Thursday - April 20, 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 While tech continues to try and break out ahead of the market, we thought we’d focus on a particular sector that senior tech analyst Larry Orlowski, CFA feels is among the fastest growing: computer services. As this encompasses a wide range of IT companies, we got into a little more detail about the group. What are some of the major developments these days in computer services? Right now, I think there are two very interesting areas of growth that I’m looking at in computer services. One that I think may be the most important has to do with government IT services. There is a whole market where you have a number of public computer service companies that focus on the federal government information technology market. Many of these specialize in serving the Department of Defense (DoD), the Department of Homeland Security (DoHS) and the intelligence community. Given geopolitical concerns – be it Iran’s nuclear program, the threat of terrorism, North Korea, what have you – strong growth should continue in this sector. Would this fall under the heading of security services? Yes, this has to do with security, definitely fueled by the DoHS and the intelligence community. Since threats have risen post-9/11, these types of services have been budgeted by the federal government. There will probably be good growth overall in the federal IT budget. Also, there’s a trend for these public companies – some of which are in my coverage – to take over from privately owned firms, which would obviously benefit these public companies. More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - The fact is, we expect 10-15% organic growth in this sector for the next year. National security is clearly a priority, so the government is going to fund this. Also, for some of the companies I look at, government IT services companies are shifting away from the low-cost contracts to higher-margin, fixed-price contracts, which will help profitability. There are two attractive companies in this space that I cover: CACI International (CAI) and ManTech (MANT). But as I have a Hold recommendation on ManTech right now, I’d like to focus instead on CACI, which I have a Buy on. CACI benefits from strong trans-national security expenditures. In fact, 94% of its revenue comes from serving the U.S. government. The company’s main concentration is Homeland Security, Defense and intelligence; it provides systems to improve decision-making to work faster, smarter and so forth. On a macro basis, the current political environment bodes well for large defense expenditures. CACI benefits as the DoD continues to depend on contractors to provide special services. The company is in an attractive high-end market of IT system integration, and their intelligence expertise is critical. That’s the area CACI is concentrated in, where there is a need for skilled professionals, security clearances and sharing critical information among intelligence agencies. All these are areas of strong growth. Aren’t there some risks to CACI? Weren’t they somehow involved in the Abu Ghraib scandal? To tell the truth, you raise a very good point. CACI was at Abu Ghraib, and they were involved – somehow – in the interrogation, or at least the training of people to gather information from certain individuals. But the company sold that business, getting out of it due to the bad press and political embarrassment it caused. Besides, that wasn’t their main concentration, and it was only a small part of their business anyway. What CACI does is basically improve communication and information for data collection analysis on a high and highly secretive level. Also, the company has more than $2 billion worth of proposals submitted to the federal government currently under review, and it has submitted $5 billion worth of additional business. As of the end of 2005, the company has a qualified pipeline of roughly $14 billion. This type of growth should continue, not just in the defense sector, but the high-end of it, the crown jewel. Do you consider CACI a good candidate to be bought out by a larger IT firm? Sure I do. Big companies like IBM (IBM), Computer Sciences Corp. (CSC) or Electronic Data Systems (EDS) – these behemoths all might want to buy a company like CACI, which is much smaller than any of them. It’s too speculative to talk about when this might happen and with whom, but yes, this is a good candidate for some of the larger IT players. Read the complete Analyst Interview by clicking: http://at.zacks.com/?id=2693 Larry Orlowski, CFA is a senior analyst covering the information technology industry for Zacks Equity Research. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Analyst Blog - NEW! Get real-time market insights from Zacks Equity Research Analysts. See their latest posts, click here. KEPCO (KEP) - Dominant in Korean Energy. For full Zacks research report, click here. AMCORE Financial (AMFI) - Expect Falling Estimates. For full Zacks research report, click here. Earnings Season off to Strong Start Zacks Industry Rank for the Week of Apr 17
