Wednesday - December 28, 2005

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The pace of estimate revision activity remains subdued. At this point, the focus of investors should be squarely on 2006, not on 2005. For 2005, there were only 1,207 estimates (4-week moving total) were revised versus 1,252 last week and 3,151 a month ago. For 2006, total estimate revisions rose to 1,222 from 1,145 last week but 2,372 a month ago.

This week marked the first time that 2006 estimate revisions outnumbered 2005 revisions. The third-quarter earnings season is over. Most companies did better than analysts expected. In terms of growth, revisions and earnings relative to price, the Energy sector continues to be very attractive, although the estimates for this year have slipped a little. The median expected growth rate for the sector in 2006 is almost double the expected growth of the over all S&P 500. However, measured by total earnings, growth will be roughly inline with the overall market.

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Zacks Equity Research continued...

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. However, on a median basis, earnings growth is expected to decelerate from 13.4% in 2005 to 12.4% in 2006, while on a total net income basis, growth is expected to rise to 13.3% from 10.8% in 2005. The differences between these measures indicates a somewhat better performance for mid to large cap companies in 2005, but a better relative earnings performance expected in 2006 for mega-cap companies.

• Over the last month, 195 firms have seen estimate increases, while 240 have been cut for this year a ratio of 0.82, down from 0.96 last week. The average estimate fell 0.54%.
   
• Collectively the firms in the S&P 500 are expected to earn a total of $801.3 Billion in 2006, up from $707.4 Billion in 2005, and $638.4 Billion in 2004.
   
• For 2006, the estimates rose for 206 and fell for 223, a ratio of 0.92, unchanged from last week’s reading. The average estimate rose 0.32%.
   
• A total of 597 current fiscal year estimates were increased over the last month for this year while 610 were cut(ratio of 0.98), above last week’s reading of 0.91.
   
• For 2006, 586 estimates were increased and 559 were cut a ratio of 1.04, unchanged from last week’s reading.
   
• Median expected growth rates for S&P 500 firms at 13.4% for 2005, and 12.4% for 2006.
   
• Total net income for the S&P 500 expected to rise 10.8% in 2005 and a further 13.3% in 2006.
   
• Have a Happy New Year.

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MORE FROM ZACKS EQUITY RESEARCH...
 

BULL OF THE DAY

Cognos, Inc. (COGN) - Rapid Growth Trajectory. For full Zacks research report, click here.

 
BEAR OF THE DAY

ICOS Corporation (ICOS) - Stagnant Growth in ED Market. For full Zacks research report, click here.

 
ZACKS ANALYST INTERVIEW

Six for '06

Zacks' Director of Research chooses six super stocks for investors to include in their portfolios. More...

 
ZACKS INDUSTRY OUTLOOK

Zacks Industry Rank for the Week of Dec 26

Analysts are upping their 2006 profit forecasts on drilling and oilfield companies. 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.
 

“Using Common Sense to Manage your Portfolio”

This week I’d like to focus on evaluating your holdings, monitoring your watchlists and getting rid of losing stocks.

And as the tile suggests, there’s no particular magic in making money (or keeping it), just good old-fashioned common sense. The trick is exercising it!

If you’ve used our Research Wizard program even for a short amount of time, then you’ve either built your own proven, profitable Screening Strategies or selected a few of the Pre-defined Strategies that came with the program.

But once you’re in (or at least watching potential candidates to get into), it doesn’t mean your work is over.

Whatever your stocks are, whether they be actual holdings or stocks you’re considering buying, don’t stop monitoring the fundamentals of those stocks.

What I mean is; if one of the criteria for getting into a stock in the first place was that it had a low Debt to Equity ratio, but you then saw that ratio change to an unacceptable level (a level that would not have put it on your radar screen in the first place), you should consider exiting and looking for a new stock to replace it. One that currently does meet your criteria.

Let’s say for instance that you use the Zacks Rank as a timing indicator and you look at the Zacks #1 Rank stocks (Strong Buy) for immediate movers. If in a few weeks, as Zacks aggregates EPS Estimate Revisions, it sees that the prospects for the company’s earnings are to deteriorate and degrades its Rank to a Zacks #3 Rank (Hold) or Zacks #4 Rank (Sell), take note and consider dumping it.

Sure it was a Zacks #1 Rank, but it’s not anymore, or even a Zacks #2 Rank (Buy).

