Thursday - March 2, 2006
 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 Technological developments in wireless communications, particularly on a global scale, have begun to create headlines in the telecommunications industry. In speaking with senior telco analyst David Weissman, CFA, we found out what the growth prospects are in China and other emerging economies around the world. There have been recent reports concerning China's move over the next six months to deploy 3G technology, and that some of the top global telcos are jostling for position there. Can you give us some background on this? Absolutely. Let me start by saying that China is by far the world's largest mobile phone market, with nearly 400 million users - 398.8 million cellular subscribers as of Jan. 2006, to be exact - and with the upcoming 2008 Olympics in Beijing, the Chinese government is aggressively planning the spectrum licensing for 3G [third generation digital cellular] networks, which will promote technological advancement as the networks are deployed over the next two years. Because of the tremendous opportunities in China for not only voice communications, but also for high-speed wireless data and eventually wireless video, it has become a top priority among the largest wireless equipment manufacturers to pursue this market with vigor. Nokia (NOK), Ericsson (ERICY), Motorola (MOT), Lucent (LU), Alcatel (ALA) and Siemens (SI) are global companies with competitive offerings here. What is unique, however, is that the Chinese 3G wireless standard has been customized as part of the protocol called TD-SCDMA, which differs from European and U.S.-based standards. This is due, in part, to reduce licensing payments to foreign companies, while also giving an equal footing to Chinese manufacturers, including Huawei and ZTE, for the competitive build-out of new networks. There are underlying technological efficiencies, as well. It is my expectation that because the market is competitive with several mobile communications carriers implementing what they believe are the most effective networks, most of the large equipment manufacturers will benefit. It is too early to rule any of them out. What do you look for from China's own companies regarding these developments? There are things to consider with regard to the carriers that have government ownership in China. In particular, the funding initiatives may be subsidized or aided by government involvement. It isn't fully apparent as to how the government will apportion 3G licenses, but we expect China Telecommunications Corp. (CHA) to be a leader in the TD-SCDMA network, which would be a turn for China's largest wireline carrier to get a stronger hold in the mobile market. More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - There are things to consider with regard to the carriers that have government ownership in China. In particular, the funding initiatives may be subsidized or aided by government involvement. It isn't fully apparent as to how the government will apportion 3G licenses, but we expect China Telecommunications Corp. (CHA) to be a leader in the TD-SCDMA network, which would be a turn for China's largest wireline carrier to get a stronger hold in the mobile market. Obviously, that would be competitive in nature with current services by China Mobile (CHL) and China Unicom (CHU). We expect China Mobile will maintain its market-leading position, which, by the way, is currently deploying another flavor of the 3G technology (WCDMA) first used in Europe. Changhwa Telecom (CHT), with its 3G initiatives, would also be a positive for them. Furthermore, we are aware of China Netcom (CN) is partaking in the wireless market and they may become the dark horse over time. Bottom line, it looks like the mobile market in China will be directed by pricing, quality, service coverage, and feature sets, very similar to what makes the market competitive in other areas of the world. The leaders will need to offer the attributes of service that users will compare among the various providers. What is your industry outlook overall for 2006? Let me address the industry outlook in two parts. First, for continuity sake, let’s discuss my view of the market in China. There is strong evidence that the need for mobile communications is intense. If we look at the industry forecasts by the China Academy of Telecommunications Research or Norson Consulting, we identify a range of $35 billion to $37 billion being spent on wireless equipment infrastructure and installments over the next five years as carriers deploy or modernize their mobile networks. There should be limited argument that several contracts are going to be awarded and the benefits will be harnessed as top-line revenue to equipment companies. The thing that needs to be assessed, however, is what will be the pricing structure of such arrangements be, and how will it impact gross margins and overall profitability? So I would caution that just because awards are announced, the devil will be in the details, and these will not be apparent until equipment companies report financial results. Overall, however, I remain optimistic that executives will take the necessary actions to return value both from a revenue generating perspective and from an operational standpoint. With respect to the worldwide wireless industry, I remain somewhat positive. In general, however, it is more a function of economic growth than just industry growth, so I typically correlate the opportunities with how each country may be growing. Obvious geographical areas with strong economic growth, outside of China, include countries in other emerging markets, in particular India and Colombia, Mexico, Chile, Brazil and Peru. As an example, I just reviewed the progress made by America Movil (AMX), where there was phenomenal growth in subscriber count and usage over the past two years. It is highly correlated with country growth, and, while I believe it will continue, the question remains regarding how much further growth can be expected. I leave that debate for a future discussion. Finally, should investors consider overweighting, underweighting or holding with respect to the overall industry? I have not seen real movement in the industry as a whole over the past couple of years. What I recommend at this time, as we wait for verifiable indications of a complete turnaround, is that investors select best-in-breed telecom because, even if the industry as a whole does not perform, there are always solid companies that can weather the volatility. I look for telecom companies with market-leading positions and financial value: stocks with a lot of cash on their balance sheets, limited or no debt, and stable or growing revenue lines accompanied with respectable gross margins. If the company is able to maintain revenue levels in a weak sector environment, it will show up as an extra kick in their valuations when there is a turn. So to answer your question, overweight companies with solid balance sheets and avoid hyper-growth companies that may need to retain more financing or capital in this climate. David Weissman, CFA is a senior analyst covering the telecommunications industry for Zacks Equity Research. