Wednesday - November 9, 2005

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China remains the fastest growing economy in the world today. Many investors are keen to take advantage of this fact, but how? For some insight, we interviewed senior analyst Paul Cheung about his view on the Chinese economy both today and through the end of 2005.

What is the most important issue in the Chinese market right now?

Because the 16 Chinese companies in my coverage are all closely related to the Chinese economy, the economic trends in China are the most important issue, both for now and in the near future. It seems that the Chinese economy has landed softly; therefore, no more intense macro-measures will likely be taken by the government to curb growth. The domestic macro environments are now much more likely to favor the development of these 16 Chinese companies.

How are companies’ profits in China these days?

At this time, most companies I cover are profitable. However, I think these profits may not increase as fast as they did in 2004, in general. On the other hand, this may be perceived as a good thing for investors, considering what the Chinese government may do to slow down growth if it believes the economy is growing too fast.

More. . .

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Zacks Equity Research continued...

In general, should investors be underweighting or overweighting Chinese stocks at this time?

It would be better for investors to overweight Chinese stocks currently. Although foreign investors often require an additional risk premium because these companies are operated in China, in fact investors should give these companies a growth premium because China has grown so fast over the past 25 years. Moreover, China is a politically stable country--relative to most of the developing world--with great market potential. Investors should also consider that the Chinese government has a direct interest in promoting the development of Chinese companies.

What specific stocks within your coverage look like a Buy currently? And why?

Ctrip.com International (CTRP-NASDAQ) is a Buy, currently. Ctrip has reported better-than-expected quarterly financial results for the past two quarters. Ctrip’s strong results were driven by its strong air ticket booking business and hotel booking business. Moreover, although Ctrip has half of the market share in the online travel industry in China, this market will have great growth potential over the next ten years. We think Ctrip’s recent results demonstrate that the company’s long-term growth story remains intact.

Are there any stocks you'd tell investors to stay away from? Why?

I want to tell investors to stay away from Brilliance China Automotive Holdings, Limited (CBA-NYSE). CBA had a difficult year in fiscal 2004, mainly due to the slow growth in the Chinese auto sector. Part of the reason for this slow growth was due to increased competition with resulting price pressures. However, the environment of the Chinese auto sector won’t improve significantly in 2005, and the company has no good way to overcome these difficulties in the near term.

Is there possibility of much M&A activity in China?

The Chinese oil companies such as CNOOC, Ltd. (CEO) would like to do some M&A activities to increase their oil reserves. This would go a long way in satisfying the increasing need for oil in China. Also, Chinese Internet companies would like to engage in some M&A activities to reinforce their strong market position while branching out into new fields.

Speaking of oil, are energy costs a factor?

Increasing energy prices benefit Chinese oil companies while they do harm to the other companies, especially industrial companies which use lots of energy as they continue to build the very large Chinese infrastructure. If the Chinese economy does prove to be slowing down, high energy costs may be considered a very big factor in this.

Paul Cheung is a senior Zacks analyst covering a variety of industries within China.

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MORE FROM ZACKS EQUITY RESEARCH...
 

BULL OF THE DAY

Mid-American Apartment (MAA) - Attractive Entry Point. For full Zacks research report, click here.

 
BEAR OF THE DAY

Lan Airlines (LFL) - High Fuel Costs & Competition. For full Zacks research report, click here.

 
EARNINGS & SECTOR UPDATE

In the Homestretch

Dirk Van Dijk, Director of Research for Zacks Equity Research, says the S&P 500 is expected to post double-digit growth for both 2005 and 2006. More...

 
ZACKS INDUSTRY OUTLOOK

Industry Rank for the Week of November 7

Margins are rising for cable and wire companies, but retailers are relying on promotional pricing. More...

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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=2335.
 

“Creating a Custom Consensus of your Winningest Screens”

Every week in this article, I either go over a unique way to screen for stocks or I’ll publish a proven profitable screening strategy.

If you’re a regular reader of this feature, you know that most of our strategies have done fantastic. The only real decision is in choosing which one(s) you want to start using.

Well instead of choosing just one, why not look at them all and create a Custom Consensus of some of our winningest strategies.

This too is a great strategy for picking winning stocks from many diversified approaches. Because aside from using the Zacks Rank for many of the screens, there are many other filters layered on top of it to find the best stocks from different styles.

The screens I’m currently using in my Custom Consensus strategy come loaded with the Research Wizard program.

• Big Money
• Breakouts
• EPS Growth
• Filtered Zacks Rank
• ROE
• PEG
• Upgrades and Revisions2
• Increasing Cash Flows
• Sales and Margins
• Winning Ways

(I should probably add that they are all my ‘favorite’ strategies, which is why they’re included in the program.)

Anyway, simply run each screen, generate a list of qualified tickers for each one and then count how many times a stock appears in all of those screens.

If they appear in two or more screens, they qualify for the Consensus portfolio.

Here are five stocks from this week’s (11/7/05) Consensus list.

Sign up now for your two-week free trial to the Research Wizard and get this Custom Consensus list week after week along with all of the individual strategies as well. And learn how easy it is to build and test your own winning strategies too. You can do it. Click here and see how.

Discover all the Free Screening Tools on Zacks.com at: http://at.zacks.com/?id=2336.
 