Think about it; if you never would have gotten into a Zacks #3 Rank or a Zacks #4 Rank in the first place, why would you now want to hold onto one?

That’s using your common sense.

What if you’re a momentum investor and you generally look for stocks trading within 10% of its 52 week high (a great item by the way) and it suddenly falls below that level. Well, if you’re only interested in focusing on stocks within 10% of its high and it’s now 15% or 20% (or more) off its high, ... move on. The momentum has seemingly shifted and so should your focus.

And don’t convince yourself to hang onto your losers either. If you got into a stock expecting great things and it’s now –8% to -10% against you, get out. Don’t let your love of a stock (or denial) ruin your portfolio. Almost every big losing trade anybody has ever had in their portfolio (-50%, -60% or even –90% or more), could have been dropped when they were just beginning to crumble.

And if you get out and it zips back up, you can always get back in if you want. But if it keeps going down, you’re just losing more and more money.

So once you’ve found the items that have proven to work well for you in picking profitable stocks, be sure to monitor those values. And if they no longer meet the winning criteria, get rid of them fast and find new ones that do.

And the Research Wizard’s backtesting feature is the best way to do that! Backtest your strategies to see what works and what doesn’t.

Here are three new stocks that look great and that are currently coming up on some of our best screening strategies.

Remember the key to successful screening is in discovering those screens that have produced profitable results in the past. And that’s exactly what you get with the powerful Screening and Backtesting ability of Research Wizard.

Take note: Backtesting isn’t available in all screeners (in fact it’s rarely available in any screener), but it is available in the Research Wizard.

So sign up now for your free trial to the Research Wizard and pick and choose from some of our profitable strategies or put your own ideas to the test and start making better decisions today. http://at.zacks.com/?id=2335.

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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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 – Intuitive Surgical, Inc. (ISRG)

Intuitive Surgical, Inc. (ISRG) has been on a tear due to their robotic surgical system called The da vinci system. Wider surgeon adoption has allowed ISRG to beat earnings estimates for eight out of the last nine quarters, with annual growth exceeding 100% in four of those quarters. Estimates have soared 35% over the past 90 days for the current year. Read the full analysis on ISRG at: http://at.zacks.com/?id=2498.
 

Growth & Income – Lehman Brothers Holdings Inc. (LEH)

Lehman Brothers Holdings Inc. (LEH) has exceeded analyst expectations for 12 consecutive quarters. The company achieved record net revenues in every segment and in every region for the past year. As a result, EPS estimates have been trending higher. Lehman has an attractive ROE of 21%, much higher than the industry average of 13%. Read the full analysis on LEH at: http://at.zacks.com/?id=2499.

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Zacks Rank continued...

Momentum – Thomas & Betts Corporation (TNB)

Thomas & Betts Corporation (TNB)is a stock on the move with a Zacks #1 Rank and technical market action poised for an upside breakout. This leading manufacturer of electrical connectors and components has a lot going for it, and reasons to believe that 2005`s performance could well carry on into 2006. Read the full analysis on TNB at : http://at.zacks.com/?id=2500.
 

Value – Avid Technology Inc. (AVID)

Avid Technology Inc. (AVID) is a Zacks #1 Rank stock that has exceeded expectations in 14 consecutive quarters, by an average margin of 89.6%. Strong year-to-date and third- quarter results have led to positive earnings forecasts for both this year and next. The firm is trading at a discounted valuation of 2.3x book value. Read the full analysis on AVID at: http://at.zacks.com/?id=2501.

 
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) Paul Tracy, Editor of StreetAuthority Market Advisor
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After hundreds of hours of research, due diligence and healthy intra-company debate, Paul Tracy and his team have managed to narrow the vast investing universe down to just ten stocks that they think are poised to deliver superior returns in the years ahead.

These ten unique investment ideas are involved in a diverse array of different business lines -- from newspaper publishing to automobile retailing to liquor distribution to videogames, just to name a few. Yet despite this, they all share several common traits that should help them deliver exceptional returns for shareholders in the coming years.

LoJack (LOJN)

Business Overview
LoJack makes vehicle anti-theft and recovery equipment. The company makes a small device that can be concealed in a car; when a car is reported stolen, police simply track the signal from the LoJack device and locate the missing vehicle.

What's more, the device is carefully hidden in a location that is secret -- often even to the owner of the vehicle itself. This makes it difficult for even the most well-informed thieves to remove quickly. There's also no way for a thief to detect which vehicles have a LoJack system installed, as it doesn't emit any signal until activated.

