Wednesday - February 8, 2006
 Want to view the archive of past issues? Go to: http://at.zacks.com/?id=2319. Manage Profit from the Pros subscription: 1. ZACKS EQUITY RESEARCH With new information recently released concerning the U.S. labor market, we thought we'd check in with senior analyst Matthew P. Quinn, CFA to find out what affect these new findings may have on the staffing and business services companies in his coverage. Can you give us a brief update on what has been going on in the U.S. labor market in recent months? Well, companies in the U.S. continue to add employees at a steady rate and the unemployment rate continues to trend lower, as a lower percentage of Americans are actively seeking employment. In January, non-farm payrolls increased by 193,000 on a seasonally adjusted basis. However, both the January 2006 and December 2005 numbers were well below consensus expectations of 200,000-plus. On a more positive note, November’s non-farm payrolls were adjusted upward to 354,000. All in all, the average monthly gain over the past twelve months was between 160,000 and 165,000. This is well ahead of the 150,000 jobs the U.S. needs to create each month to absorb new entrants into the domestic workforce. That being said, the current rate of job creation is less than half the average rate of job growth exhibited in similar periods of economic recoveries, leading some to term this a ‘jobless’ recovery and question the enthusiasm of the Bush administration. Still, the unemployment rate of 4.7% in January continues to show a level consistent with full employment and suggests that wage growth should accelerate in a tighter labor market in 2006. More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - So, what is the outlook like for domestic payroll growth in 2006, and how do you expect staffing firms to perform in the current environment? I expect that employers in the U.S. will continue to add employees at a measured pace. While I believe the economy remains healthy, I am concerned about inflationary pressures, steady-to-higher oil prices, and potential inversion of the yield curve. Although growth in non-farm payrolls should remain ahead of the 150,000 rate, I don’t believe monthly averages are likely to head north of 200,000 this year. In terms of inflationary pressures, wage inflation, which has largely been non-existent in this economic recovery, could lead to even more conservative hiring practices. Rising health insurance costs are also a significant factor in corporate hiring decisions. I also remain concerned about the current shape of the yield curve. The last four yield curve inversions, where short-term rates are higher than long-term rates, preceded a recession. The current yield curve remains flat and could invert in the next few months, depending on what the Fed decides to do with short-term rates and the appetite for new government bonds on the long end of the curve. As for the staffing companies, temp help now represents 2% of the workforce, which is at a cyclical high. Although the recent reacceleration in temp help employment supports near-term revenue and earnings growth for the temporary staffing firms, I am not as enthusiastic regarding the outlook for the balance of the year. I don’t believe that the temporary workforce is likely to grow at a faster rate than the overall economy, and the overall tight labor conditions could make it difficult for the staffing companies to outperform current market expectations. As such, I see few catalysts to move the valuations of the staffing firms higher in 2006. This outlook is supported by the most recent Employment Outlook Survey conducted by Manpower (MAN). The mid-December 2005 survey concluded that U.S. businesses are not aggressively looking to increase staff levels. Fully two-thirds of employers surveyed projected no change in hiring plans heading into 2006 or were unsure of their staffing needs, while 10% expect to reduce staff. While domestic labor market growth remains subdued, what is the outlook like in international markets? Again, based on the Employment Outlook Survey conduced by Manpower, labor demand in European markets is expected to remain weak through the first quarter of 2006. The outlook in Germany and Italy was negative for the first quarter, while companies surveyed in Sweden and France reported their weakest hiring outlooks since the survey began in mid-2003. I expect the outlook to improve somewhat in the March 2006 survey, given slight improvement in economic activity in the EU. Business confidence and economic activity could accelerate due to the upcoming Winter Olympics in Italy and this summer’s World Cup in Germany. Not surprisingly, the outlook in Asia remains positive, although labor market activity in 2006 largely hinges upon what happens in the U.S. and China. So, what types of companies in your coverage are likely to benefit in the current environment? Well, a tight labor market usually bodes well for providers of recruiting and permanent placement services. After a severe downturn in the search industry from early 2001 through the middle of 2003, the hiring environment at the executive level is clearly improving. Employers typically have to rely on providers of recruiting services in tight labor markets. Executive recruitment has been particularly strong, as public companies shore up internal controls following Sarbanes-Oxley. Further, fewer executives are willing or able to put their own necks on the line under new financial reporting measures. This has led to an increased emphasis of building out accounting, financial and IT management to improve internal risk and control measures. I also believe that 2006 will be a good year for corporate spending and M&A activity. While productivity unexpectedly slipped in recent economic reports, I think the onus on U.S. companies is to continue to drive down costs to somewhat offset inflationary pressures and higher interest rates. Accenture (ACN) noted in its early January 2006 conference call that its consulting business is benefiting from a new software upgrade cycle and strong demand for high value