock (Strong Buy), recently reported first-quarter earnings of 56 cents per share. The result topped the consensus estimate by 144% and outpaced last year’s first quarter. The company attributed their strong results to market share gains and strong sales of its LasikPlus brand. During the past four weeks, LCA-Vision’s share price has increased approximately 9%, putting the stock trading near its 52-week high. To continue your research on LCAV, click here.

Maritrans Inc. (NYSE: TUG), a Zacks #1 Rank stock (Strong Buy), has gone up in price by almost 14% over the past four weeks and is trading at a new 52-week high. In late-April, the company announced fiscal first-quarter earnings of 43 cents per share, beating last year’s result and eclipsing the consensus estimate by 87%. The company noted that it achieved record quarterly revenue, driven by strong demand for their vessels. To continue your research on TUG, click here.

 
To see the full list of stocks that currently pass this winning screen, go to: http://at.zacks.com/?id=2010.

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=1993

OTHER TOOLS FROM ZACKS

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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:

• +32.8% average annual return since 1988 versus +11.9% for S&P 500
• Outperformed S&P 500 in 16 of the last 17 years
• +43.8% total return from 2000 to 2002, which was the worst bear market in over 60 years.
• +74.7% in 2003 and +28.8% in 2004

And just as importantly, the Zacks #5 Rank (Strong Sell) List has 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=75.

Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=72.

FREE PORTFOLIO TRACKER

Do you believe that these events affect stock prices?

• Broker Recommendation changes
• Earning Estimate revisions
• Earnings Announcements
• Zacks Rank changes

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.

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Regards and Happy Investing,

Stephen Reitmeister

Editor-in-Chief
Zacks Profit from the Pros

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.

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