Thursday - April 13, 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 After a strong run in utilities stocks over the past few years, it looks as if the industry is starting to experience a bit of a pullback. How are utilities adjusting, and what areas of growth are out there for investors to take advantage of? We spent some time with senior utilities analyst Jon Kolb to discuss these matters. The last time we spoke, consolidation was the main issue among utilities. Has anything changed? I would say consolidation is still the main story. Our outlook for utilities, or utes, is market-neutral in aggregate, over the near term. The impetus for this is we’re at or near the peak in the Fed funds cycle. Many expect, including myself, that we may see one or two more quarter-percent hikes, but that’d be it. Utes have had a great multi-year run, with very strong performances overall. But now, as rates get past four, four and a half percent – where the average dividend yield for utes has been, depending on which part of the utes sector you’re looking at – investing in utilities is becoming less attractive than the risk-free investments which offer the same four-plus percent rate the utes typically do. Now, there are some utes with more attractive yields – five, even six percent, in some cases – these are not risk-adjusted returns. And unless these companies can generate significant earnings growth through 2006, 2007, those yields are simply not sustainable. Over the long-term, no company can afford to pay out more in dividends than it makes in earnings. More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Which brings me back to consolidation as the main growth driver in the utes sector over the near term. This is the main way utes are going to continue growing at anywhere near the percentages they had been over this multi-year run-up. Are you seeing a lot of consolidation planned for the near future? A lot. This is definitely continuing in a big way. What we’d recommend for investors is to, in the near term, look at regional plays in attractive regulatory environments – the Northeast, the Southwest – with solid and growing customer bases, particularly where other utes have been taken over. That’s where investors can see a pop in the stock price, as there should be a premium for any such deals as these. This is our short-term recommendation for investors. For the longer term, we’d suggest going with regional dominant players – Duke Energy (DUK), Exelon (EXC), Southern Companies (SO), maybe even Edison International (EIX) – as part of a multi-year Buy and Hold strategy. Once a deal is announced, usually the acquirer goes down in stock price as the acquired company goes up. This often marks a good time for investors to buy in to the acquirer; it’s often a good entry point for the large-cap utes over the long term. Obviously, it’s even better if the investor has already bought some of the smaller utes getting acquired. Are there still many small-cap utilities ripe to be taken over? Plenty. Of course, with each deal the number ticks down a notch, but there are still lots of good buy-out candidates out there. These are not only attractive to U.S. players, but to large European companies, as well. We have been seeing more of European companies coming into the U.S. market, like when National Grid (NGG) bought KeySpan several weeks back. It doesn’t really make a difference whether a company is acquired from a domestic ute or a foreign one; the main thing for investors is if they’re going to see a premium in the deal and get a pop in the stock. This is going to attract investors in the near term far more than real earnings growth from any individual story. But we’re pretty much at a rates peak now, do you think? Whatever the consensus is on Wall Street, pretty much. Rates are generally kept fairly well in-line with what’s going on in the broader economy. The thing is, there needs to be something that causes the Fed to stop raising rates. Over the very long term, say the next 20 years or so – around the globe, for all utilities – there will need to be a lot of investment in being able to supply the market with electricity, as electric demand will keep growing. For utes, this means earnings should grow apace with that demand, generally speaking. This country will need billions invested in upgrading the electrical grid and the whole utility infrastructure. Same goes for natural gas, with their pipelines and such. And how quickly and efficiently this happens depends on the regulators, and they are a tough bunch to read. Are rates determined mostly on a state-by-state basis? The Federal Energy Regulation Commission (FERC) regulates on a federal level, of course, but each state has its own commission, too. So yes, basically these are determined on a state-by-state basis. Some states are more regulated than others. Some are completed deregulated, such as – broadly speaking – regions in the Northeast and Southwest. From the Northwest down to Florida, including most of the heartland, these states are more regulated; they keep closer tabs on the rates utilities can charge. Read the complete Analyst Interview by clicking: http://at.zacks.com/?id=2693. Jon Kolb is a senior analyst covering the utilities sector for Zacks Equity Research. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Analyst Blog - NEW! Get real-time market insights from Zacks Equity Research Analysts. See their latest posts, click here. Ctrip.com (CTRP) - A Play on Chinese Growth. For full Zacks research report, click here. Midwest Banc Holdings (MBHI) - Not Yet Turned Around. For full Zacks research report, click here. First Quarter Expectations Plunge for the Energy Sector Zacks Industry Rank for the Week of Apr 10
