Tuesday - November 15, 2005

Want to view the archive of past issues? Go to: http://at.zacks.com/?id=2372.

Manage Profit from the Pros subscription:
* Free Subscription: http://at.zacks.com/?id=2373
* Change of address: http://at.zacks.com/?id=2374
* Unsubscribe: http://at.zacks.com/?id=2375
 

Back to top

We are now into the homestretch of the third quarter earnings season, with almost 90% of S&P 500 firms having already reported. So far most companies are doing better than analysts expected. A total of 296 firms have exceeded expectations, 95 have disappointed and 58 have hit expectations right on the nail. This has led to a dramatic turnaround in the estimate revisions picture, particularly for this year. However, this has not been the case for all stocks, and a very high percentage of firms with positive surprises for the third quarter are suffering cuts for the fourth quarter, or even for 2005 as a whole. Energy has finally slipped out of first place for estimate revisions this year, even though its estimates, on balance, continue to rise. It is still the strongest sector in terms of estimate revisions for 2006. Measured either by total net income growth, or by the growth rate of the median firm, the S&P 500 is expected to post double digit growth for both 2005 and 2006.

• Over the last month, 277 firms have seen estimate increases, while 204 have been cut for this year, a ratio of 1.35, up from 1.15 last week. However, the average estimate fell 0.60%.
   
• For 2006, the estimates rose for 229 and fell for 234, a ratio of 0.98. The average estimate fell 0.60%.
   
• A total of 2,177 current fiscal year estimates were increased over the last month for this year while 1,612 were cut (ratio of 1.35). Above last week (1.25) and much higher than a month ago when it was 0.77.
   
• For 2006, 1,539 estimates were increased and 1,460 were cut (ratio of 1.05).
   
• Median expected growth rates for S&P 500 firms at 13.8% for 2005, and 12.2% for 2006
   
• Total net income for the S&P 500 expected to rise 12.0% in 2005 and a further 12.5% in 2006.

More. . .

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Back to top

 
Zacks Equity Research continued...

3Q 2005 EARNINGS Scorecard – S&P 500

Highlights

• All sectors have reported more positive surprises than disappointments.
   
• The median S&P 500 firm has reported year over year growth of 14.0% in the third quarter.
   
• Among firms that have reported, median growth expected for the fourth quarter is 11.1%. Slower growth expected in the fourth quarter than in the third for every sector but Tech.
   
• Energy has by far the highest growth (77.3% median reported), but has had the most difficulty clearing the high hurdle posed by analysts.
   
• In the Consumer Discretionary sector, weak results posted by the Auto and related industries, while Homebuilders continue to post strong growth.
   
• Bad news for the Newspapers, miss expectations and print lower earnings than last year.
   
• Technology sector positive surprises out pace disappointments by more than 14 to one.
   
• In Health Care, HMO’s hot, Drugs not.
   
• Median growth reported for the Materials sector was a decline of 2.7%, with a decline of 4.9% expected in the fourth quarter.
   
• Paper and packaging performance poor. Non-ferrous metals prove their mettle.
   
• Property and Casualty Insurance firms earnings are a casualty of the hurricanes.
   
• Brokers and big Banks boast beautiful earnings growth.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Back to top

 
MORE FROM ZACKS EQUITY RESEARCH…

BULL OF THE DAY

NVIDIA Corp. (NVDA) - Technology Leader. For full Zacks research report, click here.

 
BEAR OF THE DAY

Greatbatch, Inc. (GB) - Future Sales Uncertainties. For full Zacks research report, click here.

 
ZACKS ANALYST INTERVIEW

Oil Company Profits are Relative

In terms of margins and financial returns, the oil and gas industry hardly stands out. More...

 
ZACKS INDUSTRY OUTLOOK

Industry Rank for the Week of November 14

With cracks in the housing industry forming, investors may want to look elsewhere. More...

