Monday - June 26, 2006

Want to view the archive of past issues? Go to: http://at.zacks.com/?id=2314.

Manage Profit from the Pros subscription:
* Free Subscription: http://at.zacks.com/?id=2311
* Change of address: http://at.zacks.com/?id=2315
* Unsubscribe: http://at.zacks.com/?id=2313
 

Back to top

With recent quotes in the AP and keeping abreast of new developments with various pharmaceutical conferences, senior pharma and biotech analyst Jason Napodano, CFA has been keeping busy ahead of Q2 earnings season. We caught up with him to find out about new developments within his coverage.

More. . .

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Back to top

 
Zacks Equity Research continued...

Wouldn’t all other companies with statin products be affected?

Well, AstraZeneca’s (AZN) Crestor is the other one. Bristol-Myers’ (BMY) Pravachol is already generic. As for Merck (MRK) and Schering-Plough (SGP), they are focusing their attention on Vytorin – a combination of Zocor and Zetia – and demonstrating that Vytorin is superior to Zocor. And Pfizer put out a press release last week saying Lipitor patients had greater reductions in heart attacks, strokes and certain procedures than those taking Zocor, and that this provides a cost savings for payors in long-term hospitalizations.

I, for one, agree that Lipitor is superior to Zocor. However, for the majority of patients who have a statin prescription, generic Zocor might be able to cover most people’s needs. Lipitor would be better for patients with really high cholesterol levels and really high risks.

You followed the recent American Society of Clinical Oncology (ASCO) conference. What did you find out?

The biggest story at ASCO had to do with Pfizer’s report on its renal cell carcinoma – otherwise known as advanced kidney cancer – drug, Sutent. Basically, what Pfizer showed was an extended overall survival rate among patients with advanced kidney cancer a full 90% over the current standard treatment, interferon-alpha. Patients taking Sutent survived an average of 10.9 months versus just 5.7 months for interferon-alpha. This is big news for the war on advanced kidney cancer. Sutent, I believe, should now become the first-line therapy for renal cell carcinoma, replacing interferon-alpha.

This is obviously great news for Pfizer. And, by the way, the company also demonstrated that Sutent potentially works in treatment of non-small cell lung cancer, but this data was only from Phase II studies.

So if the big winner at ASCO was Pfizer’s Sutent, the biggest loser of the conference would have to be Onyx Pharmaceuticals’ (ONXX) drug, Nexavar, which has also been approved for renal cell carcinoma. Frankly speaking, this drug does not look as good as Sutent. For instance, whereas Sutent was tested versus the current standard care treatment of interferon-alpha, Nexavar was only tested against no treatment at all. What they found was that Nexavar extended the overall time of survival to about 5.8 months, versus 2.3 months from doing absolutely nothing. This not only pales in comparison to the Sutent data, but only proves itself as efficient as interferon-alpha, which is much cheaper. Now I’m sure Onyx would counter this by saying Nexavar has far fewer side-effects than the current standard treatment. But what it comes down to, if you have a choice between Sutent and Nexavar, you’re obviously going to want to take Sutent.

This is the basis behind my downgrading of Onyx from Hold to Sell. And since I made this call, shares have already fallen from $19 to about $15. So it’s likely others are feeling the same way about Nexavar’s prospects.

In a nutshell, here’s what we learned at ASCO: Pfizer’s new product is very good and Onyx’s is maybe not as good as we had thought. Other winners at the conference include Celgene (CELG), who had roughly two dozen presentations on their two cancer drugs Revlimid and Thalomid. Revlimid, in particular, looks very, very impressive as an oncology treatment for certain transfusion-dependent patients with MDS. I see this as a billion-dollar blockbuster drug for Celgene.

In fact, if Celgene were trading at a more attractive valuation, I would definitely have it as a Buy. The company’s fundamentals actually look pretty good, but the shares have just gotten too expensive. Celgene is currently trading at around 70x earnings, and in this volatile biotech market, there’s a lot of risk attached to a company trading at such high levels.

Read the complete Analyst Interview by clicking: http://at.zacks.com/?id=2723

Jason Napodano, CFA is a senior analyst covering the pharmaceutical and biotech industries for Zacks Equity Research.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Back to top

 
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

Yahoo! Inc. (YHOO) - Strength in Online Ads. For full Zacks research report, click here.

 
BEAR OF THE DAY

Jabil Circuit (JBL) - Reduced Expectations. For full Zacks research report, click here.

 
ZACKS INDUSTRY OUTLOOK

Steel Producers Ranked 11th

Despite high raw materials prices, steel producers continue to benefit from U.S. manufacturing and expansion overseas. More...