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. With the first quarter behind us, this week Zacks is delighted to feature the inaugural top player interview of the Second Quarter Zacks Stocks Challenge. Vinson Houston (aka: Buylowsellhigh), who discovered the latest Simulator challenge by reading an interview with leading player in the First Quarter Zacks Challenge, is currently leading the Second Quarter game. His current portfolio’s overall return is roughly 20% since Apr 3. This market enthusiast describes his investment style as very aggressive and instinctive, adding that “unlike many investors, I don't rely upon fundamentals or technical indicators.” Take a look at Vinson’s stocks by checking out his trades at: http://at.zacks.com/?id=2515. Some of his recent positions include plays on Hi-Shear Technology Corporation (AMEX: HSR) , Datalink Corp. (Nasdaq: DTLK), Blue Dolphin Energy Company (Nasdaq: BDCO), GenStar Therapeutics (Nasdaq: VEGF) and Jewett-Cameron Trading Company Ltd. (Nasdaq: JCTCF). What does this stock picker look for in a security? The hawkish investor explained that he trades like a gambler with all of his transactions being influenced by what Vinson referred as his “risk-taking nature.” His major criteria as he put it is “volume, volume and more volume. I hate slow volume stocks.” He prefers stocks with a high amount of volatility, preferring price action now than waiting for a stock to make its move. How does he decide on what to pick? Noting that his research is very limited, Vinson gets most of his insight from news releases, message boards and top ten charts. When it comes to historical data or press releases, this savvy investor is fan of Yahoo’s Finance section and other financial web sites. He also frequently uses screening section of Zacks.com to find potential plays. Any favorites? Leaving emotion completely out of his investment strategy, Vinson does not believe in having any favorites when he is trading. However, the Simulator contender does point out that he hardly ever trades stocks priced above $10. Such shares do not have enough volatility for this maverick investor. Vinson’s big winner so far has been Blue Dolphin. He commented, “I didn't expect it to move this far. I wish I had held from my initial purchase instead of day trading it.” When is it time to sell? It was no surprise to learn that this volume hungry market player moves on when volume dries up. His momentum style of trading is dependant on a liquid market for a stock. Outlook and advice? There is no crystal ball on this market wizard’s desk. When Zacks asked Vinson where he thinks the Dow Jones will be in the next 12 months, he replied, ”I couldn't tell you where it is now without looking. I have no interest in following indices. Good traders will make money in any market.” As for advice for those who are just getting their feet wet in the market, the Zacks Stocks Challenge competitor stressed the importance of studying stocks, identifying their tendencies and protecting one’s capital. Vinson concluded by stating, “most of all, never fall in love with a stock. They'll break your heart every time." Sign up now for the new Zacks Stock Challenge. New game starting April 2006. 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 at http://at.zacks.com/?id=2671. Trade Options? Then sign up for the Zacks Options Challenge at http://at.zacks.com/?id=2672. 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: Discounted Fundamental Strength Fundamental strength is often a key criterion for many investors. A strong balance sheet and a history of profitability indicate that a company has the ability to meet its obligations and the flexibility to pursue opportunities for growth. Therefore, such stocks are often perceived as having a lower level of risk. The lower level of risk often results in higher valuations. Occasionally, however, the markets undervalue a stock relative to its company's fundamental strength. When this occurs, opportunities for profits are created. This Profit Track identifies such opportunities. Backtesting results show just how successful this Profit Track has been. Double-digit returns have been achieved during each of the past four years. In 2005, this strategy continued to handedly beat the S&P 500. Here are four stocks that make the grade for the Growth and Income Profit Track: CTS Corp. (CTS) released fourth-quarter financial results in late January. Earnings per share not only outpaced the year-prior total, but also jumped ahead of the consensus estimate by 15%. The company mentioned that strong earnings and cash generation in the quarter were clear positives. CTS offers a PEG ratio of 0.62 and a price/sales multiple of 0.74. Continue your research on CTS at: http://at.zacks.com/?id=2354. Frontier Oil Corp. (FTO) reported the most profitable annual and fourth quarter results in company history. The results were issued in late February and included earnings per share that topped the consensus estimate by about 7%. The company noted that its record results are attributable to record diesel crack spreads, wide light/heavy crude oil differentials and improved gasoline crack spreads. FTO meets the criteria of this Profit Track with a PEG ratio of 0.62 and a price/sales multiple of 0.78. Continue your research on FTO at: http://at.zacks.com/?id=2355. More...
