Tuesday - October 10, 2006
 Want to view the archive of past issues? Click here. Manage Profit from the Pros subscription: 1. ZACKS RANK BUY STOCKS Zacks #1 Ranked stocks average a 32.4% annual return. Every day on Zacks.com we highlight four new 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 - Kenexa (KNXA) More...
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Momentum - CBOT Holdings (BOT) CBOT Holdings (BOT), which owns the Chicago Board of Trade, set a new historic high on Friday, closing at $131.81 on more than twice normal volume. The new high came after rumors that BOT was in discussions to buy the London Metals Exchange. Since being a featured Zacks Momentum Stock of the Day, BOT is up more than 19%. Read the full analysis on BOT now! Since we first featured Terex Corporation (TEX) back on Sep 12, the company is up 16%. Consensus estimates have been on the rise for this Zacks #1 Rank stock (strong buy). The company has a price-to-book ratio of 3.3, compared to 5.3 for the market. Its PEG ratio currently sits at 0.81. Read the full analysis on TEX now!
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. HB Fuller Co. (FUL) has a ROE of 13.21 and a price to sales ratio of 0.90. The company recently announced fiscal third-quarter earnings that exceeded the consensus estimate by about 18% and outperformed the year-ago total. FUL noted that given its strong financial performance in the third quarter and the confidence it has in its strategy, it now anticipates earnings per share for fiscal year 2006 to be between $1.44 and $1.46. Analysts are in agreement. Current fiscal 2006 estimates of $1.47 per share are 13 cents ahead of one month-ago forecasts. Read the full analysis on FUL now! Lyondell Chemical Co. (LYO) will report results for the third quarter on October 26, 2006. In late July, the company posted second-quarter earnings of 62 cents per share, beating the previous year’s result. Lyondell Chemical stated that the strength of its operating efforts is reflected not only in its financial results but also in its record safety performance during the quarter. LYO’s ROE stands at 21.11 and its price to sales ratio is 0.33. Read the full analysis on LYO now! Olin Corp. (OLN) satisfies the criteria for this Profit Track with a ROE of 26.42 and a price to sales ratio of 0.43. In late July, the company released second-quarter earnings of 45 cents per share, matching the year-prior level. However, the 45 cents was 12.5% ahead of analysts’ expectations. OLN mentioned that sales increased by $232.7 million from the second quarter of 2005, due primarily to the impact of higher metal prices. Read the full analysis on OLN now! Terex Corp. (TEX) reported results for the second quarter in late July. Revenue of $2.1 billion was a record and an increase of 18% over the year-prior total. Earnings per share improved year over year and topped the consensus estimate by 20%. The company said its improvement in earnings was broad based, both in terms of product and geography. TEX sports a ROE of 23.19 and a price to sales ratio is 0.70. Read the full analysis on TEX now! To see the full list of stocks that currently pass this winning screen, click here. 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”. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Great Stocks Often Have Great Peers Kevin Matras goes over a Relative Price Strength strategy for finding winning stocks in both up markets and down. More... 3. ZACKS EQUITY RESEARCH Though housing starts have come down from their peak early this year, the dire warnings of a bursting bubble in the housing market have not come to pass. We spoke with senior homebuilding analyst Mario Ricchio about whether or not this has increased the likelihood of a soft landing in the housing market. The homebuilding slump seems to have carried over into areas, such as lumber prices falling dramatically. What do you make of this? The homebuilding slump started with the rising inventory of unsold new homes on the market. As houses for sale piled up earlier this year, builders responded by reducing the pace of new home construction, evidenced by four straight months of sequential decline in housing starts. Since one of the major uses of lumber comes from new home construction, the dramatic fall in lumber prices did not surprise us. There is a strong correlation between the two. In fact, the price of framing lumber and level of housing starts are both at their lowest point since 2003. More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Other building materials prices, such as for gypsum and cement, are also under pressure from lower housing starts. Oriented strand board, used in roofing, has fallen more than 20% just in the last three months. With our forecast for a further deterioration in starts next year, we believe lumber producers need to curtail production to keep prices steady. As we have not had the bottom fall out of the housing market to this point, is it more likely we’ll see a soft landing? As long as the U.S. economy avoids a severe recession characterized by sharply rising unemployment rates, the housing market should be able to avoid a hard landing. The market tends to judge the severity of the landing in terms of price rather than by volume. When we look at August transaction volume, new home sales plunged 22% compared to the level recorded in October 2005. In essence, it took only 10 months to slice new home demand by more than a fifth. However, August median home prices fell only 1% on a year-over-year basis. Since nationwide home prices are holding up relatively well—with builder incentives acting as support, the housing market appears headed for a soft landing. Do any of the recent market gains suggest a rosier picture for the housing market going forward? August new home sales appeared better-than-expected due to a revision in the July figures. On a y-o-y basis, August sales actually declined 17.4%. In our view, the housing market will muddle through for the next couple years. With inventories of new and existing homes at 6.6 months and 7.5 months, respectively, the residential construction industry is in for more challenging times. The reality is that the builders need to cut starts, increase incentives and offer attractive financing terms to bring supply inline with demand. It will take time to restore the market back into balance and to reduce the probability of sharply, lower prices. While our forecast avoids calling for sharply lower home prices, we are not wildly bullish on prices either. Home affordability remains at a record low despite historically attractive mortgage rates. Many first-time homebuyers are priced out of the market and speculators are less optimistic on prospects for appreciation. We fail to see a catalyst for higher prices. Instead, we expect flat home prices over the next three-to-five years so that rising incomes can boost affordability back to attractive levels. Read the complete ANALYST INTERVIEW article now! Mario Ricchio is a senior analyst covering the homebuilding market for Zacks Equity Research. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Real-time market insights from Zacks Equity Research Analysts. Stocks featured recently include Saks, Inc. (SKS), PLATO Learning (TUTR), PepsiCo (PEP) and Commerce Bancorp (CBH). To see their latest posts, click here. Grupo Televisa - Dominant Position in Mexican TV. For full Zacks research report, click here. Infineon Tech - Negative Effects in Industry. For full Zacks research report, click here. The Week of Oct 9 – Oct 13 Positive Early Third-Quarter Reports Find out which stocks have been recently upgraded by Zacks Equity Research: click here. Read the reports on all of the stocks on the Zacks Equity Research Buy List: click here.
