Wednesday - May 3, 2006
 Want to view the archive of past issues? Go to: http://at.zacks.com/?id=2319. Manage Profit from the Pros subscription: 1. ZACKS EQUITY RESEARCH As prices of gold, copper and iron continue trading at historically high levels, we wondered if forecasts were expecting a pullback in pricing sometime in the near future. And, if not, what metals companies would make the best investments going forward? We spoke with senior metals and mining analyst Michael Schrage, CFA to find out. With commodities prices only going higher, are earnings reports for metals and mining companies looking impressive? First quarter earnings have been very good so far, for commodity metals companies pretty much across the board. A lot of this can be attributed to high prices – copper is now over $3 a pound, gold is trading at over $600 an ounce, and coal rates continue to increase, and transportation is improving. Earnings have been very strong here, and have exceeded expectations. More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - In fact, there have been no disappointments thus far. About the only thing close has been from news regarding Consolidated Energy’s (CNX) coal business. The company experienced some problems, having to shut down one mine early and experiencing some transportation problems which cost them some tonnage. But even there, overall earnings were above expectations. Gold prices have remained high rather than correcting. Has your outlook on gold changed at all? Yes, I would have to say I’m a bit more positive on gold at this point. The reaction of the markets to [Fed Chair Ben] Bernanke’s comments recently that interest rates have likely stabilized. This puts more pressure on the U.S. dollar, in my view, which in turn benefits commodities, especially gold and other precious metals. Silver has also made a big move recently. It is currently trading at $12 per ounce at this point. Historically, silver has traded at a 30 to 1 ratio to gold, but even now with a price rally to $12, silver is trading at a 50 to 1 ratio. So it looks like the silver bugs have now come out in addition to the gold bugs. Interesting. So when you see gold prices rising so high and so fast, does that tend to pull all metals commodity prices up? Well, I would say the industrial metals – copper, iron ore, steel, etc. – they all tend to have their own life. But when it comes to precious metals – gold, silver, platinum, palladium – there is definite trade support from gold prices. Then again, I think there is some general relationship between the prices of copper and gold. Historically, you could even make an argument for oil prices being tied to the price of precious metals. Have any developments in the metals and mining space caused you to change your recommendations recently, such as downgrading a Buy to a Hold based on valuation? I haven’t changed any recommendations as of yet. Right now, I’ve still got Southern Peru Copper (PCU) rated a Buy, Natural Resource Partners (NRP) is a Buy and CVRD (RIO) of Brazil is also a Buy. In fact, I’ve got a number of select Buys still in this space. Earnings season is not yet over, so I guess we’ll see. The only company I plan to evaluate closely in terms of valuation is PCU; the others I think I’ll be leaving alone for now. To read the complete Analysts Interview, click http://at.zacks.com/?id=2525.
Michael Schrage, CFA is a senior analyst covering the metals and mining industry for Zacks Equity Research. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Analyst Blog - NEW! Get real-time market insights from Zacks Equity Research Analysts. To see their latest posts, click here. Deckers Outdoors (DECK) - Impressive Growth Potential. For full Zacks research report, click here. CONMED Corp. (CNMD) - Losing Market Share. For full Zacks research report, click here. Zacks Industry Rank for the Week of May 1 Positive Earnings Surprises lead to Upward Estimate Revisions
2. SCREEN OF THE WEEK Zacks.com offers three unique weekly commentaries that all
further our mission to help you Profit from the Pros. Today is
the latest installment of Screen of the Week from Kevin Matras.
