Monday - May 22, 2006
 Want to view the archive of past issues? Go to: http://at.zacks.com/?id=2314. 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. More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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. 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. Read the complete Analyst Interview by clicking: http://at.zacks.com/?id=2723 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. To see their latest posts, click here. China Life Insurance (LFC) - Clear Market Leader. For full Zacks research report, click here. Tim Participações S.A. (TSU) - Sector Difficulties. For full Zacks research report, click here. Machinery Demand Continues Traders Focused on Economic Data
2. 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: Return on Equity This Profit Track strategy uses Return on Equity (ROE) to discover solid stocks. ROE is one of the quickest ways to gauge whether a company is creating assets or gobbling up investors' cash. This fast moving Profit Track returned an impressive +19.1% in 2005. FreightCar America, Inc. (RAIL) is turning strength in the railroad industry into profits for shareholders. This Zacks #1 Rank stock recently reported first-quarter earnings that were 27 cents above expectations. The $1.67 per share profit contributes to a ROE in excess of 80%. Shares of RAIL trade at a price-to-sales multiple of 0.86. Continue your research on RAIL at: http://at.zacks.com/?id=2254. General Cable Corporation (BGC), a Zacks #1 Rank stock, has been leveraging strong demand and widening margins into greater earnings power. This has resulted in an impressive ROE of 31.3%. Although such characteristics would imply a premium valuation, shares of BGC trade at a multiple of just 0.7x sales. Continue your research on BGC at: http://at.zacks.com/?id=2255. Newmarket Corporation (NEU) is well liked by analysts, as is evident by its Average Broker Recommendation (ABR) of 1.0. The company, which develops petroleum additives, has generated a 16.3% return on equity for its shareholders. In addition, the stock trades at a discount valuation of 0.80x sales. Continue your research on NEU at: http://at.zacks.com/?id=2256. Shoe Carnival, Inc. (SCVL) will report first-quarter earnings on Thursday, May 18. Analysts have a favorable view of the company, as evidenced by the rising earnings estimates and ABR of 1.80. Shareholders have been rewarded with a ROE of 10.9%. SCVL trades at 0.54x sales. Continue your research on SCVL at: http://at.zacks.com/?id=2257. To see the full list of stocks that currently pass this winning screen, go to: http://at.zacks.com/?id=2258. 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=2307 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Kevin Matras outlines a strategy for trading the Zacks Rank that is practical for almost anyone's portfolio: http://at.zacks.com/?id=2259. 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 – J.C. Penney Company (JCP) J.C. Penney Company (JCP) reported its 12th straight quarter of increasing same-store sales, a key measurement for retailers. JCP has exceeded earnings estimates for seven consecutive quarters. Nine analysts have raised their numbers for fiscal year 2007. Earnings estimates for the company continue to rise. Over the past 90 days, this year's estimates have risen 2.6% to $4.35 per share. Read the full analysis on JCP at: http://at.zacks.com/?id=2510. Growth & Income – Omnicom Group, Inc. (OMC) Omnicom Group, Inc. (OMC) met or exceeded analysts’ earnings expectations in eight of the past nine quarters. Earnings per share are projected to grow 12.1% over the next 3-5 years. The company increased revenues and grew profits for an amazing nine years in a row. OMC had a record year for new business in 2005 and continues to expand in Asia. The company has a current and five-year average dividend yield of 1.1%. Read the full analysis on OMC at: http://at.zacks.com/?id=2511. More...