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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The Zacks #1 Rank (Strong Buy) list is always limited to approximately 220 stocks. Four stocks that are currently included in this elite group are: Knight Capital Group, Patterson-UTI Energy, Plexus Corporation and Quanta Services.
 

Knight Capital Group, Inc. (NASDAQ: NITE) recently released third-quarter earnings of 26 cents per share, excluding a charge. The result reversed last year’s loss and jumped ahead of the consensus estimate of 13 cents. The company mentioned that it experienced its best results from continuing operations since the first quarter of 2004. Earnings estimates for the year ending December 2005 increased by eight cents, or nearly 31%, from one month ago. Continue your research on NITE at: http://at.zacks.com/?id=2275.

Patterson-UTI Energy, Inc. (NASDAQ: PTEN) arecently posted third-quarter earnings of 63 cents per share, soaring past the previous year’s 18 cents and exceeding the consensus estimate by almost 15%. The company commented that the results for the recently completed quarter reflect continued strong performance by its contract drilling segment. Earnings estimates for the year ending December 2005 climbed 11 cents, or almost 6%, over the past 30 trading days. Continue your research on PTEN at: http://at.zacks.com/?id=2276.

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Zacks Rank continued...

Plexus Corp. (NASDAQ: PLXS) recently reported fiscal fourth-quarter earnings of 24 cents per share, topping the consensus estimate by about 41%. PLXS stated that it has consistently improved quarterly financial performance during this fiscal year, and ending the year on such a positive note is a tribute to the determined efforts of Plexus people around the world. The company also issued an earnings guidance of 22 cents to 25 cents per share for the first quarter. The forecast is in line with Wall Street estimates of 22 cents, which is approximately 5% higher than last week’s levels. Continue your research on PLXS at: http://at.zacks.com/?id=2277.

Quanta Services, Inc. (NYSE: PWR) announced third-quarter earnings of 11 cents per share last week. The result surpassed last year’s four cents and eclipsed the consensus estimate by about 57%. PWR said third quarter results show improved spending in the industries it serves and reflect significant infrastructure restoration work performed after major hurricanes struck the Gulf Coast Region. Earnings estimates for the year ending December 2005 are above two months ago levels by one penny, or approximately 11%. Continue your research on PWR at: http://at.zacks.com/?id=2278.

To see the full list of Zacks #1 Rank stocks (approximately 220 stocks), go to http://at.zacks.com/?id=2279.

The Zacks Rank is a powerful stock indicator whose #1 Strong Buy stocks have risen by an average annual return of 33% since 1988 versus 11.8% for S&P 500.

To help you fully understand how the Zacks Rank works and, more importantly, how you can profit by using the Zacks Rank, we have created a free report - The Zacks Rank - Harnessing the Power of Earnings Estimate Revisions. This valuable information is available at: http://at.zacks.com/?id=2332.

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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.

 
a) Nadine Wong, Editor of the BioTech Stock Report
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Each year the U.S. experiences a flu epidemic that generally occurs between late December and early March. Recent events, including human cases of avian influenza, have heightened awareness of the threat of a pandemic and have spurred efforts to develop plans for its control.

In response, President Bush proposed $7.1 billion in emergency funding to prepare the U.S. for a possible pandemic of avian influenza. At the forefront is vaccination, which serves to protect the largest number of people. Unfortunately, the current vaccination regimen may not be for all individuals, which necessitates the need for new vaccine strategies and effective antivirals.

In Nadine Wong and her team’s latest report, they discussed several biotechs that are moving forward on both fronts and they believe that these companies will provide us with these new options. In the short term, Wong and her team believe MedImmune (NASDAQ: MEDI) will make inroads with FluMist and that Gilead (NASDAQ: GILD) will receive significant royalties from Tamiflu sales. For the long term, Wong and her team believe the subunit vaccine approach taken by Acambis (NASDAQ: ACAM) may prove valuable to protect against all influenza A and B types.

 
About Nadine Wong’s BioTech Stock Report newsletter

BioTech Stock Report is an `information integrator` specializing in biotechnology stocks. We bring together the mass of medical scientific data that is available and interpret it for you. Each report gives a detailed rationale explaining the technology, examining new products, evaluating their potential, the markets and the likely impact it has on a company’s future. http://at.zacks.com/?id=2397.
 

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MORE FEATURED EXPERTS...

b) There is Reason be Thankful Entering November

Jim Collins says November is a good time for acquiring stocks. Learn why and read about a few companies. More...
 

c) The Slippery Slope of Oil

Ian Wyatt says energy investors are trapped in a see-saw market. Discover why and learn about three oil giants. More...
 

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:

• +33% average annual return since 1988 versus +11.8% 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.
• +18% in 2005 (through September 30)

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=2332.

Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=2279.

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,

Charles Rotblut, CFA

Senior Market Analyst
Zacks.com

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 Zacks Performance Rank performance is the total return of equal weighted simulated portfolios consisting of those stocks with the indicated Zacks Rank net of fees. Results reflect the reinvestment of dividends and other earnings. Simulated results do not represent actual trading and may not reflect the impact that economic and market factors might have had on decision-making if an adviser were actually managing a client's money.

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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Attn: Profit from the Pros
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