Tuesday - May 2, 2006

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More than a third of the companies within the Zacks Rank Universe have reported first-quarter results. Positive earnings surprises are exceeding negative surprises by a ratio of 2.1:1. Sales are also, on average, coming in above expectations with positive surprises leading negative surprises by a ratio of 1.6:1. Changes to full-year profit forecasts following reported earnings, however, have been a mixed bag. As of Friday, analysts have raised estimates on 723 companies and cut estimates on 746 companies. The average full-year estimate was revised downward by -0.8%.

These numbers tell us that this remains a stock picker’s market. Investors need to continue looking for industries with strong underlying fundamentals – and the strongest companies within those industries.

Practically at the top of the Industry Rank table this week is Electronic-Connectors. The group has four companies, three of which have recently exceeded earnings expectations. Amphenol (APH) generated a first-quarter profit of 63 cents, surpassing the consensus estimate by four cents per share. The company credited strength in the wireless handset and broadband communications markets, though growth was realized in all segments. APH also raised its full-year earnings guidance to a range of $2.64 to $2.72 per share, from $2.56 to $2.63 per share. All 11 covering analysts revised their forecasts in response, resulting in a 10-cent increase in the consensus estimate to $2.73 per share.

Molex (MOLX) followed suit with profits that were three cents above expectations. The company earned 35 cents per share during its fiscal third quarter. Like APH, MOLX enjoyed strong growth in its mobile phone business and other units. Molex provided fiscal fourth-quarter guidance that was inline with analysts’ estimates of 34 to 36 cents per share. However, seven analysts still revised their forecasts higher, pushing the consensus estimate upwards by two cents to 37 cents per share. More notably, estimates for fiscal 2007 earnings have been ratcheted up by eight cents, to $1.61 per share, since the report was released.

Thomas & Betts (TNB) joined the party with first-quarter profits that were eight cents above expectations. The company’s 62-cent per share profit was driven by strong demand in the industrial, light commercial construction and utility distribution markets. TNB noted that it enjoyed both stronger demand and pricing power. The company raised its guidance to a range of $2.55 to $2.60 per share, from its previous projection of $2.35 to $2.45 per share. In response, analysts have revised their forecasts higher by 19 cents to $2.64 per share.

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Zacks Equity Research continued...

The bullish reports were not limited to manufacturers of electrical parts. Four companies in the Electronic Parts Distributors group have surprised to the upside. Arrow Electronics (ARW) bested expectations by eight cents with first-quarter profits of 68 cents per share. CEO William Mitchell said Northern American sales reached a five-year high. Avnet (AVT) beat fiscal third-quarter estimates by four cents, with profits of 52 cents per share, and gave bullish guidance for its fiscal fourth-quarter. Anixter International (AXE) credited strength in its electrical and electronic wire & cable market for first-quarter earnings that topped expectations by nine cents (74 cents versus 65 cents). Wesco International (WCC), which supplies construction and industrial electronic components, boasted that it achieved record sales per workday. Profits in the first quarter totaled 86 cents per share, 16 cents above expectations. Analysts have raised their projections on all four companies.

Some of the momentum in the distributor’s earnings was related to strength in the construction market. Demand and prices for construction materials have been rising and, as a result, bullish earnings reports are being given by companies such as Florida Rock Industries (FRK). FRK exceeded fiscal second-quarter expectations by 24 cents with profits of 86 cents per share. The company credited volume increases and higher sales prices for the 39.7% increase in revenues.

Two Zacks #1 Rank construction material companies will report results tomorrow. Martin Marietta Materials (MLM), which raised its first-quarter guidance at the end of March, will report before the open. Eagle Materials (EXP) will report after the close.

A complete listing of the Zacks Sector Rank and Industry Rank scores is presented in the tables below. Sector Rank is calculated by averaging the Zacks Rank for all of the industries within a given sector. Industry Rank is calculated by averaging the Zacks Rank for all covered companies within a given industry.

Charles Rotblut, CFA is a senior market analyst for Zacks.com. He can be reached at crotblut@zacks.com

Read the complete Industry Outlook at: http://at.zacks.com/?id=2379.