Each week, Kevin shares with you another winning screen he has
discovered using the Research Wizard software from Zacks
Investment Research. Learn more about the Research Wizard at: http://at.zacks.com/?id=2335. “Diversification and Portfolio Weighting” Being in the right Sectors and Industries at the right time is what every investor wants. Groups such as Energy, Basic Materials and Finance have been awesome lately with some spectacular gains. But having too much of any good thing can work against you when those groups inevitably turn around. (Just ask the ‘Tech.’ investors back in 2000.) A diversified portfolio is critical for reducing unsystematic risk (sometimes referred to as unsystemic risk). (Whereas systemic risk is the risk attributed to the whole of the market itself, unsystematic risk is the risk to your portfolio due to one stock or a group of related stocks. Systemic risk (also know as market risk), can’t really be diversified away. But unsystematic risk (also known as specific risk), can be lessened with proper diversification and proper stock weighting. For the sake of this article, let’s say that the right number of stocks to hold in a portfolio is no less than five and no more than 20. (Investors and Money Managers with very large portfolios will usually be forced to hold a much larger number of stocks for many reasons, not the least of which is the sheer amount of money they’re trying to fit into the market. But let’s put that topic beyond the scope of this article.) So let’s say between five and 20 stocks is the right number of stocks to have in a portfolio with 10 being the ideal for many. This means no one stock will ever account for more than 20% of a portfolio or any less than 5%, with the goal being approximately 10% for each stock. Let’s also say for the sake of this article that no one Sector or Industry ever represents more than 20% of your holdings, i.e., 20% of your stocks are Energy, 20% are Finance, 20% are Aerospace, etc. Here’s where some people get confused. If you’ve got a 10-stock portfolio and two of your stocks are in oil; that would appear to be fine on the surface. Any more would increase your specific risk (which is the type of risk/volatility people try and avoid). But if 50% of your money is tied up in those two stocks, with tiny portions allocated elsewhere, you’ve missed the point. So if 20% of your stocks are allocated to Energy, that means no more than 20% of your funds should be in energy -- no more. It’s good to get into the habit of making sure your stock buys are equally dollar weighted. Which means, you buy the same dollar amount of shares for every stock. No, not the same amount of shares, but the same dollar amount of shares. For instance, back in October 2005, many oil stocks dropped by 20% or more within just a few weeks. If you had just two oil stocks in a larger 10-stock portfolio, with everything equally dollar weighted, and both of those stocks went down 20%, it would have represented only a 4% loss for the portfolio as a whole. For example, in a $20,000 portfolio, each stock would get $2,000 (10%). A 20% drop in each oil stock would be a $400 loss in each (or a loss of $800 total). And a loss of $800 represents only 4% (-4%) of the $20,000 portfolio. However, what if you had 25% in each of your oil stocks. Now that loss of $2,000 total would represent 10% (-10%) of your portfolio. The scenario of course gets worse and worse the more unbalanced it gets. Now let’s say some of the other stocks in your portfolio were winners. Just remember, the more you have over-allocated in one stock(s), the more under-allocated you are in another. If the two stocks of your 10 represented 50% of your portfolio, then each of the other eight stocks only represents 6.25% of your portfolio. So let’s say the two oil stocks both lost 20%, each for a total loss of $2,000. But now let’s say two other stocks each gained 20%. However, since the other stocks had only a 6.25% weighting, the gains are only $250 for each (or $500 total). Your gains haven’t offset your losses, and you’re still down $1,500 or 7.5% overall. However, if you were equally weighted, the gains would have completely offset your losses. If you’re using a proven, profitable trading strategy, you’ll typically be purchasing your stocks in an equal dollar weighted format. And a good strategy will usually have a high win ratio of 60% or 70% or even higher. And if your strategy is typically finding good, solid stocks, you’ll often see those stocks coming from the best Sectors and Industries. So don’t put the bulk of your money (and never ever all of it) in just one Sector or Industry. Diversify your portfolio over several ‘best’ Sectors and Industries. (And make sure all of your stocks are equally dollar weighted.) If you want to make sure you’re diversified over enough groups, you can specifically screen for that. Here’s a screen to start you off. (Incidentally, this screen backtested quite well last year (and so far this year too) with an average annualized gross return of 61.8% and an average win ratio of 73%. (I ran a series of tests over the last 16 months (1/2005 through 4/21/06), using a four-week rebalancing period and starting each run on different start dates so each test would be rebalanced over a different set of four-week periods. This was done to eliminate coincidence and verify robustness.) The average compounded gross return (from 1/2005 through 4/21/06) is 78.9%. I screened for the top five Sectors and then picked the top two stocks in each one of those Sectors for a total of 10 stocks. But first, I wanted to qualify the ‘Universe’ with the following parameters:
Once our Universe is defined, I look for the best Sectors.