Competitive Advantages
LOJN's main competitive advantage lies in the fact that it is the current industry-standard system. The company was the first to start installing vehicle recovery systems in cars and now boasts the largest global auto-recovery network in the world.

As a first-mover in this market, LOJN was able to ensure that virtually all police departments nationwide had the receiving equipment to pick up and hone in on the LoJack system. LOJN's widespread use and acceptance by the police has made it the logical choice for any consumer looking for an anti-theft solution for their vehicle. After all, part of LOJN's value is that it's ubiquitous and can therefore be used to recover a car almost anywhere in the U.S.

In the process of building out its network, LOJN provided special equipment to police departments to help them detect cars that emit a LoJack signal. This type of direct link with police would be extremely difficult for a competitor to duplicate. A potential competitor would face large investments in marketing its system to police officers around the country. A new entrant would also face the equally daunting task of convincing consumers their system is as effective and covers the country equally well.

 
International Game Technology (IGT)

Business Overview
IGT is the world's largest slot machine manufacturer. In addition to basic slot machine sales, the company generates half of its revenues by leasing machines to casinos in exchange for a percentage of the net win. This gaming business provides the firm with a recurring stream of high-margin revenues. Thanks to steady expansion in recent years, IGT now draws income from nearly 40,000 machines installed throughout casinos in key gaming markets around the globe. More recently, IGT has also diversified its operations into other promising new technologies, including high-tech player tracking systems and -- through its acquisition of WagerWorks -- the rapidly growing world of online gaming.

Growth Drivers
As the replacement cycle for ticket-in-ticket-out technology -- machines that instantly print a receipt for redemption at the cashier rather than spitting out coins -- nears completion, IGT's domestic sales have slowed from the torrid growth rates the firm has been seen in prior years. However, the company's overseas sales remain strong, particularly in Japan. In fiscal 2005, IGT shipped more than 91,000 units abroad -- a sharp +37% increase over fiscal 2004. This increasing volume drove international product revenues up +43% to $472 million. With continued construction in markets like Macau -- which many have billed to be the next Las Vegas -- the international outlook remains bright. However, there are reasons to believe the company's domestic revenues will also begin to accelerate.

To begin, slot machine technology is advancing rapidly -- from tiered video bonus rounds to high-resolution plasma screens -- and replacement waves are needed to put the next generation of games in front of players. Furthermore, players' tastes can change quickly, and the life span of the average game is shrinking, meaning newer games like the increasingly popular multi-line penny slots must continually be rolled out. Finally, new gaming jurisdictions are providing another avenue for growth as cash-strapped states embrace gaming as a way to generate millions in tax revenues. The introduction of gaming in Pennsylvania alone is expected to result in an initial market for more than 35,000 new slot machines.

All of this should translate into higher unit sales going forward. And with a stronger pricing environment in North America, revenues per unit have been on the rise as well. Of course, as Tracy and his team noted earlier, product sales account for just half of IGT's total revenues. The firm generates the rest via its extensive gaming operations. IGT has leased tens of thousands of slot machines -- many of which are linked to wide-area multi-million dollar progressive jackpots -- to casinos in exchange for a share of the proceeds. IGT receives a cut of every coin pumped into these slots, resulting in recurring revenues that climbed to a record $1.2 billion last year. As IGT's industry-leading installed slot machine base continues to expand, this segment of the business should help drive the company's top and bottom lines sharply higher.

 
About Paul Tracy’s StreetAuthority Market Advisor newsletter

The StreetAuthority Market Advisor is an invaluable resource for self-directed investors. With a keen focus on fundamental analysis and an eye for undervalued stocks, editor Paul Tracy sorts through thousands of investing opportunities each week and brings you only those with the greatest potential for both near- and long-term gains. Rather than the news, the Market Advisor delivers profitable investment guidance that you can act on today to improve your own portfolio. http://at.zacks.com/?id=2413.
 

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MORE FEATURED EXPERTS...

b) Fertile Ground for Profits

Jack Adamo highlights a company that is in a boring business but can be an exciting investment. He also provides portfolio updates. More...
 

c) Treat Pullbacks as Buying Opportunities

Donald Rowe says stocks should move higher between now and May of 2006. Learn why and discover some stock recommendations. 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

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• 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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