Monday - February 13, 2006
 Want to view the archive of past issues? Go to: http://at.zacks.com/?id=2314. Manage Profit from the Pros subscription: 1. ZACKS EQUITY RESEARCH With the ongoing occupation of Iraq, a burgeoning additional threat in Iran, and various international and domestic surveillance issues, the defense industry has gained a prominence in recent years it has not seen since the Reagan Era. For what this means for investors looking to get into (or out of) defense and aerospace stocks at this time, we spoke with senior analyst Jon Kolb, who covers several companies in these sectors. You cover several companies within the aerospace and defense group, which has performed very well for the past few years. What's your outlook going forward? The investment outlook for the U.S. aerospace and defense (A&D) industry is bullish, in our view, with diversified portfolios of A&D stocks again expected to outperform broader market indices in 2006. In 2005, the aerospace segment returned 20.1% to investors (as measured by the Dow Jones Wilshire U.S. Aerospace Index) while the DJ Wilshire U.S. Defense Index returned 6.0%. Both industry groups outperformed the broader markets in 2005, beating the 4.8% total return on the S&P 500 Index SPDRs and the 5.7% total return on the more comprehensive Vanguard Total Stock Market VIPERs. More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Specifically, we see continued strong performance in commercial aerospace out-performing decelerated growth in defense spending, with both segments beating the broader benchmarks. Individual stock-picking skills will remain essential to superior investment performance, however, as many A&D companies engage - in varying proportions - in both markets. After such an extensive run-up, how much gas is left in this tank? It appears that both the aerospace and defense industries will operate in the latter stages of their respective boom cycles throughout 2006 - having both peaked, separately, during 2005. Fundamentals remain intact for commercial airplanes and business jets, driven largely by the cyclicality of global economic growth and the resulting increases in corporate profitability, as well as airline passenger and cargo traffic, offering potential for continued strong performance results. Likewise, multi-year, Reagan-like growth in defense spending, with military operations in Afghanistan and the war in Iraq, as well as ongoing threats in the Middle East, China and North Korea, seem to assure of cuts in the recent growth of defense spending, although not in the absolute level of spending. In the aggregate, we expect both aerospace and defense companies to report top- and bottom-line growth above their respective long-term trends, with favorable relative performance to the broader equity market. Let's take these one at a time. Can you give us a recap on the aerospace group first? 2005 was a record year for airplane manufacturers with the two global leaders, Boeing (BA) and Airbus, both booking record orders. This is a bullish signal when viewed as a barometer for industry-wide activity. Once again, for the fifth consecutive year, in the closely watched annual race and rivalry, Airbus outpaced Boeing by 1,055 to 1,002 orders for the coveted title of "most orders booked." Airbus also bested Boeing in terms of airplane deliveries. Not to be outdone, Boeing finished the year with a greater dollar value of orders and a more attractive order mix, as it dominated orders in the more profitable wide-body segment of the market. Airbus received more orders for smaller single-aisle jets. Both companies also entered 2006 with significant order backlogs, which is a bullish sign of continued strong financial performance in the industry this year. The spike in airplane orders in 2005 was driven largely by the success of low-cost carriers, high energy prices which prompted airlines to upgrade to more fuel-efficient planes, relatively low interest rates, and significant orders from emerging market countries like China, India and the Middle East. Looking ahead, we've likely seen the peak in the order cycle, with many new airplanes replacing older ones, and with continued high energy prices, higher interest rates, and the fragile financial position of many U.S. and European carriers, 2006 should be another strong year for airplane manufacturers of commercial and business jets, but not another record year. The principal risks to aerospace stocks include a sustained decline in global economic growth; supply chain issues with capacity, labor and materials; and any extraordinary event - such as terrorism, natural disaster or epidemic - on a scale capable of materially impacting progress in globalization, international trade or air travel. Very good. What about for plays in the defense industry? Growth in the defense spending, though decelerating after years of above-trend expansion, will help sustain an already elevated level demand. The evolution of the U.S. military and homeland defense, in response to new geopolitical threats of terrorism and insurgency, remains a work in progress. Although the growth curve may be past its inflection point, growth will continue and many large multi-year programs - which require time to build, implement and execute - have already been funded. The majority of growth over the next four years will come from the results of the 2005 Quadrennial Defense Review, which will be reflected in FY2007-2010 defense budgets. Every four years, the Pentagon conducts a strategic assessment of threats to national security and long-term military priorities. As the first QDR since 9/11, there is increased focus on intelligence of global terrorist networks, Special Operation Forces, unmanned aircraft, combat robots, network-centric warfare, and "irregular warfare" - as with the regime change mission and the resulting insurgency in Iraq - and the "digital battlefield" which incorporates intelligence, surveillance and reconnaissance capabilities. The National Defense Authorization Act for Fiscal Year 2006 (H.R.1815), passed by the 109th Congress and signed into law by President Bush shortly after the new year, allocates military and defense-related appropriations of approximately $156 billion in government funding. Included in the total are $76.9 billion to the Army, Navy, Air Force and Marines for procurement of aircraft, warships, combat vehicles, weapons, missiles, torpedoes, ammunition and other defense-wide spending; $70.2 billion for defense-related research and development; and $8.9 billion for