Back to top

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: Low Price Stocks

Many investors prefer stocks priced below $20 because the low prices allow them to accumulate more shares. Fortunately, lower prices do not necessarily mean lower quality.

This strategy identifies stocks priced below $20 that are trading at discount valuations and have a Zacks Rank of #1 ("Strong Buy") or #2 ("Buy"). The stocks identified by this search strategy trade at price-to-sales (P/S) multiples of 1.0 or below. The strong Zacks Rank is indicative of positive revisions in earnings estimates.

Combining these characteristics can result in high-dollar returns. In 2004, this strategy generated a stellar +54.8% return. Equally impressive, the strategy has a win ratio of nearly 75% for the past 4-1/2 years.

 
Here are four stocks that make the grade for the Low Price Stocks Profit Track:

Benihana Inc. (NASDAQ: BNHNA), a restaurant company, achieved strong sales during its fiscal second-quarter. Sales increased 13.6% over last year, due to increased customer traffic at the company’s concept restaurants. The stock is currently trading around $17.50 per share, with a price-to-sales ratio of 0.48. The company has earned $1.18 per share over the past 12 months. Continue your research on BNHNA at: http://at.zacks.com/?id=2389.

Ingram Micro Inc. (NYSE: IM) an IT wholesale distributor, recently released a strong earnings report. The company announced third-quarter earnings of 36 cents per share, beating last year’s result and eclipsing the consensus estimate by 16%. Revenues climbed by over 15% from a year ago. The stock is currently trading around $18 per share, with a price-to-sales ratio of 0.1. Over the past 12 months, IM has earned $1.36 per share. Continue your research on IM at: http://at.zacks.com/?id=2390.

Mesa Air Group Inc. (NASDAQ: MESA) posted fiscal third quarter earnings of 39 cents per share, surpassing last year’s 28 cents and exceeding the consensus estimate by 34%. The stock is currently trading around $12 per share, with a price-to-sales ratio of 0.31. The company has earned $1.25 per share over the past 12 months. Continue your research on MESA at: http://at.zacks.com/?id=2391.

Shoe Carnival Inc. (NASDAQ: SCVL), a footwear retailer, reported fiscal second-quarter earnings of 20 cents per share. The result met the consensus estimate and outpaced last year’s second-quarter. SCVL guided higher for the third-quarter, which will be reported November 17. The stock is currently trading around $20 per share, with a price-to-sales ratio of 0.43. Over the past 12 months, the company has earned $1.12 per share. Continue your research on SCVL at: http://at.zacks.com/?id=2392.

To see the full list of stocks that currently pass this winning screen, go to: http://at.zacks.com/?id=2393.

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 this powerful stock picking tool. 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=2394

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

 
SCREEN OF THE WEEK

Creating a Custom Consensus of your Winningest Screens

Kevin Matras combines some of his winningest strategies to create a Custom Consensus screen. http://at.zacks.com/?id=2395.
 

Back to top

Zacks has partnered with the leading options experts, Schaeffer's Investment Research, to provide you the best options commentary, research, and trading tools on the market today.
 

Read below more on Schaeffers Tools to Profit with Options.

What can you say about the market other than the past few weeks have been very impressive? As I’ve written about in the past, this is the “feel good” time of the year and fighting that isn’t a very wise decision. In fact, looking at the history of the Dow over the past 100 years or so, you’ll notice that November and December are two of the strongest months for stocks. Then with the classic October bottom now formed, I think the next few months could be a nice time to be long stocks.

What I want to do today is take a bullish filter that might be worth your while to use when it comes to looking for bullish plays over the next few months – and this is the High Open Interest Put Filter. As you might recall, I took a look at this filter the last week of September and determined that playing an Apple Computer January 2006 50 call (QAAAJ) for $6.30 (where it was trading at the time) made a lot of sense.