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Guitar Center, Inc. (GTRC) has a current ratio of 2.18 and a debt/equity level of 0.25. The company announced fourth-quarter earnings of $1.17 per share, excluding items, in mid-February. The result eclipsed the consensus estimate by nearly 2% and outpaced the previous year's earnings. The company mentioned that it generated solid sales growth across all of its divisions for the fourth quarter and the year. Continue your research on GTRC at: http://at.zacks.com/?id=2356. P.A.M. Transportation Services, Inc. (PTSI) is an irregular route, common and contract motor carrier authorized to transport general commodities. PTSI sports a current ratio of 2.29 and a debt/equity level of 0.24. In early February, the company posted fourth-quarter earnings of 41 cents per share, improving on last year’s 16 cents and beating analysts’ expectations of 27 cents. Continue your research on PTSI 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. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Great Stocks often have Great Peers Kevin Matras looks at how to find winning stocks in the winningest Sectors: 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...
The Men's Wearhouse, Inc. (MW) operates as a specialty retailer of menswear. It operates throughout the United States primarily under the brand names of Men's Wearhouse and K&G, and under the brand name of Moores in Canada. The company’s stores offers designer, brand name, and private label merchandise, including suits, sport coats, slacks, navy blazers, tuxedos, business casual, sportswear, outerwear, dress shirts, shoes, and accessories. MW continues to benefit from strong demand for menswear. The company is also capitalizing on its ongoing market share gains with significant earnings growth. These positive trends show no signs of letting up, and coupled with an improvement in the direct sourcing of private label merchandise and modest square foot growth, MW should grow earnings 13%-15% annually for the next several years. The company is benefiting from improved profit margins from its private-label business, growth in the number of stores and a robust marketing and loyalty program. Prom season is coming up in a few weeks, which is a big time of year for Men's Wearhouse. Tuxedo rentals, a very high-margin business, will be a boost during the upcoming spring quarter. The latest quarter was stellar for the company. MW said it earned $32.7 million, or 67 cents per share, up from $25.04 million, or 45 cents per share last year. Revenue for the quarter was $497 million, up from $458.7 million last year. Analysts expected the company to earn, on average, 55 cents per share. As would be expected the C.E.O. had glowing things to say about the quarter and the business: George Zimmer, founder, chairman and chief executive officer, stated, "Fiscal 2005 was a tremendous year for all of our stakeholders. In May 2005, we announced a three for two stock split, our fourth stock split since going public in 1992. In January 2006, the Board of Directors declared the company's first quarterly cash dividend of $0.05 per share as well as a $100 million stock buyback program. Also in January 2006, we were named once again by FORTUNE® magazine as one of the 100 Best Companies to Work for In America. Lastly, with this release today, we are reporting a historical level of net earnings -- exceeding the $100 million mark. We entered the year with the objective to leverage our brands and drive shareholder value, and we have made great strides towards both these goals." Earnings estimates have been on the rise over the past 60 days. During that time period, this year's numbers have increased 6.1% to $2.31 per share. The company has exceeded earnings estimates for 11 consecutive quarters, with three different analysts raising their numbers for the current year. The stock is attractively valued at 13.7x next year's estimates of $2.58 per share, slightly below the long-term growth rate of 15%.
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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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