other nuclear-related national security programs for weapons, nuclear nonproliferation activities and naval reactors. Not included in the total, but also made available to U.S. Armed Forces and the Department of Defense, are tens of billions of dollars available for maintaining and refurbishing of existing equipment. In total, at least $200 billion in federal government funding (plus supplementals) is available for contract awards in the defense industry in 2006. Looking ahead, given budget deficits, we expect the final defense budgets in 2007 and beyond to settle between in-line with that of 2006 and at an inflation-rate level of growth. What about if federal spending for defense begins to taper off in some of these areas? Operationally, by maintaining diversified program portfolios, most defense contractors are protected against shifts in policy or spending cuts of specific programs. Moreover, many such companies remain focused on expanding profit margins, in part to offset declines in projected defense growth. Furthermore, several years of strong growth in defense spending yielded defense contractors with significantly stronger balance sheets, driven by substantial debt reduction, leaving billions of dollars in cash for acquisitions, increased dividends and/or share buybacks. Defense contractors will likely seek small earnings-accretive acquisitions as replacement for some of the growth in future defense budgets. Industry consolidation will likely continue with relatively small mergers and acquisitions (M&A) deals which should provide investors with premium returns. The main risks to defense stocks remain the potential for cuts in the growth of federal budget defense outlays; cuts in the absolute level of spending; and uncertainty over current and future geopolitical conflicts (such as the Middle East, China, North Korea). Any final thoughts on what investors should be looking for with these companies? In 2006 and beyond, we expect the best growth opportunities within the defense market will likely be with companies focused on the more covert and cryptic products and services for network-centric warfare and the digital battlefield, like information technology (IT), secure communications, surveillance, reconnaissance and intelligence. Jon Kolb, CFA is a senior analyst covering a variety of sectors for Zacks Equity Research, including aerospace and defense. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Analyst Blog - NEW! Get real-time market insights from Zacks Equity Research Analysts. To see their latest posts, click here. URS Corporation (URS) - Strong in Defense Projects. For full Zacks research report, click here. Fidelity National (FNF) - More Room to Contract. For full Zacks research report, click here. Aerospace/Defense Set for Strong 2006 Earnings Scorecard - Midweek Update
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: Earnings and Margins This Profit Track goes to the heart of fundamental investing by finding companies with healthy earnings. The main ingredients are the search for Earnings Growth and Net Profit Margins. Then for good measure we make sure earnings estimates are moving higher which is a strong indicator of future performance and that brokerage firms are positively rating the stock. American Financial Group, Inc. (AFG) announced in mid-December an increase in its 2006 earnings guidance to between $3.80 and $4.15 per share from $3.70 and $4.00 per share. In late October, AFG delivered third-quarter earnings per share that were ahead of analysts' expectations by 26% and topped the prior year's result. The company will report financial results for the fourth quarter next week. AFG has a net margin of .10 and produced annual earnings growth of nearly 30% above the previous year. Continue your research on AFG at: http://at.zacks.com/?id=2254. AAR Corp. (AIR) generated impressive earnings growth of 400% last year over the previous year, which is currently the highest increase in annual earnings growth on this Profit Track. This Zacks #1 Rank (Strong Buy) company is a worldwide leader in supplying aftermarket products and services to the global aerospace/aviation industry. In late December, AIR posted fiscal second-quarter earnings of 22 cents per share, exceeding the consensus estimate by almost 5%. Continue your research on AIR at: http://at.zacks.com/?id=2255. Omega Healthcare, Inc. (OHI) recently issued its fourth-quarter report, noting that earnings surpassed last year's result for the fourth quarter. The company is a self-administered real estate investment trust, which invests in income-producing health care facilities. OHI experienced earnings growth of 268% for the most recently-completed year versus the prior year. This puts the company in second place for the highest increase in annual earnings growth on the current Profit Track. Omega Healthcare offers a net margin of .35. Continue your research on OHI at: http://at.zacks.com/?id=2256. Thomas Nelson, Inc. (TNM), a publishing company, delivered annual earnings growth of 20% above the prior year. Thomas Nelson will release fiscal third-quarter results later this week. In early November, TNM announced fiscal second-quarter earnings that outpaced the consensus estimate by almost 10% and improved on the previous year's performance. Continue your research on TNM at: http://at.zacks.com/?id=2257. To see the full list of stocks that currently pass this winning screen, go to: http://at.zacks.com/?id=2258. 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=2307 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Kevin Matras outlines a strategy for how to trade the Zacks Rank
in a very practical manner for almost anyone's portfolio
: http://at.zacks.com/?id=2259. 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 - Sirenza Microdevices, Inc. (SMDI) Sirenza Microdevices, Inc. (SMDI) has met or exceeded
estimates in eight out of the past nine quarters. Five different
analysts raised their estimates for 2006 since Jan 23. Over the
past 30 days, estimates for 2006 have increased 13% to 26 cents
per share. Read the full analysis on SMDI
at: http://at.zacks.com/?id=2510. Growth & Income - optionsXpress Holdings, Inc. (OXPS) optionsXpress Holdings, Inc. (OXPS), a Zacks #1 Rank stock, is benefiting from a surge in new customer accounts. The company expects to see strong organic growth in the coming year as well. Consequently, analysts' earnings estimates have been on the rise. OXPS has a very favorable ROE of 49%. Read the full analysis on OXPS at: http://at.zacks.com/?id=2511. More...