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 excited to introduce another one of the leaders of the Second Quarter Zacks Stock Challenge, Troy Willis (aka: Dollar4Dollar). Troy, who has only been investing for a little over a year, sports a stellar Simulator portfolio that is currently in ninth place and boasts an overall return of about 26% since Apr 3. Troy’s investment style is one of a short-term trader. He stated, “I invest mostly day to day. At the present time I am not long in any single stock. I will, although, buy a stock, take it up a few points and then sell.” Click here: http://at.zacks.com/?id=2515. to check out some of this player’s trades and discover which stocks he is holding. Some of the names in Troy’s Zacks Stock Challenge portfolio include 3Dicon Corporation (Nasdaq: TDCP), Google, (Nasdaq: GOOG), Mindspeed Technologies (Nasdaq: MSPD), FalconStor Software, Inc. (Nasdaq: FALC) and SAVVIS, Inc. (Nasdaq: SVVS). Zacks contacted Troy in order to find out how this market watcher, who just recently started buying stocks, managed to have quickly climbed up to spot number nine in the latest Simulator competition. Here is what we discovered. Troy accesses a wide variety of sources for guidance and research. He noted that he is an avid watcher of Mad Money for stock leads and tips. “Although I do not share Cramer’s views on all of the stocks on the show, one mention of a stock by him will almost always give you a point or two right away,” mentioned Troy. The Simulator contender also referenced Scottrade charting and research tools, Market Watch.com, MSN Money and the Investors Business Daily as some of the places he turns to for research. What does this savvy investor look for in a stocks? The market player outlined three main factors that he looks for before investing his money in a security: a strong chart that is showing upward movement, solid financials that are growing from quarter to quarter and volume. “I prefer at least 400,000 shares on a daily average. I want to make sure that after I get in the stock, that I have plenty of opportunity to get out,” he commented. How does he know when to sell? Volume is also an issue on the sell side of investing for Troy. He said, “I do not like it when the volume slows down. That makes me think that everybody is unsure of what is about to happen and they are waiting for someone else to make a move. I would rather take my profit and wait on the sideline than to take a huge hit down. If volume slows and it is around earnings time and analysts are all over the place with estimates then I am getting out and waiting for results. I would rather take a for sure five points than a mythical or hopeful 15 or 20.” Does the market enthusiast have any favorites? Troy was quick to rattle of some favorite names and why he likes them. The Simulator pointed out that he is looking for a favorable entry point on Google “now that it has regained momentum and overcome some bad news.” Troy also said that he likes 3Dicon Corp. “Although it is very speculative, it could do well. Volume has picked up over the last few months and the stock price has grown tremendously during that time,” noted Troy. Who was the big winner? Google brought in the big bucks for this stock picker. Troy was surprised to see a substantial gain almost immediately after the company came out with positive earnings last year. “At that point I thought that it would continue to go up and I continued to trade it all of the way to $475,” added Troy. Any advice of a novice? Troy suggests investing in small doses in order to get the hang of it first before investing large dollar amounts. He also stresses the importance of research and keeping emotion out of buying or selling. Troy concluded our interview by saying, “I would also stay out of the penny and really small stocks in the beginning. I did not, and I lost half of my investing capital in the first two months.” 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: PEG Ratio This strategy uses the PEG Ratio to find attractively priced stocks poised for price appreciation. The PEG Ratio is simply the P/E (Price divided by Earnings) of a stock divided by its 5-year projected growth rate. Too often investors think of value investing being the antithesis of growth investing. The beauty of using PEG is that you can find value stocks even amongst hot growth stocks. Let's take a closer look. A company with a P/E Ratio of 20 and a Growth Rate of 10% will have a PEG Ratio of 2.0 (20 / 10 = 2.0). While a company with a P/E Ratio of 40 and a Growth Rate of 50% will have a PEG Ratio of only 0.8 ( 40 / 50 = 0.8) The stock with the P/E of 40 is actually the better bargain since its PEG Ratio is lower (0.8) implying it's undervalued with more upside potential. In general, a PEG value of less than 1 is considered undervalued while greater than 1 is thought to be fully valued to overvalued. The lower the PEG, the better the value, because the investor would be paying less for each unit of earnings growth. Using this indicator in a stock screening strategy can produce stellar profits, such as a +38.9% return in 2004 and 16.3% in 2005. Here are four stocks that make the grade for the PEG Ratio Profit Track:: American Commercial Lines Inc. (ACLI), a Zacks #1 Rank (Strong Buy) company that has a PEG ratio of 0.45, will announce financial results for the first quarter on April 26, 2006. In mid-March, the company raised its earnings per share guidance for the 2006 year. The previous range of $1.31 to $1.51 was increased to the new range of $1.70 to $1.90. Analysts followed suit by upwardly revising earnings estimates to a current level of $1.85 per share. Two months ago analysts were projecting $1.31 per share. ACLI commented that industry fundamentals continue to strengthen in both of its business segments, barge transportation and barge manufacturing. Continue your research on ACLI at: http://at.zacks.com/?id=2354. Hornbeck Offshore Services, Inc. (HOS) is another Zacks #1 Rank (Strong Buy) name. The company reported fourth-quarter earnings of 55 cents per share in late February. The result soared past last year’s 22 cents (excluding an item) and jumped ahead of the consensus estimate by almost 20%. The company’s first-quarter results will be available on May 4, 2006. Hornbeck Offshore Services sports a PEG ratio of 0.38. Continue your research on HOS at: http://at.zacks.com/?id=2355. More...