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Momentum – Falconbridge Ltd (FAL) Falconbridge Ltd (FAL) enjoys good earnings growth, a great chart, a hot industry and is in the middle of a bidding war. FAL finds itself in the middle of a bidding war as Xstrata offered to buy the 80% of FAL that it doesn’t already own, offering $14.5 billion, which exceeds Inco’s offer for FAL. On the earnings front, FAL reported March 2006 EPS of $1.21, up 112% from last year’s 57 cents and a positive 21% earnings surprise over analysts’ consensus estimates. Sales grew 35% to $2.858 billion and income was $462 million, up 129%. Read the full analysis on FAL at: http://at.zacks.com/?id=2512. Value – CompuCredit Corporation (CCRT) CompuCredit Corporation (CCRT), a Zacks #1 Rank stock, recently beat the Street’s quarterly earnings estimate by 18.5%. Earnings per share are forecasted to grow 15.5% over the next 3-5 years. The consensus earnings estimate has been on the rise for both 2006 and 2007. CCRT is currently trading at a valuation of 10.2x trailing 12-month earnings and at 9.2x current fiscal-year estimated earnings. Read the full analysis on CCRT at: http://at.zacks.com/?id=2513. Zacks Rank Resources
4. FEATURED EXPERTS Here we cast the spotlight on a timely Featured Expert commentary that recently appeared on Zacks.com. There’s a revolution of sorts brewing in America. A contagious outrage is spreading throughout the country: our inalienable right to cheap gasoline is under attack. As good stewards of the people, politicians of all affiliations are posing to tackle this incendiary election-year issue. Admittedly, a couple of whiskies might well bring out — secretly of course — that there isn’t a whole heck of a lot they can do about it. Years of poor energy policy and neglected energy infrastructure have created this situation, which is too complex for a couple strokes of the legislative pen in Washington. But their duty to the electorate, particularly in an election year, is to try the best they can. And try they will, facts notwithstanding. Though Oberweis and his team’s argument rests only from historical evidence, they can’t help but point out that more than vaguely similar rumblings were heard during energy shortcomings in the past. And the undeniable conclusion is that the last time we tried to impose higher taxes on oil profits, it turned out to be a really stupid idea. The windfall profit tax, which was implemented 25 years ago in response to the last big energy spike, brought in far less revenue than expected and actually trimmed domestic oil production. From 1980-1988, the windfall tax brought in $80 billion in gross revenues versus initial projections of $393 billion when the bill passed. According to an analysis released on March 6, 2006 by the Congressional Research Service, it also lowered U.S. domestic production between 1.2% and 4.8% during the period. In essence, the tax increased our dependence on foreign production, exactly the opposite of the purported objectives of our energy policy today. Yet behind all the jib-jab, somewhere in a back alley of Washington D.C., there likely exist a few smart people. Even if such champions can persuade the populace of the erroneous nature of a blanket excess profit tax, we have to conclude that the political gods are likely to shine favor on companies who help to decrease American dependence on oil. While obvious, pure-play alternative energy companies have already been bid up dramatically, there are a few smaller-cap peripheral plays that are worthy of consideration. Coal-fired power generation businesses, given the abundance of coal within America’s borders, should offer above-average growth opportunities. Growth in China and emerging market economies favors coal-fired electricity generation, and many of those plants will require emission control. Companies that help to combat the pollution consequences of coal generation will have the wind at their back. Oberweis and his team’s favorite is Fuel Tech N.V. (FTEK). Fuel Tech helps utility and industrial customers reduce nitrogen oxide (NOx) emissions, and thus reduce air pollution. Sales jumped 110% in the fourth quarter of 2005, and pretax profits nearly doubled as well. Oberweis and his team have added Fuel Tech to the Model Portfolio this month and expect earnings to be released May 9th. Hoku Scientific (HOKU), also has promise. Hoku was founded in 2001 and makes components for fuel cells. Hoku has development agreements with Sanyo Electric and Nissan Motor. In addition, Hoku is the prime contractor on a U.S. Navy project to develop a fuel cell power plant prototype. Hoku is a particularly risky investment given the early-stage commercial application of fuelcell technology, but nonetheless deserves consideration for risk-oriented investors. Hoku reports quarterly earnings May 4th after the close. Lastly, suppose Congress did pass a windfall oil profit tax. Oberweis and his team are not sure that would be so bad for many of their boutique energy holdings. If Congress passes a tax on excess profits, big oil would likely just increase development efforts to reduce profits. If domestic exploration demand accelerated, it would be a boon for the oil field service providers. Drillers like Bronco Drilling (BRNC), seismic-data providers like Dawson Geophysical (DWSN) and Veritas (VTS), and engineering firms like EnGlobal (ENG) are already doing well due to high energy prices, and would perform exceptionally well if policy drives an even further expansion in demand for domestic exploration and production. The rules of the oil game, as set by politicians, will invariably create opportunities in the stock market. Albert Einstein had it right: “You have to know the rules of the game. And then you have to play better than anyone else.” The Oberweis Report is a proprietary investment advisory letter specializing in stocks of extraordinarily rapidly growing companies. Each issue contains new stock recommendations along with a review of those previously recommended stocks that have yet to be sold. http://at.zacks.com/?id=2449. 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 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=2309. Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=2266. 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 and improve your portfolio's performance. Did we mention it's free? Get started now by going to: http://at.zacks.com/?id=2310 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 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. | |||||||||
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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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