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MORE FROM ZACKS EQUITY RESEARCH…

Analyst Blog - NEW!

Get real-time market insights from Zacks Equity Research Analysts. To see their latest posts, click here.

 
BULL OF THE DAY

Zimmer Holdings (ZMH) - Growth Still Looking Strong. For full Zacks research report, click here.

 
BEAR OF THE DAY

Fidelity National (FNF) -Mortgage Business May Suffer. For full Zacks research report, click here.

 
ZACKS ANALYST INTERVIEW

China Gets Closer to the West

Hu’s visit to the U.S. will hopefully enhance the communication and trust between the leaders of the two countries. More...

 
ZACKS EARNINGS TRENDS

Positive Earnings Surprises lead to Upward Estimate Revisions

A flood of better than expected earnings, widespread but particularly in the Materials and Industrial Sectors, has led analysts to significantly raise their expectations for both this year and next. More...

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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: High Rank Value

Two of the most commonly accepted measures of a value stock are a price-to-earnings (P/E) multiple of 15.0 and a price-to-book (P/B) multiple of 3.0. Although many studies have shown performance advantages to investing in value stocks, not all value stocks are actually bargains. A value a stock is only a good buy if earnings are expected to improve in the future.

High Rank Value is a strategy designed to find the true bargains among value stocks. By requiring a Zacks Rank of #1 (“Strong Buy”) or #2 (“Buy”), this strategy restricts the pool of value stocks to only those with positive revisions in earnings estimates. In other words, profits are expected to improve in the future at a faster pace than originally anticipated.

By requiring a high Zacks Rank in addition to a low valuation, this strategy finds the true bargains — bargains that generated returns of +13.7% in 2005.

 
Here are four stocks that make the grade for the High Rank Value Profit Track:

CBL & Associates Properties, Inc. (CBL) will announce its financial results for the first quarter next week. In early February, the company reported fourth-quarter funds from operations (FFO) of 89 cents per share, outpacing the previous year’s result and matching the consensus estimate. CBL said the combination of occupancy gains, healthy rental rate increases from leasing, continued growth in mall shop sales, and contributions from new developments and acquisitions led to an impressive performance in the fourth quarter and a strong finish for the year. The company has a price-to-earnings (P/E) multiple of 11.84 and price-to-book (P/B) multiple of 2.34. Continue your research on CBL at: http://at.zacks.com/?id=2389.

City Holding Co. (CHCO) offers a price-to-earnings (P/E) multiple of 12.59 and a price-to-book (P/B) multiple of 2.25. The company recently released first-quarter earnings of 71 cents per share, which topped last year’s 69 cents. CHCO is a multi-bank holding company that provides diversified financial products and services to consumers and local businesses. Continue your research on CHCO at: http://at.zacks.com/?id=2390.

Entertainment Properties Trust (EPR) satisfies the criteria for this Profit Track with a price-to-earnings (P/E) multiple of 12.45 and price-to-book (P/B) multiple of 1.60. The company announced fourth-quarter funds from operations of 87 cents per share in late February. The result eclipsed the year-prior total of 79 cents and matched analysts’ expectations. EPR will release its results for the first quarter next week. Continue your research on EPR at: http://at.zacks.com/?id=2391.

Harleysville Group Inc. (HGIC) recently posted first-quarter earnings per share that beat the consensus estimate by almost 9% and outperformed the year-ago earnings. The company noted that it has had an excellent start in 2006 as its statutory combined ratio improved by 5 points to 99.2 percent and its operating ROE was 12.0 percent. Harleysville Group’s shares offer a price-to-earnings (P/E) multiple of 14.35 and a price-to-book (P/B) multiple of 1.45. Continue your research on HGIC at: http://at.zacks.com/?id=2392.

To see the full list of stocks that currently pass this winning screen, go to: http://at.zacks.com/?id=2393.

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=2394

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SCREEN OF THE WEEK

Creating a Custom Consensus

Kevin Matras combines some of his winningest strategies to create a Custom Consensus screen: http://at.zacks.com/?id=2395.
 

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Zacks has partnered with the leading options experts, Schaeffer's Investment Research, to provide you the best options commentary, research, and trading tools on the market today.