 
EARNINGS TRENDS

Earnings Trends

Over the long run, the two most important variables for the market are earnings and interest rates; both are heading higher. More...

Back to top

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.

 
Here are four stocks that make the grade for the Return on Equity Profit Track:

Century Aluminum Co. (CENX) released first-quarter results in early May, noting that revenues of $347 million and operating income of $64 million were at record levels. CENX added that strong incremental profit was realized on the higher level of revenue. Last year’ first-quarter sales totaled $285 million. Century Aluminum is generating healthy income on invested capital as evidenced by its ROE of 32.77. Continue your research on CENX at: http://at.zacks.com/?id=2254.

Freescale Semiconductor, Inc. (FSL) , a provider of career training in allied health programs, recently released first-quarter earnings of 15 cents per share, exceeding the consensus estimate by almost 67% and improving on last year’s result. CCDC meets the criteria of this Profit Track with a PEG ratio of 0.71 and a price/sales multiple of 0.96. Continue your research on CCDC at: http://at.zacks.com/?id=2255.

Holly Corp. (HOC) may be appealing to value investors with its price to sales ratio of 0.69. In early May, the company reported first-quarter results, stating that its income from continuing operations was at a record first quarter level, and it generated $53.2 million of earnings before interest, taxes and depreciation ("EBITDA") for the quarter, which compares very favorably to the 2005 first quarter. HOC’s ROE is 48.57. Continue your research on HOC at: http://at.zacks.com/?id=2256.

WESCO International, Inc. (WCC), which has a ROE of 30.99 and a price to sales ratio of 0.62, announced first-quarter earnings of 86 cents per share in mid-April. The result topped the consensus estimate by nearly 23% and improved year-over-year. The company said record results were achieved in key performance areas, driven by the continuous improvement mentality that has become a cornerstone of its culture. Results for the second quarter will be available on July 20, 2006. Continue your research on WCC 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

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

 
SCREEN OF THE WEEK

Don’t Trade the Headlines

Master them with Hotstix QQQ Trader. We'll show you exactly when to buy and sell the QQQ and turn you into a master trader who knows how to cut your losses, nail short term gains and rack up some incredible profits.

30-Day FREE Trial: http://at.zacks.com/?id=2934.
 

Back to top

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 – Infocrossing, Inc. (IFOX)

Infocrossing, Inc. (IFOX) has met or exceeded earnings estimates in six out of the past seven quarters, with the most recent surprise coming in at 400%. Both analysts covering the stock raised their numbers for 2006. This year's estimates have risen 11.1% over the past 90 days, while next year's estimates have jumped 13.1% over the same time frame. The stock is trading at 24.1x next year's estimates, slightly above the long-term growth rate of 22%, giving the stock a PEG ratio of 1.09. Read the full analysis on IFOX at: http://at.zacks.com/?id=2510.
 

Growth & Income – Johnson Controls, Inc. (JCI)

Johnson Controls, Inc. (JCI) met or topped the Street’s earnings estimate in 16 straight quarters. The company recently beat the consensus estimate by 9.2% in the second quarter of fiscal 2006. As a result, JCI revised its profit forecast upward for the fiscal year. Earnings per share are forecasted to grow 12.4% over the next 3-5 years. The company is currently yielding 1.4% and has a five-year average dividend yield of 1.6%. Read the full analysis on JCI at: http://at.zacks.com/?id=2511.

More...

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Back to top

 
Zacks Rank continued...

Momentum – Mothers Work (MWRK)

Mothers Work (MWRK) is expecting great things. It’s been almost two months since we last looked at Mothers Work as a Momentum Stock of the Day. Since then, the market as a whole has declined 4.3% as measured by the S&P 500. And MWRK? It’s up a very healthy 16.3% in that same time frame. With over a month before third quarter results will be released, MWRK is setting new 52-week highs. Read the full analysis on MWRK at: http://at.zacks.com/?id=2512.
 

Value – Southern Copper Corporation (PCU)

Southern Copper Corporation (PCU), first presented as a Value stock late last year, continues to impress. Analysts’ earnings estimates have been trending higher. The company has a price-to-book ratio of 3.6, compared to 3.9 for the market. PCU’s return on equity crushes that of the industry average—48% compared to 30%. Read the full analysis on PCU at: http://at.zacks.com/?id=2513.
 

Zacks Rank Resources

• View All Zacks #1 Rank stocks: Go to: http://at.zacks.com/?id=2266.
   
