Wednesday - September 28, 2005
 Want to view the archive of past issues? Go to: http://at.zacks.com/?id=62. Manage Profit from the Pros subscription: 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.
If you never learned to sell, don’t blame yourself. For decades, the brokerage establishment was committed to keeping that concept out of the lexicon of individual investing. Throughout the 80’s and 90’s, the “S” word rarely passed the lips of Wall Street brokers. Buying and holding became dogma on the Street and those who dared to contradict it were considered somewhat blasphemous. In terms of personal career choices, analysts risked much more for issuing a sell recommendation than for placing an outrageous price target on an Internet stock. We now know for a fact, thanks to the work of NY Attorney General Elliot Spitzer, that the suspicions many investors held about deliberately distorted analyst work in that period were well-founded. Sell-side analysts, the brokerage’s trading department and their own investment banking arm were all quite seamlessly joined, producing analysis that was specious, overly optimistic and quite profitable for the brokerage. It took a major bear market and a $1.4 billion conflict of interest settlement against the major brokerages to bring the merits of selling (i.e. protecting capital) to the consciousness of the individual investor. In post-Spitzer Wall Street, there is now a quota system, where brokerage firms are required to have a certain percentage of sell ratings. But is this really any help to the individual investor? Hardly. According to Zack’s, in every year between 2000 and 2004, stocks with the most sell ratings outperformed those with only buy or hold ratings. So, if our brokerages have a lousy track record in guiding selling strategies, how do we know when to sell? Many market participants never contemplate, let alone formulate, an exit strategy. For these investors, when a position goes against them, they are likely to engage in a variety of psychological defenses to manage their distress, ranging from hope to rationalization to outright denial, but none of these maneuvers meets the real need, which is a bona fide risk management strategy; and this requires a methodology for selling. More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - While selling frequently generally correlates with poor returns, in some strategies frequent selling is essential, so it is important to know when it helps and when it hurts. And even in strategies involving rebalancing only once per year, selling is still important. Selling, when done properly, is our most powerful risk management tool. Any investment methodology worth its salt must force us to sell-both to lock in gains and to cut our losses. In trading, as in geopolitics, without an exit strategy, we inevitably find ourselves in a morass of problems. There are three things that must be considered when developing an exit strategy. The first aspect is our timeframe. Long-term investment strategies can be based much more on fundamental factors (company earnings and guidance, as well as macro-economic trends) than on technical (chart-based) conditions because over the long-term, share prices fluctuate far more than shifts in fundamentals would rationally dictate. Long-term plays on the homebuilders, the HMOs or the energy patch are examples of investment ideas in highly profitable industries where one would do best to take a contrarian approach and buy the sentiment-driven lows and only sell when it appears that the fundamentals of the industry have changed for the worse. These “value-on-the-move” companies and industries make great long-term investments and you will find many of them in the Buy List each week. Some active traders use entrance and exit from the weekly Buy List as a short-term trading signal, but don’t overlook the fact that the Buy List identifies exceptional candidates that have long-term potential, as well. In shorter timeframes, like those used by swing traders with time horizons measured in weeks, selling strategies are typically developed based on chart parameters. Quantitative systems, whose proponents are known as “quants,” disregard most technical indicators, and instead use various company fundamentals and key ratios, sometimes in combination with simple technical factors like price momentum or relative strength, to trigger trades mechanically in various time frames from daily to yearly or longer. The current Buy List formula is an example of a “quant” approach to screening Spear and his team’s proprietary Consensus list, and the current formula, which has evolved since the Buy List was launched on 2/7/03, backtests to around 500% over that period! It is hard to beat a good quant approach, especially when combined with Consensus! Secondly, an exit strategy defines risk. All trading and investing involves the assumption of risk. There are two aspects of risk one needs to be aware of: proportional dollar risk versus total portfolio value and psychological tolerance. The dollar value of risk pertains to the difficulty of recouping losses, particularly large losses. A 50% loss requires a 100% gain to just get back to even. Most large losses start out as small ones, so one must be particularly careful to nip this weed in the bud. Methodical traders use careful position sizing, an awareness of a stock’s inherent volatility (called beta) and technical support