Then I look for the top two stocks within each of the five best Sectors.
This leaves me with a nicely diversified 10-stock portfolio every time I run the screen. Here are a few of the stocks that made it to this week’s list (for the week of May 1, 2006:
With the Research Wizard you can also determine on your own how you want to rank the Sectors and what the best stocks are. Do you want to rank the Sectors based on their Three-Month % Price Change? -– you can. Maybe on their EPS Growth Rates, or Net Margin Increase, etc. It’s up to you. And then make sure to backtest it to see how it works. Sign up now for your two-week free trial to the Research Wizard and get the rest of the stocks on this list and see what other Sectors came through this screen. Or build your own screens and then test them. Get started now and start making better decisions today. http://at.zacks.com/?id=2335. Discover all the Free Screening Tools on Zacks.com at: http://at.zacks.com/?id=2336. Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. 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 – Amphenol Corporation (APH) Amphenol Corporation (APH) has exceeded earnings estimates in 13 out of the past 14 quarters. Amazingly, the stock has rallied in response to each one of those earnings reports. Eight different analysts raised their numbers for 2006. Over the past 30 days, 2006 estimates have increased 3.8% to $2.73 per share. The stock is attractively valued at 18.7x next year's estimate of $3.14 per share, slightly above the 17% long-term growth rate, giving the stock a PEG ratio of 1.10. Read the full analysis on APH at: http://at.zacks.com/?id=2498. Growth & Income – Lincoln Electric Holdings, Inc. (LECO) Lincoln Electric Holdings, Inc. (LECO) has topped analysts’ earnings estimates in five straight quarters. The company recently posted record 2006 first-quarter financial results. Earnings per share are projected to grow 19.0% over the next 3-5 years. The consensus earnings estimates have been on the rise for this Zacks #1 Rank stock. The company has a current dividend yield of 1.4% and a five-year average dividend yield of 2.4%. Read the full analysis on LECO at: http://at.zacks.com/?id=2499. More...
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Momentum – DXP Enterprises (DXPE) DXP Enterprises (DXPE) experiences a dramatic turnaround. There was somewhat of a delayed reaction to DXPE’s earnings announcement for the quarter ended March 2006. DXPE reported on Apr 26 that it earned 44 cents per share versus 15 cents last year. Sales grew by 37% to $62.5 million and income grew 67% to $2.5 million. The stock dropped nearly 6% on the day of the report but then rallied for consecutive 52-week highs on the next two trading sessions. Read the full analysis on DXPE at: http://at.zacks.com/?id=2500. Value – United States Steel Corporation (X) United States Steel Corporation (X), a Zacks #1 Rank stock, has met or topped the consensus earnings estimate in nine of the past 10 quarters, most recently by 38.7%. Analysts’ estimates have been on the rise. The Board of Directors at X recently increased it cash dividend by 50%. The company has a price-to-book (P/B) multiple of 2.5 and a return on equity of 19%. Read the full analysis on X at: http://at.zacks.com/?id=2501.
4. FEATURED EXPERTS Here we cast the spotlight on a timely Featured Expert commentary that recently appeared on Zacks.com. Following the article you will find previews of other profitable commentaries with insights and recommendations from leading investment experts.