consulting. This latter group includes providers of strategy and human performance initiatives, which I lump together as expert services. I also believe that consolidation will remain a dominant theme in 2006 across a wide range of industries looking to gain market share, expand their global footprint, or consolidate corporate overhead costs under one umbrella. Outsourcing, particularly business process outsourcing (BPO), is also a booming business right now given the favorable impact these types of services have on reducing internal costs and increasing profitability. So, what is your favorite name in the business services space right now? Well, my best idea currently is CRA International (CRAI). CRA International is a provider of expert services with a solid reputation in complex litigation and regulatory proceedings. Utilization of the company’s consultants continues to improve, and the company continues to build out its geographic footprint, broaden its existing service offerings, and expand into new practice areas. The company generates a high level of repeat business from existing customers, which rely on the company for its expert advice in M&A activity and other critical business decisions that add economic value for corporations. We think the current environment with increased regulatory scrutiny and an uncertain market environment represents ideal conditions for CRA International and other providers of expert services. Matthew P. Quinn, CFA is a senior equity analyst for Zacks Investment Research. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Analyst Blog - NEW! Get real-time market insights from Zacks Equity Research Analysts. To see their latest posts, click here. Trammell Crow (TCC) - Positive Earnings Momentum. For full Zacks research report, click here. CNH Global (CNH) - Latin American Exposure Risk. For full Zacks research report, click here. Industry Rank for the Week of Feb 6 Positive Surprises Lead Disappointments by a 3:1 Margin
2. SCREEN OF THE WEEK 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. “Filtering the Zacks Rank” The Zacks Rank is probably the most effective rating system out there. Good markets or bad, stocks with a Zacks #1 Rank (Strong Buy), continue to outperform. In fact, since 1988, the average annualized return of Zacks #1 Rank stocks is up 32.5% a year. But what I want to focus on today is how to recreate those returns in a practical trading account. Since there are typically over 200+ Zacks #1 Rank stocks at any time, it’s important to know what other filters to apply to generate a smaller (more tradable) watchlist. Two filters in particular, when added to the Zacks #1 Rank, not only narrows down the number of qualified stocks to a practical portfolio size (approximately 10-12 stocks), it oftentimes increases its performance as well. Parameters The two filters I’m talking about are;
These two items added to the Zacks #1 Rank, produce powerful results! Results I ran a series of separate tests on the Filtered Zacks Rank strategy, over each of the last four years (2002 thru 2005). I rebalanced the portfolio every four weeks and started each run on different start dates so each test would be rebalanced over a different set of four-week periods. (This is done to eliminate coincidence and verify robustness.) In 2002, the Zacks #1 Rank stocks returned just over 1%, with an average portfolio size of approximately 200 stocks. An impressive return when compared to the S&P 500’s –22%. But holding onto 200 or so stocks isn’t doable for most investors. But when adding the two aforementioned filters, the portfolio size shrinks to a tradable 10 stocks (on average), and a phenomenal 18.1% return. In 2003, the Zacks #1 Rank list (approximately 200 stocks) did nearly 75% in comparison to the S&P 500’s almost 29%. But the filtered Zacks Rank narrowed that list down to only 10 stocks (on average) with a return of over 66%. (And while it’s true the filtered Zacks Rank produced a smaller return than the full Zacks Rank (66% vs. 75%), rebalancing only 10 stocks a month is far more manageable than 200.) And it was right on track again for 2004. The annualized returns for the Zacks #1 Rank stocks was up 28.8% with an average portfolio size of 202 stocks. (The S&P was up only 10.9%.) But the filtered Zacks Rank annualized returns were up 30.3% with again, only 10 stocks to hold on average. And in 2005, the complete list of the Zacks #1 Rank stocks showed an average annualized gross return of 31.7% with an average portfolio size of 208 stocks. The Filtered Zacks Rank was up 42.4%, but with an average portfolio size of only 10-12 stocks. (And while both of these numbers are impressive, 10-12 stocks is way easier to trade than 208!) Here are a few of the stocks that qualified the Filtered Zacks Rank this week (2/6/06);
Get the rest of the stocks on this list and start trading the filtered Zacks Rank (or any of our other strategies) in your own account. 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 Research Wizard stock picking and backtesting program. http://at.zacks.com/?id=2335. 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. 3. 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 – Blue Nile, Inc. (NILE) Blue Nile, Inc.’s (NILE) efficient business model has allowed it to beat earnings estimates in six straight quarters. Over the past 90 days, estimates have increased 1.4% for 2005, with five different analysts raising numbers. The stock is trading at 37.6x 2006 estimates, with a long-term growth rate of 31.25%, giving NILE a PEG ratio of 1.20. Read the full analysis on NILE at: http://at.zacks.com/?id=2498. Growth & Income – L-3 Communications Holdings, Inc. (LLL) L-3 Communications Holdings, Inc. (LLL) has topped the consensus earnings estimate for 12 quarters running. The company recently issued its full-year 2006 earnings per share guidance above analyst estimates. LLL has increased revenues and grown profits for the past seven years. Earnings per share have grown 31.0% over the past five years. The company currently yields 0.62%. Read the full analysis on LLL at: http://at.zacks.com/?id=2499. More...
