Thursday - May 18, 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 As the homebuilding market continues to slowly recede from its January highs, we felt it would be a good time to check in with senior homebuilding analyst Mario Ricchio. What trends is he seeing in this group going forward? Are homebuilding companies beginning to proceed with caution with regard to the current housing market? Yes they are. After record housing starts in January, the homebuilding industry reported a third consecutive month of slower construction activity in April. The homebuilders are finally responding to rising inventory levels and moderating demand with less supply. In April, housing starts fell 7% on a sequential basis and 11% on a y-o-y basis. More importantly, the latest data on permits suggests the homebuilders remain cautious for the seasonally strong spring and summer selling season. Building permits, an indicator of future construction, fell 8% on a y-o-y basis to 1.98 million units. Supply has fallen almost 240,000 units from January’s data, in which housing permits reflected an annual pace of 2.22 million units. Given continued high home inventory levels, we believe permits are likely to fall for at least the next six months to bring supply back in balance with demand. Despite the decline in housing starts in March and April, the number of unsold homes at the end of March hit a record 3.19 million units. At the pace of current sales demand, it would take 5.5 months to eliminate the backlog of unsold homes--the longest period since 5.6 months in July of 1998. We expect the April figure to creep up to 5.7 months as demand weakens further. More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Slower demand is affecting both low-end and high-end builders. Just recently, Toll Brothers (TOL) warned that signed contracts for its homes fell 29% during the second quarter and home deliveries would be 200 units lower than the street expected. What do you see as the main risk factors for homebuilders in the next couple quarters? With the recent rise in mortgage rates and drop in affordability, the homebuilders may not be able to push all this supply through the market. We are already seeing an inventory glut forming in the growing number of new homes unsold on the market. There are over 128,000 unsold homes completed and ready for move-in, the highest level in history. The inventory for existing homes could also worsen as over $2 trillion worth of ARMss reset higher in 2006 and 2007. In 2003, a bevy of homeowners purchased a home by taking advantage of teaser rates as low as 4%. The problem is that the interest rate on this typical three-year ARM could reset to 6% in 2006 and 7% in 2007. The higher mortgage payment may lead some overstretched owners to default on payments, adding supply to an already glutted market. The other potential source of hidden inventory comes from investors selling second properties. With diminishing prospects for home appreciation, we believe the cost to carry a speculative property outweighs the potential for equity accumulation. With home inventories likely to rise from current levels, the big risk is that the builders resort to incentives to drive sales growth. As incentive use increases and price cuts appear, we expect a negative impact on industrywide gross margins. We believe the residential real estate market is on the cusp of a major transition from a sellers market to a buyers market. In this new reality, the risk is that of a price decline. Buyers hold the bargaining power and can balk at higher prices with homes sitting on market for longer periods of time. In our view, the markets most susceptible to price decline are San Diego, Las Vegas and Miami. Will it be worse for condos or for single-family houses? Investors, or speculators, tend to gravitate towards the condo market more than the single-family home market. This makes the price decline potentially worse for condos as speculators begin to sell properties en masse. In the year 2005, investors accounted for more than 25% of purchases in Las Vegas, Phoenix, Orlando, Miami, and San Diego. In these same markets, we see the greatest risk of price decline as speculators dump properties. What should one make of the speculators leaving the market? With housing prices having doubled in the last five years, investors appear satisfied in booking profits with future price appreciation potential limited. That speculators are leaving the housing market is evident in the rising number of canceled purchase agreements for condos in major metro markets, San Diego and Miami, and in the number of previous buyers unloading properties. The amount of speculator selling signals the housing appreciation will slow dramatically, if not decline, in the months ahead. We saw that in the data for April. Condo prices fell 5% in Virginia Beach and Palm Bay, Florida. The whole West Coast region saw a price decline of 0.8%. The April figures suggest speculator selling took its toll on prices. With investors having made up such a large share of prior purchases, new buyers must step in to fill the void. The problem is that many first-time buyers are priced out of the market at current price levels and interest rates. This means a lower price level will be necessary to induce future demand. To read the complete Analysts Interview, click: http://at.zacks.com/?id=2693. Mario Ricchio is a senior analyst covering the homebuilding sector for Zacks Equity Research. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Analyst Blog - NEW! Get real-time market insights from Zacks Equity Research Analysts. See their latest posts, click here. Marathon Oil (MRO) - Favorable Price Environment. For full Zacks research report, click here. MannKind Corp. (MNKD) - High Cash-Burn Rate. For full Zacks research report, click here. Traders Focused on Economic Data Zacks Industry Rank for the Week of May 15
