Thursday - December 1, 2005
 Want to view the archive of past issues? Go to: http://at.zacks.com/?id=2337. Manage Profit from the Pros subscription: 1. ZACKS EQUITY RESEARCH After years of struggling through an industry down-cycle, semiconductors appear to be strengthening again. To help us sort out where we should take this knowledge, we spoke with senior semiconductor analyst Ken Nagy to guide us through. How were third quarter earnings for the semiconductor industry in general? Did fabrication plants outperform other sectors? We believe that the semiconductor manufacturing industry has begun a new up-cycle, after reaching a trough in the first quarter of 2005. The robust bookings from the last three consecutive quarters are an early indicator. That said, there are two camps here: If a company has earned its profits by ratcheting up capacity, then it was an excellent quarter. On the other hand, if a company has earned profits as a result of semiconductor spending, those companies may be waiting another quarter or two for their good news, as managers have limited spending. More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - The chip fabrication plants, or "fabs," remain a strong player in the industry as costs have shot up. Capital outlays for bringing the most advanced fabrication plants on line have increased from $1 billion in 1997 to $2.75 billion in 2003. This is expected to accelerate to $6 billion by 2007. These increasing costs stem from higher price tags on the highly sophisticated production equipment that enable semiconductor manufacturers to produce state-of-the-art chips. Do you expect the up-cycle for semiconductors to continue through 2006? How long do you anticipate it will last? A few years ago, we would have simply looked at corporate spending, but we believe that there is a fundamental shift in the semiconductor industry from corporate IT to consumer demand. According to the SIA, more than 50% of the $213 billion in 2004 semiconductor sales went into products purchased by consumers, rather than corporate IT departments. This proportion will continue to grow in the years ahead, as consumers all over the world are captivated by the richness and portability of digital media. Advances in computing, digital media processing and wireless technology are enabling the industry to create lifestyle-changing devices and gadgets that could only be imagined a few years ago. The changing nature of customers will affect every aspect of the business, from product design to marketing and demand forecasting. There has been a bit of M&A activity in the industry. Do you see this continuing? In short, yes I do. First off, semiconductor firms as a whole have very high cash balances and low debt at this point in time, which is creating many good opportunities to invest in other technologies by acquiring companies that will help spread their product offerings. Consider also that it is much easier to buy a technology through a merger than to spend on R&D that often does not lead to anything. What Buy recommendations would you make for us today? We currently have a Buy on FormFactor (FORM), which is the market leader in advanced wafer probe cards used to test semiconductor wafers during the manufacturing process. The company has a very strong growth profile. September quarter revenue and EPS were well-above expectations. Bookings were up 9% sequentially to an all-time high. The company is no longer capacity-constrained, and we expect margins to expand from here. The company’s technology is leveraged towards leading-edge 300mm and sub-110nm nodes, which are ramping quickly throughout the industry. Production capacity will be expanding throughout the year as the company's new plant ramps capacity. This new plant began shipping product during the second quarter, accounting for 15% of total sales. The plant is expected to run at full capacity by the end of 2005. Since both plants are operating during the transition, there are non-permanent incremental costs that will disappear, thus improving margins. What should investors keep mindful of about semiconductors as 2005 winds to a close? It's not just supply and demand that are important in semiconductors. Sometimes technology can take the industry on a wild ride. Take, for instance, the case of Varian Semiconductor (VSEA), which competes in the semi-tool industry. The semi-tool industry can be divided into high energy/low current products, medium energy/medium current products and low energy/high current products. The fastest-growing category - high current - accounts for 50% of total industry revenue, medium current accounts for about one-third of the total, and high energy is about 17%. Varian sells in all spaces, and its tools cross the segments, using common parts and software tools, and affording valuable cost-saving opportunities. As technology nodes get smaller (less than 90nm), batch technology breaks down and destroys some chips, which hurts yields. This is a relatively new problem at smaller technology nodes, yet once introduced many companies have gone back and checked old problems, only to find out that this may have been a problem at larger nodes as well. Varian, on the other hand, uses a double-magnet ribbon system which is a single wafer producer. The Varian product does not damage the chips. Largely due to this, VSEA has grown its market share dramatically in the last 6-12 months, while the rest of the industry is now playing catch up. So issues such as this - how new technologies can have unforeseen consequences - should be a major factor for investors getting into semiconductors. The best method is to notice when certain companies adapt to a particular technology favorably. Ken Nagy is a senior analyst covering the semiconductor industry for Zacks Independent Research. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - BULL OF THE DAY Palm, Inc. (PALM) - Well-Positioned in Smartphones. For full Zacks research report, click here. Landry`s Restaurants (LNY) - Uncertainty in New Market. For full Zacks research report, click here. Finishing Up the Third Quarter Zacks Industry Rank for the Week of November 28
2. 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. Beverly Hills Bancorp, Inc. (NASDAQ: BHBC) is the parent company of First Bank of Beverly Hills, a federally chartered savings bank. BHBC reported third-quarter earnings of 21 cents per share in late October, eclipsing the year prior earnings per share of 14 cents. The company has a price-to-earnings (P/E) multiple of 12.11 and price-to-book (P/B) multiple of 1.22. To continue your research on BHBC, click here. Comm Bancorp, Inc. (NASDAQ: CCBP), a Zacks #1 Rank (Strong Buy) company, has a price-to-earnings (P/E) multiple of 14.56 and price-to-book (P/B) multiple of 1.51. In mid-October, the company reported third-quarter earnings of 74 cents per share. The result topped last year’s 56 cents. CCBP mentioned that solid loan growth and improvements in operating efficiency contributed to its third quarter performance. To continue your research on CCBP, click here. Flushing Financial Corp. (NASDAQ: FFIC), a unitary savings and loan holding company, announced third-quarter earnings of 35 cents per share, excluding a charge. The result matched last year’s total but exceeded the consensus estimate by almost 3%. The company noted that demand for its loan products has remained strong. FFIC’s price-to-earnings (P/E) multiple is 13.02, while its price-to-book (P/B) multiple is 1.89. To continue your research on FFIC, click here. Alliant Energy Corp. (NYSE: LNT) recently released its third-quarter financial results. The energy-services provider posted earnings per share that outperformed analysts’ expectations and were ahead of the previous year’s result. LNT stated that the higher earnings from its core domestic utility business were largely due to higher electric margins. The company has an appealing valuation as evidenced by its price-to-earnings (P/E) multiple of 11.95 and price-to-book (P/B) multiple of 1.29. To continue your research on LNT, 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 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=2359 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Finding Growth Stocks at Excellent Values Kevin Matras shows you how to find great growth stocks at an excellent value: http://at.zacks.com/?id=2360. 3. ZacksAdvisor.com TIMELY BUY of the WEEK Here you`ll discover a Zacks #1 Ranked stock hand selected by
Ben Zacks to outperform the market over the next 30 to 90 days.
