Tuesday - December 20, 2005
 Want to view the archive of past issues? Go to: http://at.zacks.com/?id=2372. Manage Profit from the Pros subscription: 1. ZACKS EQUITY RESEARCH As the Holiday season is upon us and the New Year is around the corner, I thought it would be appropriate to poll the research department with two questions. The first was: Which of the stocks that you follow has the best potential to be a double or more in 2006. Obviously such a request resulted in some very speculative names. But some are very interesting stocking stuffers for your portfolio. The second question was: If you had to put all of your money into one stock for 2006, what would it be? While we would not encourage anyone to actually hold only one stock, a relatively small and concentrated portfolio of these names could provide significant out-performance in 2006 and still allow the investor to sleep at night. Thus we have two lists, a best six for ‘06 for investors, and a best six for ‘06 for speculators. In this report, I tackle the second question, and create a concentrated portfolio of six names for 2006 that investors should be interested in. I will shortly produce a second article with six names for 2006 that should be of interest to speculators. I reviewed the submissions and selected the six of each type that I found most compelling. For this list, I did try to pick a well-balanced portfolio, one that actually could be conceived of as a real life, stand alone, concentrated portfolio. While six names is a less than optimal size for most investors, it is not outside the realm of reason. Conventional valuation measures were much more important to the selection process of the investors list than they were for the speculators list. More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Four of the names would classically be described as value stocks, and two would be described as growth stocks. However, I do not see the growth and value as being diametrically opposed. The “value” names in the portfolio have recently produced earnings growth far in excess of that of many “growth” stocks. We are not under the illusion that they will continue to grow at the same rate that they have in the recent past, but I do expect them to continue to grow in the future. On the other had, the “growth” names will grow their earnings and based on future earnings will look like compelling values, especially if one can pick them up when they are out of favor and down in price. The average P/E of the portfolio is 17.4x 2006 earnings, however that is pulled up in large part by one stock (EBAY); the median P/E is only 11.1x. Four of the six pay dividends, and the average yield on the portfolio is 1.85%. The dividends of those that pay them are safe and are likely to increase in 2006. It is my hope and expectation that all of these stocks will outperform in 2006, but not by the eye-popping margins that the speculative list will hopefully provide. Six Super Stocks for 2006: ConocoPhillips (COP $58.70) - I remain very bullish on the energy story for 2006. Yes, Oil and Gas is a cyclical industry, but it tends to have very long cycles, and I think this cycle has a long way to go. With energy prices expected to plateau near the current high levels in 2006, Oil Analyst Sheraz Mian expects COP’s EPS to essentially match 2005 levels. At 6.3x 2006 earnings, even after easily outperforming the market so far in 2005, COP is just quite simply undervalued. COP is the smallest of the “super-majors” and sells at a significant discount to its peers. It is the third largest U.S.-based oil firm, and the largest refiner in the country. After decades of sub-par returns, refining has recently turned extremely profitable (aided in large part by the Gulf Coast hurricanes, but also by a very long period of under-investment in downstream activities industry-wide). Half of COP’s refining capacity can use heavy and sour crude, which allows COP to capitalize on widening crude quality spreads. Since more and more of the available oil in the world is of the heavy sour variety, we expect the wide crude quality spread to last a long time. While the price it is paying for Burlington Resources (BR, $46.50 in cash plus 0.7214 share of COP) is a bit on the steep side, I like the ownership of North American natural gas reserves. COP is paying the equivalent of $2.97 per MCF of gas in the ground. If natural gas prices – currently at around $15/MCF – average over $10/MCF for the next several years, this price will prove to be a bargain. Upstream, COP is the partial owner of Russia’s giant Lukoil (12.6%, rising to 20% most likely in 2006), and the alliance should help drive production growth of 3% per year for the next several years. COP pays an annual dividend of $1.24, giving it a yield of 2.1%. UBS AG (UBS $95.89) - The Swiss banking giant (total assets: $1.6 trillion) is the largest asset management firm in the world, along with being a bulge bracket investment bank/brokerage firm (it owns the old Paine Webber). While there are still a few rate hikes by the Fed ahead, we are much closer to the end of the tightening cycle than the beginning of it. The end of increases in short-term rates should happen this spring and should be positive for large banks. UBS’s asset and wealth management division has been experiencing strong new money inflows, and worldwide investment banking has been strong. So far, 2005 has been the biggest year for M&A activity since the bubble days of 2000. We