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 delighted to introduce Hamilton Lewis II (aka: Cycles), who is in ninth place in the Second Quarter Zacks Stock Challenge with an overall return of approximately 32%. Hamilton’s Simulator portfolio holdings include Sierra Health Services Inc. (SIE), Titanium Metals Corporation (TIE), Frontier Oil Corporation (FTO), Pacific Ethanol, Inc. (PEIX) and UnitedHealth Group Inc. (UNH). Click here to check out this player’s entire portfolio: http://at.zacks.com/?id=2515. How does he play the market? The successful stock picker’s investment style consists of a “floating capitalization” approach that includes the principles of cycles, inter-market and industry analysis. In other words, Hamilton does not discriminate between large-caps, small caps or mid-caps. Rather, this market watcher zeroes in on cycles, industry trends and market activity. He also pays attention to what the charts are saying. Hamilton likes to combine price and volume trends with supply and demand analysis. He believes this methodology allows him to find stocks that should outperform the broader markets. How about research? “My research begins with a top down approach that incorporates the synergistic relationships between currencies, commodities, bonds, and stocks. The relationships between these major sectors influences further observations into sectors and industries,” stated Hamilton. He added that his resources include Zacks research, particularly the Bull of the Day and Bear of the Day listings. The market enthusiast also utilizes all the other major financial data that is available on the Internet. What does the savvy investor he look for in a security? This Zacks Challenge contender seeks out two primary characteristics in a stock: positive industry conditions and an upward trending price. “Positive momentum confirms that the stock will rise relative to its cyclic pattern,” explained Hamilton. How does he know when to sell? Hamilton looks for warning signs a breakdown in the stock’s and/or industries upward trend. Specifically, he keeps an eye out for a series of lower lows, industry group and sector deterioration, and a pattern of negative momentum. What are some favorite stocks? Hamilton likes Titanium Metals, Frontier Oil, Whole Foods Market (WFMI) and Arch Coal (ACI) to name a few. He mentioned that these names demonstrate the characteristics associated with stocks in leadership industries with positive momentum and favorable chart pattern as defined by the price and volume action. Who is the big winner? “My big winner has been Titanium Metals. I expected Titanium Metals to produce fabulous results because it is a member of the Steel Specialty Alloys industry group. The Steel Specialty Alloy group had been in the top twenty of the best performing domestic industry groups,” replied Hamilton. What is his outlook on the market? This Simulator participant is in the bearish camp. He attributed his views on the market to the negative U.S. Dollar as compared to the Euro and the Yen. The market player went on to imply that it is quite possible for the Dow to decline to 10,200 in the next 12 months. Any advice for those who are just starting out in the market? Hamilton, who is an admirer of George Soros for his courage as well as his style towards wealth accumulation and risk management, advocates learning from other successful investors. He also said “know thy self,” meaning one should decide what he or she wants from the market before taking the plunge. It’s 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: 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: Entertainment Properties Trust (EPR) sports a price-to-earnings (P/E) multiple of 11.51 and a price-to-book (P/B) multiple of 1.47. The company recently announced first-quarter funds from operations (FFO) of 89 cents per share. The result matched the consensus estimate but outperformed the year-prior total. Entertainment Properties Trust, a real estate investment trust (REIT), engages in the acquisition and development of entertainment properties, including megaplex theatres and entertainment retail centers. Continue your research on EPR at: http://at.zacks.com/?id=2354. FelCor Lodging Trust Inc. (FCH) is one of the nation's largest hotel real estate investment trusts (REITs) and a Zacks #1 Rank (Strong Buy) company. FCH recently reported first-quarter results, stating that its renewed focus on asset management, its portfolio repositioning program and capital improvements are showing up in strong operating results. The company has a price-to-earnings (P/E) multiple of 12.89 and a price-to-book (P/B) multiple of 2.29. Continue your research on FCH at: http://at.zacks.com/?id=2355. More...