Free Online Options Research at: http://at.zacks.com/?id=2664.

Zacks/Schaeffer’s Options Trading service at: http://at.zacks.com/?id=2665.

 
Here is this week’s article on how Schaeffer’s Tools can help you Profit with Options.

Last week we looked at how some of our recent picks using the filters have done, along with some philosophies on trading. This week we want to get right back into looking at a filter and finding a potential play. With that said, today we want to look at a bearish filter that we haven’t used for sometime - the Unusually High Option Volume filter for calls.

Before I can go any further, I want to talk briefly about our Expectational Analysis® methodology here at Schaeffer's. We are contrarian-based investors, meaning that we seek skepticism toward an outperformer as a sign that money is still on the sidelines. Conversely, we want to see optimism toward an underperformer. We view too much optimism as a potential sign that nearly everyone who wants to invest in a particular stock has done so already. Now, just because a stock sees substantial optimism doesn't mean that we will blindly short a particular security; we need to see some negative price action or a major catalyst for a downside move in order to pull the trigger in most cases. Other indicators that we tend to utilize in measuring overall sentiment include put/call ratios, short interest, magazine cover stories, media comments, and analyst ratings.

Looking at the list of 20 names from Thursday, one stood out and that was energy leader Amerada Hess (AHC). According to the filter, 10,352 bullish calls traded on Wednesday on AHC, coming in at over four times the average daily volume. This one has been on my mind because AHC smashed earnings estimates on Wednesday, yet the shares sold-off on big volume and finished near the lows of the day. That suggests something might not be right - then considering a lot of bullish calls traded as the shares continued to sell-off and we’ve got a potential play.

Technically, AHC has broken beneath its 80-day moving average for the first time this calendar year – suggesting the technicals are definitely deteriorating. Also looking at energy as a whole, we’ve seen a few investor polls that show people are very near extreme levels of bullishness towards the sector. Remember, once everyone is bullish there’s no one left to buy. We're not saying that is what’s happening now with energy, but it’s a possibility.

So technically we’ve got some signs of weakness, poor price action in the face of “good” news and the short-term crowd remaining bullish. So far, so good – but lets look at other areas of sentiment before we do anything.

One indicator that we like to use to measure sentiment is the Schaeffer's put/call open interest ratio (SOIR). This ratio shows how many puts there are compared to calls for the front three months of options. Currently, AHC’s SOIR checks in at 0.94. When compared with other readings over the past year we find that this is lower than 59% of the readings over the past year, suggesting short-term option players remain bullish.

Short selling is one stock-trading strategy that basically involves selling a stock with the intention of buying it back at a lower cost. In other words, you are betting that the shares will go down. We view a lot of shorts as bullish, as it increases the odds of a short covering rally on any good news. The flipside of this is a lack of shorts reducing the odds of a sudden short covering rally. For a potential short, we like to see a lack of shorts betting against the shares. Looking at AHC, it would take just under four days for the shorts to cover their bearish bets. This isn’t a huge number, but at the same time we don’t think its small. So all in all, this is a rather neutral reading in my opinion.

Finally, according to Zacks, analysts are pretty bullish, as there are eight “buys”, three “holds”, and one “sell”. We view a lot of optimism among weakening price action as a chance for an influx of analyst downgrades. Or if nothing else, reducing the chances of a bunch of upgrades.

So we have a potentially technically weakening stock with some optimism from a very well liked sector. Add it up and although this one isn’t a picture perfect play, it could be a nice winner. With that said we’d recommend playing an August 145 put (IGGTI) for $11.80 a contract (where it was trading on Thursday right before the bell). Write it down and see how it does, but it looks like it could be a potential winner.

We'll be back next week to take a look at the other side of this filter by using puts. In the mean time, please continue to use all of the filters on these pages and try to find out which ones work best for you. Remember; don't be afraid to paper trade a few here and there, as this is a great way to learn. Finally, options are highly leveraged vehicles, and the odds favor that most of your trades are going to be losers. But, thanks to this high leverage, all it takes are a few winners here and there to be more than profitable. Keep on using the filters here at Zacks.com and review the commentaries, and more, at SchaeffersResearch.com. Good luck!