As Jack Adamo predicted, the energy sector corrected sharply this week. Stocks like Anadarko Petroleum (APC) and Conoco-Phillips (COP) fell more than 7%, as spectacular earnings gains were not sufficient to deter those anxious to lock in profits from this year’s big run-up. After the sell-off, APC and Conoco are still up 10% and 15%, respectively, since January 1. That’s a nice place to be after a correction. Expect the volatility in energy stocks to continue, as the shares work their way modestly higher for the rest of the year. Adamo and his team probably won’t see huge gains of the type they had in 2004 and 2005, but 15% looks like the minimum, and 30% is possible. Being overweight the sector should continue to keep Adamo and his team well ahead of the market. Adamo and his team’s regular Insiders Plus portfolio is up 7.4% year-to-date, as compared to 6.1% and 5.3% for the best performing major indices, the Dow and NASDAQ. Their high-income portfolio is doing even better with a year-to-date gain of 9.8%. Dawson Geophysical (DWSN) and Devon Energy (DVN): Walt Disney Company owns 100% of Disney Enterprises, Inc. which, together with its subsidiaries, is a diversified worldwide entertainment company with operations in five business segments: Media Networks, Studio Entertainment, Theme Parks and Resorts, Consumer Products and Internet and Direct Marketing. Dawson may still be integrating its new work crews to meet the big growth in demand for land-based seismic drilling; so, earnings could go either way – better or worse than expected. Nonetheless, with the long-term outlook so positive and a P/E of 17, Dawson is by far the best bargain in the oil services sector. Because of its extremely small capitalization, the shares should continue to be volatile. It takes but a handful of large orders to move the stock price. Don’t let that deter you. This company has a bright future. After the huge run-up in our raw materials miners, Companhia Vale do Rio Doce (RIO) and BHP Billiton Ltd. (BHP), you’d expect more of a pullback than we’ve had. Last week the stocks gave back less than a percent each. BHP remains more than 36% ahead for the year, while CVRD holds onto a 25% gain. The former has gapped up recently on positive comments by TV maven, Jim Cramer. Moves like this usually correct sharply, but who knows; if momentum investors get behind BHP it might head for bubble territory. Although the stock is still fairly cheap at this point, Adamo and his team have it on hold. They are up 61% and 45% in their two positions in less than a year. This is a dangerous season anyway; so, they won’t get greedy. Avon Products Inc. (AVP) displayed impressive strength this week, despite a quarterly report that showed the company is still in the early stages of its restructuring efforts. The stock rose 6.1%, defying negative views issued by several brokerage firms. It was clear to value investors that Wall Street’s focus is too short term, and that the current share price represents one of the best opportunities in many years to invest in this great growth company. Insiders PLUS monitors Insider activity by corporate executives, exchange members and floor traders, while also keeping an eye out for special situations and major macroeconomic trends. Jack Adamo caught the big move in REITs, gold and oil in the past few years. See what he’s discovering now. http://at.zacks.com/?id=2429 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dr. Pasternak explains that the S&P’s advance was aided by the healthy tone of the current earnings season: More... Ken Trester says it’s a good idea to be cautious with option purchases. Read his current outlook and discover an option from last week. More... 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 (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=2332. Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=2279. 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 to help take definitive action to improve your portfolio's performance. Did we mention it's free? Get started now! 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 Zacks Performance Rank performance is the total return of equal weighted simulated portfolios consisting of those stocks with the indicated Zacks Rank net of fees. Results reflect the reinvestment of dividends and other earnings. Simulated results do not represent actual trading and may not reflect the impact that economic and market factors might have had on decision-making if an adviser were actually managing a client's money. 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. | ||||||||||||||||||
- Latest News
- Most Popular
- How to Invest in QE's Twilight
- RTI: Fed Keeps QE Pace Unchanged
- ETFs on the Move After Bernanke's Press Conference
- Roundtable Top Picks of the Week
- FED Front & Center Again
- RTI: Sector Strength Charts - Where's the Opportunity Now?
- Surging Financial ETFs Beating the Market
- Utility Industry Stock Outlook - June 2013
- Your Next Stock Should Be Making New Highs
- AWS 6/19: Will Bernanke Clarify Matters Today?
- PFP 6/19: Investors Bold in Wake of the Fed
Recent Quotes
| No Recent Quote currently available |
My Portfolio
|
My Portfolio Tracker One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts. Set yours up today. |
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% |
Quick Links
Resources
Client Support
Zacks Research is Reported On:
Zacks Investment Research
is an A+ Rated BBB
Accredited Business.
Copyright 2013 Zacks Investment Research
At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1986 it has nearly tripled the S&P 500 with an average gain of +26% per year. These returns cover a period from 1986-2011 and were examined and attested by Baker Tilly, an independent accounting firm.
Visit performance for information about the performance numbers displayed above.
NYSE and AMEX data is at least 20 minutes delayed. NASDAQ data is at least 15 minutes delayed.