factors to craft an appropriate risk reward scenario before a trade is initiated, so that the role of psychology, which becomes a much larger factor after the trade is made, can be minimized. Even if one is not a technical trader, one also needs to know the limits of one’s psychological risk tolerance in order to trade/invest appropriately. One’s risk tolerance is defined as the degree of uncertainty that one can easily handle in the case of a negative change in the value of a position or a portfolio. One man’s excitement is another man’s nightmare. An investor's risk tolerance often varies with age, income requirements, earning power, trading experience, confidence level, net worth, trading style, trading timeframe, personality, etc. There is no one-size-fits-all formula, but if you are obsessing or having trouble sleeping because of your investments, you know you have exceeded your risk tolerance. The third aspect of an exit strategy has to do with knowing when to get out. Assuming one has defined a trading timeframe and an acceptable level of financial and psychological risk, this is where we deal with things like targets, resistance, stop loss orders, and trailing stops. Books have been written on the varieties of options available to traders and investors in this regard. Indeed, exit algorithms are a key factor in professional portfolio management and are often kept proprietary, along with entrance criteria. Once again, there is no one definitive answer; much depends on the personal and portfolio variables cited above. That said, here are some things to consider as you formulate your own plan. Newmont Mining (NYSE: NEM), the world's largest gold outfit in terms of production, market capitalization, and reserves, is one of the few investment-grade gold mining companies with the size and share liquidity to attract large institutional investors. The company has mining operations on five continents with 60,000 square miles of land. Newmont is producing 8+ million ounces of gold annually; or about 9% of the world's production. Two-thirds of its assets are in North America and Australia, relatively safe from political conflict but the company does face a pollution lawsuit in Indonesia. In July, Newmont reported that second quarter 2005 earnings jumped 35% to $50 million or 11 cents per share, on a modest increase in revenues to $1 billion. The company sold about two million ounces of gold at an average realized price of $421 per ounce, vs $395 a year ago. At the end of the second quarter, cash, short-term marketable securities and investments totaled $2.4 billion. Outstanding debt totaled $2.1 billion. When Spear and his team last featured Newmont back in July of 2004, the stock was trading just a few dollars below its current price of $45. Because gold shares are often used as a hedge against inflation, this sideways consolidation reflects the benign inflationary environment we have enjoyed for the last year. Despite higher oil prices and a series of Fed rate increases, core inflation has remained subdued. The recent rise in its share price is due to concerns about inflation from sustained high oil prices and from a rapidly rising national deficit due to expenses from Hurricane Katrina. Gold and gold shares also trade inversely to the US dollar. A higher dollar, which we have had during 2005, depresses gold prices, yet the yellow metal has managed to hold its own. This relative strength in the face of a rising dollar is significant. Gold jewelry demand is one of the drivers of gold prices, and it is at record levels, rising by 24% in value terms and by 13% in tonnage terms in the second quarter of 2005. Spear and his team believe this is due to the global wealth effect they have discussed recently in these pages that is being driven by 3rd world industrialization and by the global real estate boom. Who Can You Trust? Would you rather follow a system that’s gained 400% in the last 5 years or one that’s lost 90%? The Spear Report monitors over 150 newsletters, analysts and screens, ranks them all by performance in bull and bear markets, then produces a consensus of their stock recommendations that is weighted by the performance of the recommenders! Get the top stock picks from the top stock pickers now with a free trial to The Spear Report. To learn more about this newsletter and free trial offer, click here. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - b) Hot List Continues to Top the S&P John Reese’s Hot List portfolio continues to triumph over the S&P. Learn about some of its holdings. More... c) Insider Buys in Fashion and Pet Supplies Two insider buy transactions have caught Bill Martin and Matt Ragas’ attention. Discover who is buying. More... Dr. Olmstead offers a bullish play on a rail services company and a Mexican cement name. More... e) Fed Officials Remain `Hawkish` Richard Rhodes expects two more 25 bps increases this year from the Fed. 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.
2. SCREEN OF THE WEEK 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. Studies have shown that “earnings estimate revisions are the most powerful force driving stock prices.” And stocks receiving upward EPS revisions will generally see the brokers that cover them upgrade their ratings too. This screen generates, on average, only 8-10 stocks per month, has an excellent win ratio and has shown consistently impressive returns, year after year.