• Free Zacks Rank Guide: Learn how to use the Zacks Rank to pick more profitable stocks. Get the guide: http://at.zacks.com/?id=2267.
   
• Zacks Advisor: Discover Ben Zacks' hand picked #1 Rank stocks on his Timely Buys list at: http://at.zacks.com/?id=2538.
   
• 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=2700.
   
• Zacks Wealth Management: Own all the Zacks #1 Ranked stocks in a portfolio managed by Zacks. Learn more at: http://at.zacks.com/?id=2539.

Back to top

Here we cast the spotlight on a timely Featured Expert commentary that recently appeared on Zacks.com.

 
Gregory Spear, Editor of The Spear Report

When the Fed chairman speaks, the market listens. Or so it seems. On Thursday, Chairman Bernanke made comments that seemed to imply that inflationary pressures have receded in the past month, despite the higher than expected readings in core consumer and producer prices. [“Inflation compensation implied by yields on government debt has fallen back somewhat in the past month….”]. What he means here is that the treasury yields have actually had a difficult time staying above the targeted Fed funds rate, currently 5%, and he takes this sluggishness as a sign of lower inflation expectations. The inverted yield curve with respect to the 2-year and 10-year bonds further supports this interpretation.

In Gregory Spear and his team’s view, however, little in the way of Fed policy actually changed on Thursday. Instead, our oversold market simply was ready for a bounce and was waiting for a news catalyst it could spin in the appropriate direction. After five weeks of unrelenting selling, virtually all bourses around the globe were oversold enough this week to mount serious relief rallies as well. We have had a synchronized global decline since early May, and now we are being blessed with a synchronized global rally.

The most important thing to determine in market analysis, however, is the difference between a correction in an uptrend and the start of a bear market. The latter is a much rarer situation, of course. When a bear market begins, after the first oversold bounce has run its course, the market begins to fall quickly once again. Spear and his team have been paying a great deal of attention to the technical state of the market lately, as the vast majority of Consensus stocks are correlated with the major indices. Their analysis over the past few weeks suggested that the market was vulnerable, especially given the bearish bubble-popping conditions around the globe, where some bourses have been taken down nearly 30% in five weeks.

Thursday’s impressive rally, however, has saved the day, at least for now. Of course, this is a market capable of turning on a dime, so Spear and his team recommend investors not become complacent. Most market bottoms are not “V-shaped” affairs, but rather are hammered out with one or two re-tests over a period of a few weeks. Moreover, the Buy List appears to be a little skeptical, as well, with the same two lonely members Spear and his team had last week.

Home Builder Update

They can’t describe the homebuilders as “bulletproof,” but their recent decline seems close to capitulatory to Spear and his team, and many bounced nicely on Thursday from very oversold conditions. What are the fundamentals in the industry? They are declining from the extraordinary momentum that they enjoyed in 2003-2005. Companies are reducing guidance and analysts are cutting estimates, sending many stocks below peak 2004 levels. That’s the short-term story. But a study by Harvard's Joint Center for Housing Studies argues that the housing construction boom is unlikely to undergo more than a modest downturn despite dramatically expanding inventories in certain over-heated areas, unless, of course, the broader economy collapses.

In fact, due to demographic shifts toward more second homes and more single-person homes, along with population expansion, the demand for housing over the next 10 years will likely exceed the 18 million units built from 1995 to 2004. The study predicts that homeowners with adjustable rate mortgages will benefit by offsetting home appreciation and a flood of foreclosures will be averted due to the ability of these folks to sell at a profit, if necessary. The Harvard study predicts that the housing industry will actually emerge stronger than ever after this downturn. Two Consensus homebuilders that have shown recent relative strength this week while other builders were in decline: Centex (CTX) and D.R. Horton (DHI).

 
About Gregory Spear’s The Spear Report newsletter

Who Can You Trust? Would you rather follow a system that’s gained 400% in the last 5 years or one that’s lost 90%? The Spear Report monitors over 150 newsletters, analysts and screens, ranks them all by performance in bull and bear markets, then produces a consensus of their stock recommendations that is weighted by the performance of the recommenders! Get the top stock picks from the top stock pickers now with a free trial to The Spear Report.. http://at.zacks.com/?id=2329.

OTHER TOOLS FROM ZACKS

Back to top

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:

• +33% average annual return since 1988 versus +11.9% 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=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?

• 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=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

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.

To contact us by mail:

Zacks Investment Research
Attn: Profit from the Pros
155 N. Wacker Drive, 6th Floor
Chicago, IL 60606

To unsubscribe from receiving "Profit from the Pros" e-mail newsletter, click here.