To learn more about the Unusually High Option Volume filter, click here: http://at.zacks.com/?id=657.

Discover all the tools and commentary available from the Zacks.com Options Center at: http://at.zacks.com/?id=2382.

 
Zacks Rank + Options = Trading Success!

Leverage the timeliness of Zacks #1 Ranked stocks with options trades that maximize profits and minimize risks. Learn more about our new Options Trading service at: http://at.zacks.com/?id=2666.

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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 – Intuitive Surgical (ISRG)

Intuitive Surgical (ISRG) soared over 20% last week after it easily beat first-quarter expectations. EPS came in at 38 cents, almost double the 20-cent consensus estimate. Sales almost doubled to $77 million. The stock is worth holding onto, as earnings momentum like this usually lasts for several quarters. Read the full analysis on ISRG at: http://at.zacks.com/?id=2494.

 
Growth & Income – Applied Industrial Technologies (AIT)

Applied Industrial Technologies (AIT) posted third-quarter fiscal 2006 earnings per share of 65 cents, topping the Street's estimate by 8.3%. AIT raised its annual earnings guidance from between $2.10 and $2.20 per share to between $2.29 and $2.34. The company also increased its dividend to 18 cents per share. Read the full analysis on AIT at: http://at.zacks.com/?id=2495.

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Zacks Rank continued...

Momentum – General Cable (BGC)

We love General Cable (BGC) and with good reason. Since it was featured as a Momentum Stock of the Day on Dec 14, 2005 it’s up over 60%. With BGC set to announce earnings for the Mch 2006 quarter after the market close on May 1 expectations are running high. The stock closed Friday within striking distance of its 52-week high which was set on Apr 7, 2006 at $32.30. The consensus forecast by analysts is for earnings of 27 cents compared with earnings in the same quarter last year of 18 cents. It’s also noteworthy to mention that BGC has delivered a positive earnings surprise the last four straight quarters. Read the full analysis on BGC at: http://at.zacks.com/?id=2496.

 
Value – Falconbridge Limited (FAL)

Since we featured Falconbridge Limited (FAL) back on Mar 15, 2006, the stock's price has jumped 16%. FAL beat the Street's estimate by 21.0% when it posted first-quarter earnings per share of $1.21. The company's profits in the prior-year period amounted to 57 cents per share. FAL should continue to benefit from the high metal price environment going forward. Read the full analysis on FAL at: http://at.zacks.com/?id=2497.

 
Zacks Rank Resources

• View All Zacks #1 Rank stocks: Go to: http://at.zacks.com/?id=2383.
   
• Free Zacks Rank Guide: Learn how to use the Zacks Rank to pick more profitable stocks. Get the guide: http://at.zacks.com/?id=2558.
   
• Zacks Advisor: Discover Ben Zacks' hand picked #1 Rank stocks on his Timely Buys list at: http://at.zacks.com/?id=2559.
   
• Zacks Options Trader: Combine the timeliness of Zacks #1 Rank stocks with the explosive profit potential of options. Learn more at: http://at.zacks.com/?id=2707.
   
• Zacks Wealth Management: Own all the Zacks #1 Ranked stocks in a portfolio managed by Zacks. Learn more at: http://at.zacks.com/?id=2560.

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Zacks Rank #1 and #5 Additions

Zacks #1 Rank List: 72 New Additions (alpha by ticker)

To see the full list of Zacks #1 Ranked stocks (approximately 220 stocks), then click here.

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Zacks #5 Rank List: 65 New Additions (alpha by ticker)

To see the full list of Zacks #5 Ranked stocks (approximately 220 stocks), then click here.

OTHER TOOLS FROM ZACKS

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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:

• +32.5% average annual return since 1988 versus +11.8% for S&P 500
• Outperformed S&P 500 in 17 of the last 18 years
• +43.8% total return from 2000 to 2002 — the worst bear market in over 60 years.
• +18% in 2005

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=2385.

Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=2383.

FREE PORTFOLIO TRACKER

Do you believe that these events affect stock prices?

• Broker Recommendation changes
• Earning Estimate revisions
• Earnings Announcements
• Zacks Rank changes

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=2386.

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

Senior Market Analyst
Zacks.com

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.

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