In fact, my opening line in that observation back then was “The market has had a rough few weeks, and I'm beginning to think that it might be time to get ready for a bounce and look for a bullish play.” Well, fortunately I was right, as just two weeks later we hit the “like clockwork” October bottom in the S&P 500 Index (SPX). From that point it’s been off to the races as AAPL has gained just under 20%. And had you bought that AAPL call back you’d be up just under a 100%. Not too bad for an option that still has over two months of life to it, huh?

Now I want to talk about the filter and show you exactly what it was that I liked about AAPL back then that lead me to picking it. I’ll be the first to admit, that not every trade works. But if you find what works best for you through practice and follow disciplined loss control, I think you’ll find that the filters on these pages can offer you a tremendous advantage over the “average” investor. Here goes (and remember, below is from September 28, 2005).

First off, puts are simply options used to place a bet that the underlying stock is going to move lower. We like to see a lot of these bearish bets accumulating slightly below an equity's current level as a sign of potential options-related support. I won't go into too much detail on this, but the reasoning is based on how the market makers are hedged. The bottom line is this: large numbers of puts at a certain strike can potentially serve as a solid level of support.

Before I can go any further, I want to talk briefly about our methodology here at Schaeffer's. We are contrarian-based investors, meaning that we want to see skepticism toward an outperformer as a sign that money is still on the sidelines, or we want to see optimism toward an underperformer, showing that nearly everyone who wants to put their money to use probably already has. Just because a stock has lots of skepticism, we won't blindly go long. We need to see some positive price action or major news catalyst to pull the trigger in most cases. Things that we tend to use to measure overall sentiment include, but aren't limited to, put/call ratios, short interest, magazine cover stories, media comments, and analyst ratings. One more very important item I must touch on regarding this filter is that the majority of the stocks it suggests are likely to be the big names that have lots of activity, such as the Nasdaq-100 Trust (QQQQ), the S&P Depository Receipts (SPY), or Microsoft (MSFT). This doesn't take away from the importance of this filter; it's just something to keep in mind.

Looking at the list from last Wednesday, one name stuck out: Apple Computer (AAPL). As you might already know, AAPL has been on a tear during the past few years, thanks largely to the enormous success of their iPod digital music players. One look at a weekly chart and you'll see what I mean.

So, with AAPL, you've got a stock that has gained approximately 450% since the beginning of 2004, and yet there is still a wall of puts residing just below the equity to server as potential support. This setup is exactly what we like to see from our contrarian perspective; pessimism levied toward a strong performer.

Taking a closer look at the data from Wednesday shows that AAPL made the list due to a large build-up of puts at its October 47.50 strike. In other words, there is a strong chance that AAPL won't dip too far below this level of put support before October expiration. I won't get too in-depth here, but it appears that these puts have been bought, suggesting they should hold as support. I did this by checking out the implied volatility of this option. It turns out it is slightly higher than where it was two weeks ago, so I can make a good bet that the puts are "buys to open".

But what about the quantitative sentiment you ask? Well, it also reveals some areas of skepticism. One indicator that I like to use is the Schaeffer's put/call open interest ratio (SOIR). This ratio shows how many puts there are compared to calls for the front three months of options. Currently, AAPL's SOIR checks in at 0.97. That's all fine and dandy, but it only matters when you compare it to the other readings taken during the past year. Doing this indicates that this reading is higher all others taken during the past 12 months, suggesting short-term option players are extremely bearish.

One area though that is showing some optimism though is the stock's short interest picture. As it stands, it would take less than two days to cover all of these bearish bets, reducing the odds of a short-covering rally on any good news - something to watch closely.

Finally, according to Zacks, there is still room for upgrades from Wall Street analysts. To me, this is a little amazing. Currently, there are 13 "buys," nine "holds," and one "sell" rating. Its hard not to think that should the shares continue to soar higher, some of those "holds" could turn into "buys" in a hurry.