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Momentum - Alcatel Sponsore (ALA) Alcatel Sponsore (ALA), a Zacks #1 Rank stock, is emerging
from a long sideways-trading range. Read the full analysis
on ALA at: http://at.zacks.com/?id=2512. Value - AT&T, Inc. (T) AT&T, Inc. (T), the name adopted by SBC Communications Inc. after
it acquired the company in mid-November, expects profits to grow
at a double-digit percentage rate each year over the next three
years. Analysts' earnings estimates have been trending higher for
the next two quarters and the next two years. The Zacks #1 Rank
stock has a price-to-book ratio of 2.2. Read the full analysis
on T at: http://at.zacks.com/?id=2513. Zacks Rank Resources
4. FEATURED EXPERTS Here we cast the spotlight on a timely Featured Expert commentary that recently appeared on Zacks.com. With interest rates backing up the last two weeks Kelley Wright wouldn't blame any investor for thinking that we had seen the lows in interest rates and that we would see nothing but higher rates from here on out. While that view is widely held among the conventional wisdom set, Wright believes the action of the fortnight past has more to do with the changing of the guard from Sir Alan to Ben Bernanke at the Fed plus the bond markets' inbred paranoia about change. Some additional insight might be found by looking at a chart of Citigroup (C), which suggests a bottom was put in last week right at the 200 day moving average. Wright knows the markets got all shook up last week because Citi didn't meet some analysts' expectations and took the stock down a peg or two, but Wright thinks the action of the Citigroup Board of Directors is more telling; they raised their dividend double digits again. Lastly, as an old trader Wright smells a move to shake out the weak longs. In short order the bond market will find that the world isn't ending with Greenspan's retirement. If Citigroup and some other big financials begin to move forward it is highly unlikely that interest rates will be moving in any direction that resembles north. Featured stock updates include: From its headquarters in Ohio, LSI Industries (LYTS) serves as a leading provider of lighting systems to the petroleum and convenience store markets. Founded in 1976, the company has also diversified its operations into the commercial image business. Operations are currently divided among two segments known as Lighting and Graphics. The close of LSI's second fiscal quarter brought disappointing news for shareholders. The company's net income decreased 18% to $3.9 million from the $4.8 million realized last year. The decrease came mainly on declines from the Graphics segment, which saw sales decrease by 14%. LSI's Graphics segment operations are struggling to replace business lost from projects completed over the last few months. The company expects to regain its momentum by the fourth quarter of 2006, and is currently seeking potential acquisition targets. With the fallout from shakeups, accounting fraud, and other investigations striking the insurance industry on a regular basis, there are a handful of companies that have so far evaded scandal. Old Republic International (ORI) stands out on this list, and is primarily a provider of commercial insurance policies. Operations are divided amongst a General Insurance Group, Mortgage Guaranty Group, and Title Insurance Group. The close of the fourth quarter brought news of staggering increase to Wall Street. Profit saw a gain of 42.5% on news of quarterly revenues of $1 billion, an 11.3% increase from the same period last year. Results were primarily attributable to increases in premiums and fees from products offered among the company's three major segments. The board accordingly declared a stock dividend, which was issued in the form of a 5-for-4 stock split. ORI also paid a special year-end cash dividend of $0.80/share on its common stock. Investment Quality Trends is the #1 performing newsletter on a risk-adjusted basis for the past 15 years -- through 1/31/2001 according to industry watchdog, Mark Hulbert, who ranks the top performers in the investment newsletter industry. http://at.zacks.com/?id=2429. 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=2309. Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=2266. 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=2310 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 05/17/2013
| Company Name | Symbol | %Change |
|---|---|---|
| VIASAT INC | VSAT | 19.35% |
| OLD SECOND B | OSBC | 5.76% |
| GAMCO INVEST | GBL | 4.61% |
| CORNING INC | GLW | 4.47% |
| SYNCHRONOSS | SNCR | 4.23% |
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