I ran a series of tests over the last 4-3/4 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 exercise was done to eliminate coincidence and verify robustness. Over the last four years, this strategy has shown an average annualized gross return of 63.7% a year, with an average win ratio (winning periods divided by the total number of periods) of 73%. And again, it produces on average of 8-10 stocks for your portfolio each month. To break it down further; in 2001, the average annualized gross returns were 55.8% with an average win ratio of 71%. In 2002, the average annualized gross returns were 42.1% with an average win ratio of 68%. In 2003, the average annualized gross returns came in at a whopping 125.8%. (In fact, even the smallest run produced a gross return of over 100%.) The average win ratio came in at 87%! In 2004, the average annualized gross returns were up 41.8% with an average win ratio of 68%. And so far in 2005 (YTD - thru 9/9/05), the average cumulative gross return is 26.3% with 69% win ratio! This strategy comes loaded with the Research Wizard program and is called: Upgrades and Revisions2. Here are three stocks from this week’s list (9/26/05):
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! 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.
3. BEST OF ZACKS EQUITY RESEARCH Zacks.com offers three unique weekly commentaries that all further
our mission to help you Profit from the Pros. Today's
commentary is the Earnings & Sector Update from Nick Raich,
Director of Research for Zacks. His weekly article explores
the important trends in recent and upcoming earnings data. This
report is a must 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=1396. Earnings & Sector Update With the country reeling from the right hook of Hurricane Katrina, it was feared that a left cross from Rita would put the economy down for the count. Fortunately Rita struck only a glancing blow. While the storms are widely expected to slow economic growth in the second half of 2005, analysts are still, on balance, raising their estimates for S&P 500 firms for this year. However, the recovery effort will probably increase reported economic growth for 2006. In the national income accounts, spending to rebuild looks just like spending for new construction.
More at: http://at.zacks.com/?id=1396. Table of Contents for Rest of the Report
Click here to read this weeks` full report. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - BULL OF THE DAY Xoma, Ltd. (XOMA) - Improving Fundamentals. For full Zacks research report, click here. Cerus Corp. (CERS) - Research Overvalued. For full Zacks research report, click here. Hurricanes Can't Wipe Out Oil Profits Industry Rank for the Week of September 26
4. 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...
Two of the most commonly accepted measures of a value stock are a price-to-earnings (P/E) multiple of 15.0 and a price-to-book (P/B) multiple of 3.0. Although many studies have shown performance advantages to investing in value stocks, not all value stocks are actually bargains. A value a stock is only a good buy if earnings are expected to improve in the future. High Rank Value is a strategy designed to find the true bargains among value stocks. By requiring a Zacks Rank of #1 ("Strong Buy") or #2 ("Buy"), this strategy restricts the pool of value stocks to only those with positive revisions in earnings estimates. In other words, profits are expected to improve in the future at a faster pace than originally anticipated. The combination of a low valuation and a high Zacks Rank is very profitable. This Profit Track has consistently topped the S&P 500 during the past 4-1/2 years. In 2004, this strategy generated a return of +28.3%. During the first six months of 2005 (through June 17), this strategy has continued to outperform. American Electric Power Co, Inc. (NYSE: AEP), a leading multi-regional provider of home health care nursing services, reported second-quarter earnings of 50 cents per share in early August, beating last year’s 39 cents and surpassing the consensus estimate by about 16%. In addition to logging in a solid quarter, Amedisys brought in earnings per share growth of almost 72% over the past five years. To continue your research on AEP, click here. Central Pacific Financial Corp. (NYSE: CPF), which currently yields 2.17%, announced second-quarter earnings of 58 cents per share in late July. The result topped last year’s 53 cents and exceeded the consensus estimate by almost 2%. The company stated that its strong quarterly results were driven by strong deposit growth, expansion in net interest margin and increased efficiency. CPF has a price-to-earnings (P/E) multiple of 14.94 and price-to-book (P/B) multiple of 1.61. To continue your research on CPF, click here. IndyMac Bancorp, Inc. (NYSE: NDE) has an appealing valuation as evidenced by its price-to-earnings (P/E) multiple of 9.55 and price-to-book (P/B) multiple of 1.72. In late July, the company posted second-quarter earnings of $1.26 per share versus last year’s pro forma earnings 90 cents per share. The result also surpassed the consensus estimate of $1.10. The company mentioned that the second quarter was outstanding with production, assets, revenues, EPS and pipeline all at record levels. To continue your research on NDE, click here. United Online, Inc. (NASDAQ: UNTD) reported second-quarter adjusted earnings of 27 cents per share in early August. The result outpaced last year’s 25 cents and was