expect investment banking activity to remain strong in 2006. With worldwide operations, UBS is not overly dependent on any one market. On the traditional banking side of the business, UBS has enjoyed a significant improvement in its asset quality, with non-performing loans falling to 0.9% at the end of the third quarter from 1.3% at the end of 2004. UBS raised its dividend by 15% this year and currently yields 2.3%; we would expect further dividend increases in 2006. International bank analyst Ann Heffron expects that earnings per ADR should rise to $8.05 in 2006 from $7.70 in 2005 and $5.85 in 2004. Thus, UBS sells for 12.1x expected 2006 earnings. With a strong balance sheet, UBS holds an AA+ credit rating. Biogen Idec (BIIB $45.11) - Recent advances in the study of the human genome should lead to significant new drugs coming to market from the Biotech industry. Long-term demographic factors such as the aging of the developed world’s population should ensure that, over the long term, demand for new drugs is robust. Drug and Biotech analyst Jason Napadono’s favorite large-cap name is BIIB. BIIB has strong expertise in the fields of oncology, inflammatory diseases and neurological diseases. The shares were under pressure due to safety concerns about its multiple sclerosis drug Tysabri, but that drug is likely to return to the market in 2006, albeit with a black box warning. Fortunately for BIIB, lost Tysabri sales have for the most part gone to the company’s existing MS drug Avonex, which holds over a 30% worldwide market share for MS drugs. BIIB also has a strong pipeline of compounds in Stage II and Stage III trials. In addition, BIIB has excess biological manufacturing capacity, which makes it a partner of choice for smaller R&D-focused Biotech firms. There are no patent expiration issues on the horizon for BIIB. At 21.8x 2006 expected earnings, BIIB sells for a substantial discount to its peers. With the stock down 31% over the last year, I think this is an attractive entry point. TXU Corporation (TXU $53.63) - This large Texas-based electric utility has been restructuring and going back to basics by shedding non-core assets. As a result, our Utilities analyst, Jon Kolb, expects EPS to leap 70.5% in 2006. This comes on top of earning that are expected to be more than double 2004 levels in 2005, and the 2004 earnings were in turn more than 50% better than 2003 earnings. Thus, this boring old electric utility has produced earnings growth that has simply blown the doors off the vast majority of “growth stocks.” Strong cash flow is allowing TXU to reduce its debt, institute a 7% share repurchase program, and substantially boost its dividend. While based on its current dividend of $3.30 per share, the yield is lower than many electric utilities at 3.2%, the dividend was recently increased by 46%, and Jon expects further boosts in the payout during 2006. With a payout ratio of less than 30% based on expected 2006 earnings, it certainly has room to do so. High energy prices should lead to a strong economy in its core service areas. Trading at only 9.2x 2006 expected earnings, TXU shares are attractively priced and have the potential to add some juice to your portfolio in 2006. Companhia Vale do Rio Doce, ADS (RIO $41.23) - This Brazilian mining giant controls almost of a third of the world’s production of iron ore as well as having significant aluminum, copper, magnesium, cobalt, gold and potash production. While iron ore is the key driver for the firm, the other metals help diversify the revenue stream. CVRD, as it is known, also has significant railroad operations in Brazil. I think that global demand for commodities will remain strong in 2006, driven in large part by the growth of China and India, as well as recovery in Japan and still reasonably strong growth in the U.S. Politically, Brazil has been turning more stable. While clearly I am not at the start of the move on this one, I think there is still room to the upside on it. Earnings in the first nine months of 2005 were almost double 2004 levels. Our Mining analyst, Michael Schrage, conservatively estimates that it will earn $4.00 in 2006, giving it a P/E of only 10.3x, and a $1.50 annual dividend provides a yield of 3.5%. Its balance sheet is strong, and with a long-term debt rating of BBB, it is considered more credit-worthy than the Brazilian government. RIO also trades at a significant discount to comparable firms such as BHP and RTP. e-Bay (EBAY $46.02) - While not cheap on a P/E basis, EBAY has one of the best business models around. In addition to its core on-line auction business, its Pay-Pal system is moving to becoming a standard for online transactions. EBAY gets a slice of each transaction, and does not have to hold any inventory. Growth at the company has been explosive, with revenues climbing at 56.8% per year since 2001. Our Retail analyst, Rob Plaza, expects that revenue and earnings growth can continue at nearly 40% per year for the next few years. Usually, rapid sales growth can strain a company’s balance sheet. Not so with EBAY. The company has no debt and $3.1 billion in cash and short-term investments on its balance sheet. While its P/E of 44.7x (based on 2006 expected earnings) is not cheap relative to the overall market, it is a significant discount to other large-cap Internet names. With the stock down 24% over the last 12 months, this looks like an attractive entry point. In a short report like this, I could not tell about all the risks and potential strengths of each of these companies. I encourage readers to read the full reports by the respective analysts. These stocks may not be suitable for all investors, so consider carefully if such stocks are right for your individual circumstances before investing. All stocks were priced at the closing bell of 12/15/05. Dirk van Dijk, CFA is the Director of Research for Zacks Equity Research. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - BULL OF THE DAY Kimco Realty (KIM) - Raising Its Guidance for 2006. For full Zacks research report, click here. Merck & Co. (MRK) - No Positive Top-Line Growth. For full Zacks research report, click here. Zacks Industry Rank for the Week of Dec 19 Estimate Revision Activity Remains Subdued