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Hospitality Properties Trust (HPT) recently posted first-quarter funds from operations (FFO) of $1.01 per share versus the previous year’s result of 91 cents per share. Analysts were expecting earnings of 97 cents per share for the first quarter. Hospitality Properties Trust satisfies the criteria for this Profit Track with a price-to-earnings (P/E) multiple of 10.87 and price-to-book (P/B) multiple of 1.73. Continue your research on HPT at: http://at.zacks.com/?id=2356. Integra Bank Corp. (IBNK) offers a price-to-earnings (P/E) multiple of 14.12 and a price-to-book (P/B) multiple of 1.74. The company released first-quarter earnings of 37 cents per share last month, which matched the year-ago earnings per share result. Integra Bank Corp. mentioned that the first quarter included several profit improvement initiatives which should also benefit income for the remainder of 2006. Continue your research on IBNK 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 outlines a strategy for trading the Zacks Rank that is practical for almost anyone's portfolio: 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...
AstraZeneca (AZN) is one of the largest pharmaceutical companies in the world. AstraZeneca was formed on April 6, 1999 through the merger of Astra AB of Sweden and Zeneca Group PLC of the U.K. In fiscal year 2005, the Gastrointestinal (26% of total revenue), Cardiovascular (22%), Oncology (16%), Respiratory (12%), Neuroscience (17%), and Infection & Other (6%) therapeutic categories generated revenue of $23.95 billion. AZN should continue to benefit from growth in key cardiovascular products such as Crestor and Atacand. Crestor, a cholesterol-lowering drug (statin) launched in the third quarter of 2003, has captured roughly 8.6% market share in the global statin market. The drug is approved in over 70 countries around the world. Crestor offers a strong efficacy profile, perhaps the strongest in the statin group. The total cardiovascular franchise remains strong, with potential upside to come if the company pipeline comes through. AstraZeneca is in phase III trials with AZD-6140, an oral reversible ADP receptor antagonist for arterial thrombosis aimed to compete with Plavix. Recent phase IIb data presented at the 55th annual American College of Cardiology meeting directly compared AZD-6140 to Plavix. Although the trial was small (n=89), AZD-6140 demonstrated superior efficacy to Plavix in patients with non-ST elevation acute coronary syndrome (ACS) in platelet inhibitory effect in both a pre and post-Plavix treated population. Plavix is the world’s second largest selling drug, so AZN-6140 has enormous opportunity to take market share upon approval. Similarly to the cardiovascular franchise, the oncology franchise is posting solid growth as well. Sales in the category are led by Casodex and Arimidex. Casodex (prostate cancer) and Arimidex (breast cancer) are both billion dollar drugs. The company received approval in both the U.S. and U.K. to expand Arimidex use into adjuvant treatment for post-menopausal women with hormone receptor positive early invasive breast cancer. Management reported 1% share gains on 29% prescription growth in the first quarter. The approval also allows the launch in many E.U. countries such as Germany, Spain, and Italy. AstraZeneca is one of the stronger fundamental players in the drug group. The company offers a four-year CAGR of 11%, superior to the peer-group average by 3-4%. European-based pharmaceuticals such as Novartis, Sanofi-Aventis, and GlaxoSmithKline offers comparably better growth than their U.S. brethren. Earnings estimates have been trending higher for AZN. Over the past 30 days, 2006 estimates have increased 13.3% to $3.66 per share. This is impressive for a company as large as AZN. The stock should be a solid performer with the drug group showing signs of stability.
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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.
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Zacks #1 Stocks on the Move 05/20/2013
| Company Name | Symbol | %Change |
|---|---|---|
| NOAH HOLDING | NOAH | 13.70% |
| EAGLE BULK S | EGLE | 10.78% |
| VIPSHOP HOLD | VIPS | 6.78% |
| QIHOO 360 TE | QIHU | 6.70% |
| INFORMATION | III | 6.63% |
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