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Orckit Communications Ltd. (ORCT) meets the criteria of this Profit Track with a PEG ratio of 0.47. The company posted fourth-quarter earnings of 45 cents per share in late February, reversing last year's loss of 22 cents and topping analysts’ expectations by almost 10%. Orckit Communications will release its report for the first quarter on Aril 27, 2006. Continue your research on ORCT at: http://at.zacks.com/?id=2356. Unit Corporation (UNT) is also a Zacks #1 Rank (Strong Buy) company. UNT has an appealing valuation as it continues to maintain the lowest PEG ratio, which is 0.16, currently listed under this Profit Track. In late February, the company announced fourth-quarter earnings of $1.82 per share, improving on last year's 65 cents and outpacing the consensus estimate by approximately 15%. Unit Corporation noted that 2005 marked a year of record-setting performance and growth as it responded to a strong operating environment within the industry. Continue your research on UNT 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. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - The Difference Between Good Stocks and Great Stocks Kevin Matras goes over two Screening Strategies that go beyond your ordinary Earnings screens: 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...
Eagle Materials, Inc. (EXP) engages in the manufacture and sale of basic building materials used primarily in commercial and residential construction, and public construction projects in the United States. The company engages in the mining of gypsum and limestone; manufacture and sale of gypsum wallboard; and in the manufacture, production, distribution, and sale of portland cement. It also manufactures and sells recycled paperboard to the gypsum wallboard industry and other paperboard converters; and sells readymix concrete, as well as engages in the mining and sale of aggregates, such as crushed stone, sand, and gravel. The company reported strong fiscal third-quarter earnings of $2.20 (pre-split) per share, well above the $1.95 estimate. Management guided fiscal fourth-quarter earnings up to between $2.00-$2.20 per share, above the current estimate of $1.73. Product pricing is strong, especially for wallboard, which saw a 12% price increase go into effect in December. For 2007, Eagle said it expects earnings between $11 and $12 per share, a 30 percent to 40 percent increase above its fiscal 2006 outlook. Analysts, on average, are expecting earnings of $9.30 per share. EXP's cost structure is improving at the same time its revenues are increasing. Natural gas comprises 20% of the company's costs, and has dropped by almost 45% over the past several weeks. The combination of price increases for wallboard and falling natural gas prices led to the company's recent big bump in guidance for fiscal 2007. The stock has soared to above $72 from the low $50's a few weeks ago on optimism that its recent price increases will stick and add to earnings. The stock recently underwent a 3-1 stock split, and all numbers above in the company's guidance were pre-split projections. As one would expect, 2007 earnings estimates have been soaring for the company. Over the past 90 days, estimates have increased 40.7% to $4.25 per share. Despite the recent run, the stock only trades at 17x 2007 estimates, well below the long-term growth rate of 50%.
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Zacks #1 Stocks on the Move 06/18/2013
| Company Name | Symbol | %Change |
|---|---|---|
| STAAR SURGIC | STAA | 10.98% |
| LUMOS NETWOR | LMOS | 5.70% |
| INSTEEL IND | IIIN | 5.28% |
| ERICKSON AIR | EAC | 5.10% |
| ASSURED GUAR | AGO | 4.98% |
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