This week`s Timely Buy is… Marvell Technology Group Ltd. (MRVL) Marvell Technology Group designs and develops analog and mixed signal components as well as digital signal processors for the storage and networking markets. The company's goal is to provide for increased bandwidth as communication solutions evolve. It achieves this with state-of-the-art chip solutions that enable data transfer in data storage devices and networking applications. Incorporated in Bermuda with U.S. headquarters in Sunnyvale, CA, MRVL designs and develops semiconductor solutions that enable consumers to store and move digital data at high speeds and low error rates. Marvell has been on a meteoric growth path over the past several years. Sales are up more than tenfold since 2000, with sales growth averaging 120% since then. This blistering pace will likely slow to a still-strong 20%-25% clip over the next several years. More...
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Often times with high-growth technology companies, there are struggles with debt and balance sheet issues. This is not the case with Marvell. Their debt-free balance sheet is in superb financial shape, with more than $500 million in cash and investments. The firm continues to bolster its financial stability by consistently generating positive free cash flow. The company targets top equipment makers in the enterprise storage and networking markets with its broad spectrum of integrated circuits. Marvell leverages its ability to incorporate high levels of integration into a single-chip solution to tap new markets. Outsourcing chip production contributes to a relatively lean cost structure, which in turn increases profitability. The company reported a strong earnings report for its fiscal year 2006 third-quarter. Excluding certain costs, the Sunnyvale, Calif., company had a profit of 36 cents a share, two cents ahead of the consensus estimate. MRVL said third-quarter revenue jumped 34.1% from last year, and both the chipmaker's earnings and top line cruised past Wall Street's estimates. Revenue rose to $426 million from $317.6 million in the previous year. Analysts were looking for revenue of $420.8 million in the fiscal third quarter. The stock is currently trading around 31x next year's estimates of $1.80 per share. This is slightly above the long-term growth rate of 28.88%, giving the stock a PEG ratio of about 1.1. This is certainly not unreasonable for a company with such great earnings momentum and future prospects. Fifteen analysts raised their earnings estimates for this year and 13 did so for next year. Analyst agreement is a component of the Zacks rank, so it is no surprise that this is a #1 ranked stock.
4. 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.
For some time now, the Fed has included a sentence in its release that says, ''With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured.'' What that means, in plain English, is that the Fed was telling the market that it was intent on taking calculated, careful steps to continue raising interest rates. Unconcerned about inflation, the FOMC policymakers didn't feel pressured to quickly hike rates, but intended on taking an unknown number of 25 basis point baby steps, persistently jacking them up. It's now clear that the Fed might be in the final innings of its interest rate increases (to borrow an analogy from Dallas Fed President Richard Fisher). When the minutes of the November 1 FOMC meeting were released yesterday, they showed some members of the committee, worried about the risk of raising rates too much, discussed changing their outlook for interest rates. Whether there are one or two more hikes in the future, Charles Norton and Allen Gillespie are not certain. But the language that has intimated that the road of removing accommodative monetary policy is a long one is likely to be changed. Of course, there are those that believe that rates were kept too low for too long, and as a result, inflation will be a big problem down the road. What does best under that scenario? Gold. While the purchasing power of the dollar is eroded by high inflation, gold maintains its value. It's no surprise, then, that one of the best performing industry groups right now is Metal Ores-Gold/Silver. Norton and Gillespie are adding some exposure to this group by buying shares of Randgold Resources (NASDAQ: GOLD). Another group noticeably absent from Norton and Gillespie’s model portfolio is the investment bankers, which pretty much all look good. They are adding Deutsche Bank (NYSE: DB) to their portfolio. Supernova Stocks is an independent investment newsletter advisory that is committed to finding the most fundamentally superior and technically sound stocks that have the greatest growth prospects. Supernova Stocks focuses on the very best companies in top performing industry groups that have some institutional sponsorship, but are largely under-owned. Supernova Stocks is led by Charles Norton, CFA, a professional asset manager. http://at.zacks.com/?id=2348. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - b) Market Continues in its Bullish Ways Gregory Spear expects a bullish trend to last at least to the end of the year. More... c) All Eyes on Thanksgiving Weekend Sales Mutual fund expert Dennis Slothower will be keeping a close eye on November 25 and crude oil. More... 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=2350. Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=2351. 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 05/21/2013
| Company Name | Symbol | %Change |
|---|---|---|
| SCIENTIFIC L | SCIL | 8.00% |
| NATUS MEDICA | BABY | 6.11% |
| SUMMER INFAN | SUMR | 6.02% |
| RADIANT LOGI | RLGT | 5.32% |
| NEW ORIENTAL | EDU | 4.51% |
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