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Momentum – Aspreva Pharmaceuticals (ASPV) Aspreva Pharmaceuticals (ASPV) shocked the market last week when management provided a higher guidance for both the fourth quarter and full year 2005. As a result, the stock propelled into new high ground and has yet to find its supply/demand balance. Aspreva Pharmaceuticals is due to report December quarter earnings on Feb 8, 2006, but the market isn’t waiting. When the company provided higher guidance on Feb 2, shares gapped higher and closed up 25.5%. Read the full analysis on ASPV at: http://at.zacks.com/?id=2500. Value – Old Dominion Freight Line, Inc. (ODFL) Old Dominion Freight Line, Inc. (ODFL), a Zacks #1 Rank stock, is trading at a discounted valuation despite impressive growth in revenues and profits. Earnings per share have grown 37.6% over the past five years. The company has met or topped analyst earnings estimates in 16 consecutive quarters. Read the full analysis on ODFL at: http://at.zacks.com/?id=2501.
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.
Investors/traders were given a double whammy with oil price rises and selected earnings shortfalls in big-cap issues. The Dow shed -213.32 (-2.0%), S&P 500 index fell -23.55 (-1.8%), and NASDAQ Composite, gouged the steepest decline of -54.11(-2.4%). This exaggerated fall with heavier volume than usual was related to an exceedingly busy month of option expirations. The week’s shedding of major growth issues with a concentration on technology sectors provided a solace for the bulls as a climatic sell-off which placed panic on its hallmark, assuring investors/traders that options market was no match to the levels seen in previous falling markets like those of April and October ’05. The bears however zeroed in on the intraday damage to the general market as well as its leadership of technology. The market left the energy sectors untouched. The energy issues were interpreted by many money managers/investors as a mere coincidence not a divergence of the sudden drop in the market place. After all, despite the carnage in the Japanese Nikkei, the Dow Jones fall off 213 points on spongy earnings’ reports from the three big caps: Citigroup (C), General Electric (GE) and Intel (INTC). This could be construed as a technical correction to the ascending market since Oct ’05. The market is testing a repeat of the bull market repeating the average return of historical 14% in its fourth year. The market is positioning itself to enter the fourth year of a bull market which started in Oct ’02, with a mere surge of 6% in the S&P 500 overriding the market correction during the recession (signaled by inverted yield curve). The market is preparing itself for a fourth year with robust corporate earnings reports. The mere fact that gurus, financial media, and money managers are advising the public of sector rotations into holding/taking positions in blue chips with dividend-paying issues and defensive stocks while avoiding technology/growth issues is indicative that the market blowups are a common phenomenon in the second half cycle of the present bull market. The market may surprise investors by not matching its historic length of a bull market of three and a half years and may in fact repeat the bull market of ’95. A Sampling of Long Positions: Amphenol Corporation (APH): The maker/provider/marketer of electronic/fiber optic connectors, interconnect systems and coaxial and flat ribbon cable. Demand for its products across the board especially its mobile devices are shown in its 4th Qtr. earnings of $55.8 million or 61cents per share up 22%. Sales @ $508.1 million were up by 26%. Acquisition of the connection systems of Teradyne for $390 million should further boost the Co’s performance. PetMed Express, Inc. (PETS): The largest pet pharmacy offers pet medication/health products to 750 centers for dogs, cats, and horses. Has introduced purchases/orders through its website, cutting into increment and human capital costs. Orders in latest Qtr. on its website up by 57%. FY 3rd Qtr results up 37% on revenue increase of 25%. Expects year end sales of $135.31 mil with prescription medication capturing 30% of total revenue. In either bull or bear markets, the hedge position presents the best strategic approach. The Shortex Market Letter provides investor/traders with the information and analysis you need to ensure a solid return on your investments. Our advisors focus not on selling underwriting services but on supporting their clients` and readers` portfolios. This objectivity, honesty, and experience have led to the newsletter being respected by both insiders and private investors alike. http://at.zacks.com/?id=2483 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - b) Hot List’s Outperformance Continues John Reese’s Hot List continues to outperform the S&P. Discover how well it has done and read about three stocks. More... Jack Schannep says there is a definite four-year equity cycle, which is well worth your attention. 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 Ranked (Strong Buys) have produced the following results for investors:
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?
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 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. 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 05/22/2013
| Company Name | Symbol | %Change |
|---|---|---|
| ALLIANCE FIB | AFOP | 15.35% |
| TRI TECH HOL | TRIT | 8.82% |
| A M R CP | AAMRQ | 8.29% |
| JAZZ PHARMAC | JAZZ | 6.63% |
| SANTARUS INC | SNTS | 5.29% |
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