4. OPTIONS CENTER 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. Zacks/Schaeffer’s Options Trading service. Last week we looked at the Unusually High Option Volume filter for calls and determined that playing a bearish put on Ultra Petroleum (UPL) was a good idea. This week we'll take a look at the other side of this filter (puts) and try to find a bullish play. Before moving any further, we would like to talk briefly about our methodology here at Schaeffer's. We are contrarian-based investors, meaning that we want to see 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 already has. 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 on Friday afternoon, one name that struck me as intriguing was steel giant US Steel (X), which had over 16,000 puts trade – amounting to over twice its average daily put volume. Steel is a sector that has taken a beating the past few months, but recently it’s been showing some signs of life. In fact, just this week, numerous steel names have broken several-month downtrends and moved above their 50-day moving averages – both signs that the downtrend could be over. Looking at commodities in general, Bernie Schaeffer noted just the other day that the Commodities Research Bureau Index (CRB) – simply known as the CRB, is down, near the nice round number of $300, which also coincides with its 160-week moving average. In other words, an above average chance of at least a bounce. Turning to US Steel, it has a ton of puts down at the $55 level. We won’t get to into it here, but we view all of these bearish puts as having the potential to serve as strong support. It has to do with how market markers are hedged. By charting US Steel you can see what it did the past few days, as it bounced big time from the $55 level and it moved above its downward sloping 50-day moving average for the first time in several months. Again, this is a sign of a potential change in the downtrend. So we know that the crowd has been trading a lot of bearish puts on US Steel recently and there is huge put support at the $55 strike. That coupled with some improving technicals on US Steel and other steel stocks – and we could have a nice trade on our hands. Now we want to look at the sentiment. Remember, we want to see skepticism as a sign that there’s cash left on the sidelines to push it higher. First off, one indicator that we use to measure sentiment is the Schaeffer's put/call open interest ratio (SOIR). This ratio shows how many bearish puts there are compared to bullish calls for the front three months of options. Currently, US Steel’s SOIR checks in at a solid 1.23 –a pretty big number. Looking at that number versus the past year’s worth of readings and we see it is higher than 70% of the readings over the past year, suggesting short-term option players are solidly in the bear camp. Short selling is one stock-trading strategy that basically involves selling a stock with the intention of buying it back later at a lower cost. In other words, you are betting that the shares will go down. For a bullish play, we want to see a lot of shorts betting against the shares, increasing the odds of a short covering rally on any good news. Turning to US Steel, we see that nearly 8% of its float is sold short – showing more bearishness. Finally, turning to the analysts, they are also bearish towards US Steel. According to Zacks, there are five "buys", five “holds” and two “sells”. Should the shares begin to outperform, there’s plenty of room for upgrades from this group. Add it all up and we think US Steel could make a nice play over the coming months and would thus recommend playing an intermediate term call on it. Write it down and let’s see how we do, but right now it looks like a nice play. Please continue to use all of the filters on these pages at Zacks.com provided by Schaeffers Investment Research for more money-making ideas, and don't be afraid to make a few paper trades to see what strategy works best for you. But please remember that when it comes to options, don't get discouraged - because the beauty of options is the leverage they provide. It takes only a few winners out of every 10 trades to make you a very happy investor. Be sure to visit SchaeffersResearch.com for more market commentaries and Good luck!To learn more about the Unusually High Option Volume filter, click here. Discover all the tools and commentary available from the Zacks.com Options Center. 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. 5. FEATURED EXPERTS Here we cast the spotlight on a timely Featured Expert commentaries that recently appeared on Zacks.com. Richard Moroney explains that the performance of transportation stocks should provide clues about the economy’s future. More... Jack Schannep is waiting for the “facts” to play themselves out on whether or not a recession will occur. Learn why. 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 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. Or view the full list of Zacks #1 Rank FREE PORTFOLIO TRACKER Do you believe that these events affect stock prices?
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Zacks #1 Stocks on the Move 05/23/2013
| Company Name | Symbol | %Change |
|---|---|---|
| WESTELL TECH | WSTL | 6.67% |
| STEIN MART I | SMRT | 5.38% |
| ALLIANCE FIB | AFOP | 5.21% |
| DAWSON GEOPH | DWSN | 4.33% |
| MARRIOTT VAC | VAC | 3.27% |
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