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Analyst Blog - NEW! Get real-time market insights from Zacks Equity Research Analysts. See their latest posts, click here. AtheroGenics, Inc. (AGIX) - Potential Blockbuster Drug. For full Zacks research report, click here. Sierra Pacific Resources (SRP) - Highly Leveraged. For full Zacks research report, click here. Earnings Growth Expected to Slow Sharply in the First Quarter Zacks Industry Rank for the Week of Feb 27
2. Zacks Challenge: Top Player Interview Zacks.com features a free investment simulator where our customers can prove their stock picking skills to the rest of the world. In these articles we will share with you the insights and recommendations from Top Simulator Players. Learn more about the current Zacks Challenge at: http://at.zacks.com/?id=2514. This week Zacks is proud to introduce Richard Marzouka (aka: remarzouka), a young medical student and market enthusiast who has achieved an overall return of 295% since Jan 3. After noticing that other contestants were successful with options, this Zacks Challenge contender came from behind and landed into second placed by incorporating option trades into his investment strategy. Some of Richard’s recent option moves include plays on Celgene Corp. (Nasdaq; CELG), Goldcorp (NYSE: GG), Joy Global Inc. (Nasdaq: JOYG), Apple Computer, Inc. (Nasdaq: AAPL), and Phelps Dodge Corp. (NYSE: PD). Click here to check out more of this player’s recent trades. Investing early in life, at the age of 16, Richard was pretty much on his own with no real market knowledge or experience. His lessons came from experiencing both bull and bear markets as well as watching successful traders and checking out different websites. Today the Simulator player keeps his eye on Carl Icahn’s portfolio for short-term gains and for research often uses Zacks or The Motley Fool. On the subject of identifying opportunities, Richard opined, “you don't have to reinvent the wheel to find good companies. Sometimes it’s easier to research recommendations from a site, than to start on your own screen when most people don't know exactly what to look for. “ The stock picker looks for companies with an established record that have the potential to maintain excellent performance. “I like momentum stocks, and companies that have consistent growth and earnings. I look for companies that will grow at least 30% a year if not more,” said Richard. So what are some favorite holdings? In the oil services space, Richard likes Lufkin Industries, Inc. (Nasdaq: LUFK) for the long-term, He is also a fan of Allegheny Technologies Incorporated (NYSE: ATI) and Titanium Metals Corporation (NYSE: TIE) as long-term plays. With war and political uncertainty looming, this investor likes Ceradyne, Inc. (Nasdaq: CRDN) for the next 6 to 12 months. He likes the growth and momentum of JOYG as well as the long-term record of Coventry Health Care, Inc. (NYSE: CVH). Last but not least among Richard’s favorites is American Retirement Corp. (NYSE: ACR), “a small company involved in retirement community housing, a perfect long play on the baby boomer retirement trend.” Cryptologic, Inc. (Nasdaq: CRYP) was a big winner for Richard after share prices jumped several dollars on a strong report that the savvy investor was expecting. And how does this market watcher determine when to sell? Richard believes in setting limits on profits for each stock and adjusting the limits later if needed. I pull out of stocks when I believe the momentum of the stock has broken away from its fundamentals, or if the stock becomes extremely volatile to any news,” noted Richard. What is his outlook and advice to novices? The stock trader sees some corrections ahead in certain sectors but is bullish on metals in general. Ultimately, he envisions the Dow ending the year at 11,500. For those just starting out, Richard says research is the key. According to this market player, a good way to start is by emulating the strategies of other successful market gurus and along the way start forming one’s own strategies and investment ideas. The Challenge is On! Sign up now for the Zacks Investment Challenge. Its free. Its fun. It’s the place to show your investing prowess. The best stock pickers will be rewarded with thousands of dollars in prizes. Learn more. 3. 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. Earnings are the single most important metric for a company. Combine that with a healthy Net Profit Margin and you find a screen that has generated a cumulative return of +425% since January 2001. During 2005, this screen continued its winning ways with a +22.3% return. Here are four stocks that make the grade for the Earnings and Margins Profit Track: Asta Funding Inc. (ASFI), a leading consumer receivable asset management and liquidation company, recently announced fiscal first-quarter earnings of 64 cents per share, outpacing the consensus estimate by about 12% and improving on the previous year’s 43 cents. ASFI has a net margin of .45, currently the highest listed under this Profit Track, and produced annual earnings growth of 37% above the previous year. Continue your research on ASFI at: http://at.zacks.com/?id=2354. Benihana Inc. (BNHNA), operator of the nation's largest chain of Japanese theme and sushi restaurants, generated earnings growth of 5% last year over the previous year. The company recently posted fiscal third-quarter earnings of 30 cents per share, beating last year’s 20 cents and topping the consensus estimate by about 11%. The company noted that third quarter results primarily reflect gains in comparable sales, continuing the momentum in steadily improving guest counts. Continue your research on BNHNA at: http://at.zacks.com/?id=2355. More...