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... Profit Tracks: Return on Equity This Profit Track strategy uses Return on Equity (ROE) to discover solid stocks. ROE is one of the quickest ways to gauge whether a company is creating assets or gobbling up investors' cash. One of the quickest ways to gauge whether a company is creating assets or gobbling up investors' cash is to look at their ROE. This fast moving Profit Track returned an impressive +30.3% in 2004. In 2005, it continues to outperform the S&P 500 by a wide margin. Assurant, Inc. (NYSE: AIZ), a premier provider of specialized insurance and insurance-related products and services, posted third-quarter net operating income of 92 cents per share in early November. The result topped last year’s 52 cents and outpaced the consensus estimate by approximately 39%. The company said it continues to grow profits, increase shareholder value and improve ROE through its diversified specialty insurance strategy. AIZ has a ROE of 12.47 and a price to sales ratio of .74. Continue your research on AIZ at: http://at.zacks.com/?id=2389. Freescale Semiconductor Inc. (NYSE: FSL) meets the criteria of this Profit Track with a ROE of 10.86 and a price to sales ratio of .64. In mid-October, the company reported third-quarter earnings of 35 cents per share, excluding items. The result was ahead of analysts’ expectations by 25% and surpassed the year prior total. Net sales reached $1.45 billion versus $1.43 billion in the third quarter of 2004. Continue your research on FSL at: http://at.zacks.com/?id=2390. Lamson & Sessions Co. (NYSE: LMS) recently increased its fourth-quarter earnings guidance to between 70 cents and 75 cents. Analysts are in agreement as evidenced by current estimates of 70 cents per share, an upward revision from one month ago levels of 24 cents. In late October, the company announced earnings per share of 35 cents for the third quarter. The result surpassed the consensus estimate nearly 3% and eclipsed the year prior performance. LMS mentioned that all three of its business segments experienced double-digit net sales growth in the quarter. The company satisfies this Profit Track criteria with a ROE of 26.88 and price to sales ratio of .87. Continue your research on LMS at: http://at.zacks.com/?id=2391. The Pantry, Inc. (NASDAQ: PTRY), which has a ROE of 31.17, recently released its fiscal fourth-quarter report, which included earnings per share that surpassed analysts’ expectations by almost 67% and outperformed the previous year’s result. Total revenues for the fourth quarter grew by 33% year-over-year. PTRY sports the lowest price to sales ratio of all the current ROE Profit Track names. This ratio of .24 indicates that the company can be a good value play. Continue your research on PTRY 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 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Price Targets and 'Multiple' Expansion Kevin Matras shows you how to create your own price targets and how to estimate your stocks' future earnings multiple. http://at.zacks.com/?id=2395. 3. OPTIONS CENTER 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 for more on Schaeffers Tools to Profit with Options. If you’ve been reading this weekly feature over the past few months then you know that back in October we started to turn bullish on the market as a whole and for this reason we looked at a lot of my favorite filters for bullish plays over the past two months. Well, we're beginning to see some cracks in the armor and we think now is a good time to start and get defensive. Now this doesn’t mean the market is going straight down from here, but over the next few months we at Schaeffers do expect to see some lower prices. One of our favorite filters to use when it comes to looking for a bearish play is the High Open Interest Call Position filter. Why is that you ask? First off, let’s take a look at what a call is. Calls are simply a bet that the underlying stock is going to move higher. From our contrarian point of view, a large number of calls accumulated at a certain strike just above the stock's current level is a sign of potential options-related resistance. We won't get 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 calls at a certain strike have the potential to serve as a solid level of resistance. Before we 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. Conversely, we want to see optimism toward an underperformer. We view too much optimism as a potential sign that nearly everyone who wants to invest in a particular stock already has. Now, just because a stock sees substantial optimism doesn't mean that we will blindly short a particular security; we need to see some