With all of that said, let's paper trade the AAPL January 2006 50 call (QAAAJ) for $6.30 per contract (where it was trading on Wednesday afternoon). Write it down and see how we do, but it looks like a potential winner to me.

So there you go – exactly what I looked at back then and fortunately if you listened then you have a nice looking winner on your hands with the room to really make some more gains. Please feel free to use this and the other filters that we offer and find out which one works best for you. Good luck and don’t be afraid to take some losers, just be sure to keep a trading journal and try to learn from your mistakes and your successes. Have fun.

To learn more about the the High Open Interest filter, click here.

Discover all the tools and commentary available from the Zacks.com Options Center at: http://at.zacks.com/?id=2382.

Back to top

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: American Science & Engineering, Brightpoint, Genesis Microchip and Thomas & Betts.
 

American Science & Engineering, Inc. (NASDAQ: ASEI) recently reported fiscal second-quarter earnings of 93 cents per share, surging past last year’s five cents and jumping ahead of the consensus estimate by about 52%. The company stated that it has now recorded its seventh consecutive quarter of operating profitability. Earnings estimates for the year ending March 2006 are above one week ago levels by 22 cents, or nearly 9%. Continue your research on ASEI at: http://at.zacks.com/?id=2270.

Brightpoint, Inc. (NASDAQ: CELL) released third-quarter earnings of 30 cents per share last week. The result matched the consensus estimate and outperformed the year prior total. The company believes that 2006 has the potential, given all the positive recent trends, to be a record year in the number of wireless handsets sold in the global wireless industry. Earnings estimates for the year ending December 2005 increased by four cents, or about 4%, over the past seven trading days. Continue your research on CELL at: http://at.zacks.com/?id=2271.

More...

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Back to top

 
Zacks Rank continued...

Genesis Microchip, Inc. (NASDAQ: GNSS) recently announced fiscal second-quarter non-GAAP earnings of 31 cents per share, beating the consensus estimate by almost 48% and improving on last year’s total. The company mentioned that it once again delivered a strong quarterly performance in its revenues, gross margins, profitability and unit volumes. Earnings estimates for the year ending March 2006 moved up 15 cents, or approximately 20%, over the past 30 trading days. Continue your research on GNSS at: http://at.zacks.com/?id=2272.

Thomas & Betts Corp. (NYSE: TNB) recently posted third-quarter earnings of 57 cents per share, exceeding analysts’ expectations by almost 19% and surpassing the previous year’s result. Sales grew by 12.1% year-over-year. The company said solid sales momentum in most of its markets and continued productivity improvements combined to deliver very strong earnings performance in the quarter. TNB also raised its 2005 full year guidance to a range of $1.95 to $2.00 per share. Current Wall Street earnings estimates are $1.96 for the year, which is an upward revision of nearly 8% from one month ago. Continue your research on TNB at: http://at.zacks.com/?id=2273.

To see the full list of Zacks #1 Rank stocks (approximately 220 stocks), go to http://at.zacks.com/?id=2383.

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=2385.
 

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Back to top

Zacks Rank #1 and #5 Additions

Zacks #1 Rank List: 68 New Additions (alpha by ticker)

To see the full list of Zacks #1 Ranked stocks (approximately 220 stocks), then click here.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Back to top

Zacks #5 Rank List: 54 New Additions (alpha by ticker)

To see the full list of Zacks #5 Ranked stocks (approximately 220 stocks), then click here.

OTHER TOOLS FROM ZACKS

Back to top

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 — the worst bear market in over 60 years.
• +18% in 2005 (through September 30)

And just as importantly, the Zacks #5 Rank stocks (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=2385.

Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=2383.

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 and improve your portfolio's performance. Did we mention it's free? Get started now by going to: http://at.zacks.com/?id=2386.

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

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 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
Attn: Profit from the Pros
155 N. Wacker Drive, 6th Floor
Chicago, IL 60606

To unsubscribe from receiving "Profit from the Pros" e-mail newsletter, click here.