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Deb Shops, Inc. (DEBS) operates women's specialty apparel retail stores offering moderately priced, fashionable, coordinated women's sportswear, dresses, coats, lingerie, accessories and shoes for junior and plus sizes. DEBS recently reported that comparable store sales increased 11.6% for the month of January, grew by 6.9% for the fourth quarter and advanced 7% for fiscal 2006. The company’s annual earnings were up 40% from the year prior. Continue your research on DEBS at: http://at.zacks.com/?id=2356. Lamson & Sessions Co. (LMS) is a diversified manufacturer and distributor of a broad line of thermoplastic electrical, consumer, telecommunications and fluid drainage products for major domestic markets. LMS recently released fourth-quarter earnings of 93 cents per share, exceeding analysts’ expectations by about 3% and outperforming the previous year’s result. The company experienced earnings growth of 250% for the most recently completed year versus the year-ago total. Continue your research on LMS at: http://at.zacks.com/?id=2357. To see the full list of stocks that currently pass this winning screen, go to: http://at.zacks.com/?id=2358. 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. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Kevin Matras shows you how to find great growth stocks at an excellent value: http://at.zacks.com/?id=2360. 4. ZacksAdvisor.com TIMELY BUY of the WEEK Here you'll discover a Zacks #1 Rank stock hand selected by Ben Zacks to outperform the market over the next 30 to 90 days. This week's Timely Buy is...
W.R. Berkley (BER) is a holding company that operates in all areas of the property & casualty insurance industry. Subsidiaries such as Acadia Insurance, Continental Western Insurance, Union Standard Insurance, and Firemen's Insurance offer personal and commercial lines including automobile, homeowners, and small business insurance. W. R. Berkley's reinsurance operations are handled by Signet Re and other units. Still other subsidiaries offer such specialty coverage as excess & surplus, professional liability, and commercial transportation insurance. BER released stellar earnings for their fourth quarter report. Net income for the fourth quarter of 2005 was $167 million, or $1.25 per share, a 44% increase from $116 million, or $0.88 per share, a year ago. Net operating income for the fourth quarter of 2005 increased 45% to $165 million, or $1.23 per share, compared with $114 million, or $0.86 per share, for the fourth quarter of 2004. The market was a little nervous about the impact that Hurricane Katrina would have on earnings, but those fears proved to be unfounded. Disasters are often a blessing in disguise for insurance companies since they are able to raise their premiums in the aftermath of the event. Company management said in its earnings release that they see opportunities to grow its premiums well into next year. Premium growth is expected to continue growing at a double-digit pace and should benefit from W.R. Berkley’s acquisition of a book of business from St. Paul Travelers (STA). This book of business is expected to add to top-line growth over the next year and represented roughly $100 million in premiums (more than 25% of the company’s annual premiums prior to the acquisition). Management has said that it will continue to pursue other opportunities to further grow its book of business and increase top-line growth. The stock is looking very good from a technical standpoint. BER staged a solid breakout to new highs following its strong fourth quarter earnings report. The old high of $52 was taken out decisively on strong volume, which is a good indication that institutional investors are snapping up the shares. The stock should continue to perform well as their prior resistance levels were breached. Despite hitting new highs, BER is trading at a scant 12.5X 2006 earnings $4.66 per share, which is quite cheap for a company that has a long-term growth rate of 13%. This puts the PEG ratio below one, which means the stock is an excellent value.
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?
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Zacks #1 Stocks on the Move 06/19/2013
| Company Name | Symbol | %Change |
|---|---|---|
| SONIC FOUNDR | SOFO | 4.40% |
| SUPPORTCOM I | SPRT | 3.75% |
| UNISYS CORP | UIS | 3.31% |
| SHORETEL INC | SHOR | 3.22% |
| GREEN MOUNTA | GMCR | 3.13% |
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