negative price action or a major catalyst for a downside move in order to pull the trigger in most cases. Other indicators that we tend to utilize in measuring overall sentiment include put/call ratios, short interest, magazine cover stories, media comments and analyst ratings. One more very important item that we must touch upon regarding this filter, before we get started, 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 Spyders (SPY), or Microsoft (MSFT) . These big names don't take away from the importance of this filter; they are just something to keep in mind. As we looked at the list from Friday, December 16, 2005 one name that stood out was oil giant Exxon Mobil (XOM). Turns out they have a huge build-up of calls at both the January 2006 60 strike and the January 2006 65 strike. Anytime you see an influx of calls on a particular name equity; it should strike your interest. Because, remember, we view a layer of calls as potential resistance, which could reduce the odds of the shares advancing above the strike. With XOM trading just below 60 as of Friday’s open, this could be a good time to look to get short. Let's turn to a few sentiment indicators that we like to use. Remember, we're looking for optimism in the face of under-performance as a sign that most of the money who wants to move in and buy, probably already has. Thus, more weakness is a high probability. One such indicator that we like to use is the Schaeffer's put/call open interest ratio (SOIR). This ratio shows how many bearish puts there are compared with bullish calls among near-term options. Currently, XOM’s SOIR checks in at 0.48. That's all fine and dandy, but it only matters when you compare it to the other readings taken over the past year. Such comparison reveals that this number is lower than 90% of the readings taken during the past 12 months, suggesting short-term options players are extremely optimistic. Also, this ratio has been trending lower of late, suggesting more bullish calls are trading than bearish puts. Shorting a stock means that you are selling it with the intention of buying it back later at a lower cost. In other words, you are betting that the shares will go down. We love to see either a lack of short sellers betting against the shares, because, this reduces the odds of a short-covering rally on any good news. Turning back to XOM, we find that it would take about a day and a half for all of the shorts to cover and less than one% of the float is sold short. These numbers show us that nearly no one is betting against XOM. Another good way to get a gauge of sentiment is by looking at what analysts think. Given the shares have gone completely sideways for six months you'd think they'd be a rather neutral to maybe even skeptical, but this actually isn't the case, as according to Zacks, there are 15 "buys," and five "holds”. Should the shares continue to fall this will leave lots of room for downgrades from this group. With all of that said, now could be a good time to buy some puts on XOM. Looking at the options, we think buying the April 60 put (XOMPL) could be the way to go. This way we have a little time if we’re wrong initially. As of Friday morning you could have bought this option for $3.40 a contract. Write this one down and watch how it does, but it looks like it a solid play. Please continue to use all of the filters on these pages for more money-making ideas and don't be afraid to make a few paper trades to see what strategy works best for you. Visit SchaeffersResearch.com for more detailed commentaries and enhanced filters to build your portfolio. Be sure to visit Zacks.com's Option Center brought to you by Schaeffer Investment Research to follow up on this filter and more. Also, please remember that when it comes to options, the majority of your trades are going to be losers. Don't get discouraged, because that's the beauty of the leverage that options provide. It takes only a few winners out of every 10 trades to make you a very happy investor. Good Luck & Happy Holidays! 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. 4. ZACKS RANK BUY STOCKS Every day on Zacks.com we highlight four Zacks Rank Buy stocks. Each individual stock is chosen based on how well they match the criteria for the four main schools of investing: Aggressive Growth, Momentum, Growth & Income and Value. Aggressive Growth – Patterson-UTI Energy (PTEN) Growth & Income – AstraZeneca PLC ADR (AZN) More...
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Momentum – Payless Shoe Source, Inc. (PSS) Value – StanCorp Financial Group Inc. (SFG) 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. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Zacks Rank #1 and #5 Additions Zacks #1 Rank List: 45 New Additions (alpha by ticker)
To see the full list of Zacks #1 Ranked stocks (approximately 220 stocks), then click here. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Zacks #5 Rank List: 28 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 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 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?
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 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 06/18/2013
| Company Name | Symbol | %Change |
|---|---|---|
| STAAR SURGIC | STAA | 10.98% |
| DTS INC | DTSI | 6.89% |
| ANIKA THERAP | ANIK | 6.04% |
| LUMOS NETWOR | LMOS | 5.70% |
| INSTEEL IND | IIIN | 5.28% |
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