ahead of the consensus estimate by nearly 4%. The company said its strong quarterly performance, which resulted in its 16th consecutive quarter of record revenues, was driven by United Online's growing interactive content business. UNTD fits the criteria of this profit track with a price-to-earnings (P/E) multiple of 12.64 and price-to-book (P/B) multiple of 2.59. To continue your research on UNTD, 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=1993 5. ZACKS TOOLBOX Zacks.com is first and foremost a free resource to help you make more profitable stock picks. In this space each week, we will provide insights into various tools and data points provided on Zacks.com and how to use them to improve your portfolio's performance. At the end of the day, every one of us is a value investor. Meaning that we believe the stocks we own are worth more then the current price and soon enough the rest of the world will awake to the same notion. When this happens the stock will rise and we live happily ever after. If only it were that easy. The problem is that we all use different measures to determine value. The Warren Buffets of the world pour over a company's financials to find deep and lasting value. At the other end of the spectrum you have "the greater fool theory" where people jump on board a momentum stock with a high PE and hope that some fool will take it off your hands at an even higher price. Emerging from this clutter is a fairly popular value metric that continues to gain traction with investors: the PEG Ratio. The PEG builds upon the popularity of the Price/Earnings ratio and goes one step further to try and determine how much you are paying for each unit of earnings growth. When you stop to think about it, that is the essence of company valuations. What are you willing to pay today for a company's future earnings stream? The PEG is defined as the P/E of a stock divided by its 5-year projected growth rate. The general rule of thumb is that a PEG of 1.0 is fair value. Below that is undervalued, and above that is overvalued. What you will discover is that the PEG helps to dispel the myth that growth stocks cannot also be value stocks. Let's look at two examples. Stock ABC is a high flier with projected growth of 30% a year. Yet the stock is only trading at a P/E of 24. That means we have a PEG ratio of 0.8, which is considered undervalued. Stock XYZ has a P/E of only 15 (less than the 24 for ABC), however it is only estimated to grow earnings 10% a year. This computes to a 1.5. Given the construct of the PEG ratio, it appears that Stock ABC is a better value proposition since you are paying less for the estimated future earnings then for XYZ. This, of course, is an oversimplification of the situation as many things could happen over time to change the perceived values of these companies. However, it should be plain to see that stocks with PEG's of 1.0 or lower provide a great starting place to identify stocks with great profit potential. Here are some great free resources on Zacks.com to discover stocks with low PEGs. Profit Tracks: PEG Strategy - The stocks on this list combine the benefits of a low PEG, Zacks Rank of 1 or 2 (Strong Buy or Buy) and a solid Average Brokerage Recommendation. How powerful is that? Since 1/5/01 these stocks have generated a total return of 373.8% versus -14.5% for the S&P 500. Discover all the stocks from the PEG Strategy at: http://at.zacks.com/?id=1534. Custom Stock Screening: Zacks.com offers one of the most robust free stock screeners on the web. Go to: http://at.zacks.com/?id=1535. Once there you will see a drop down box labeled "Select Category". 2/3rds of the way down the list you should select "P/E Ratios" category. After that you will see a field to screen by the PEG Ratio. After filling out that field, chose any other investment parameters to create a screened list of stocks that meet your needs. Full Company Report: Find the PEG ratio for any stock you want on Zacks.com through the "Full Company Report". On every page of Zacks.com you will see a ticker entry box in the upper left hand corner of the site. Put in any stock symbol, then select "Full Company Report" from the drop down box. Then press "Go". This report has most of the main company metrics a fundamental investor could dream of. About half way down the page on the left side is a section entitled "P/E". There you will find the current PEG ratio for any stock you are following. To kick start this process, here is the Full Company Report for GE. 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, 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?
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. REFER-A-FRIEND 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, Charles Rotblut, CFA 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. | ||||||||||||||||
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Zacks #1 Stocks on the Move 05/17/2013
| Company Name | Symbol | %Change |
|---|---|---|
| VIASAT INC | VSAT | 19.35% |
| OLD SECOND B | OSBC | 5.76% |
| GAMCO INVEST | GBL | 4.61% |
| CORNING INC | GLW | 4.47% |
| SYNCHRONOSS | SNCR | 4.23% |
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At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1986 it has nearly tripled the S&P 500 with an average gain of +26% per year. These returns cover a period from 1986-2011 and were examined and attested by Baker Tilly, an independent accounting firm.
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