Tuesday - February 20, 2007

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Zacks #1 Ranked stocks average a 31.8% 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 - Bankrate, Inc. (RATE)

Bankrate, Inc. (RATE) has met or exceeded earnings estimates in seven of the past eight quarters. Two analysts have raised their earnings forecasts for this year. Over the past month, this year's estimates have increased five cents to 92 cents per share. The stock is trading at 32.6x next year's earnings, above the long-term projected growth rate of 26.5%. Read the full analysis on RATE now!

 
Growth & Income - Republic Services, Inc. (RSG)

Republic Services, Inc. (RSG)exceeded analysts' earnings expectations for six straight quarters. The company recently reported solid fourth-quarter and full-year 2006 results. RSG has boosted shareholder value through both dividend payments and share repurchases. The company is currently yielding 1.5% and has a five-year average dividend yield of 0.86%. Read the full analysis on RSG now!

 
Momentum - Millicom International Cellular (MICC)

On Feb 14, Millicom International Cellular (MICC) reported EPS of 50 cents for the December 2006 quarter, up 213% from last year. Sales were up 99% to $544 million. In addition, the company reported that subscriber totals had nearly doubled to 14.9 million. Read the full analysis on MICC now!

 
Value - Vodafone Group Public Limited Company (VOD)

Vodafone Group Public Limited Company (VOD), a Zacks #1 Rank stock, added 20.9 million customers during the first half of fiscal 2007. The company outlined a number of measures to cut costs and expressed its desire to expand in faster growing emerging markets. Consensus estimates for both this year and next have risen considerably over the past two months. Read the full analysis on VOD now!

 
Zacks Rank Resources

• Zacks Rank Homepage: Go there now.
   
• Zacks Elite: Discover Ben Zacks' hand picked #1 Rank stocks on his Timely Buys list. Click here now.
   
• Zacks Options Trader: Combine the timeliness of Zacks #1 Rank stocks with the explosive profit potential of options. Learn more...
   
• Zacks Wealth Management: Own all the Zacks #1 Ranked stocks in a portfolio managed by Zacks. Learn more...

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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: Earnings and Margins

This Profit Track goes to the heart of fundamental investing by finding companies with healthy earnings. The main ingredients are the search for Earnings Growth and Net Profit Margins. Then for good measure we make sure earnings estimates are moving higher which is a strong indicator of future performance and that brokerage firms are positively rating the stock.

Earnings are the single most important metric for a company. Combine that with a healthy Net Profit Margin and you find a screen that has generated a cumulative return of +628% since January 2001. For the first nine months of 2006, this Profit Track has returned 24.3%

 
Here are four stocks that make the grade for the Earnings and Margins Profit Track:

Ansoft Corp. (ANST) recently reported fiscal third-quarter results. The company's quarterly earnings per share result increased on a year-over-year basis and topped the consensus estimate by nearly 11%. Ansoft Corp. stated that it had an excellent quarter with particularly strong revenue growth in its high-performance product line and in both domestic and international markets. ANST's annual earnings showed a 92% improvement over the year-prior performance. ANST offers a net margin of 0.23. Read the full analysis on ANST now!
 

Anixter International Inc. (AXE) is a Zacks #1 Rank (Strong Buy) company. AXE recently released fourth-quarter results, noting that strong fourth quarter results completed a series of record-setting quarters leading to a record year in terms of sales and earnings. Earnings per share topped the previous year's fourth quarter and exceeded the consensus estimate by 2%. The company's full-year earnings experienced growth of 77% on a year-over-year basis. Read the full analysis on AXE now!
 

Cholestech Corp. (CTEC) meets the criteria of this Profit Track as evidenced by its year-over-year earnings growth of 66% for the full year. The company recently announced fiscal third-quarter earnings that were higher than the year-ago result and outperformed the consensus estimate by 7%. Cholestech Corp. mentioned that its operating results continue to reflect improving margins in its business. Read the full analysis on CTEC now!
 

EXFO Electro Optical Engineering Inc. (EXFO) boasts year-over-year earnings per share growth of 425% for the full fiscal year. In early January, the company posted fiscal first-quarter GAAP net earnings of five cents per share, versus the previous year's total of one cent. The result was 25% above Wall Street expectations. EXFO said it continues to execute its profitable growth strategy with solid year-over-year progression in terms of sales, gross margin and net earnings. Read the full analysis on EXFO 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”.

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SCREEN OF THE WEEK

Price & Volume

Kevin Matras looks at how to use Price and Volume for locking in profits, cutting losses an spotting potential trend changes. More...
 

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With some of the largest retailers beginning to announce their fourth quarter results this week, we wanted to catch up with senior retail analyst Rob Plaza, CFA to get an idea of what we should be looking for.

What is new in the retail industry these days?

While most companies have already reported fourth quarter results, the retailers are just getting started. That's because most retailers end their fiscal year in January. This earnings season - the fourth quarter - is the most important for retailers, as they make a bulk of their profits during the holiday shopping season. Two of the largest retailers, Wal-Mart (WMT) and Home Depot (HD), kick off retail earnings season on Tuesday.

More. . .

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Zacks Equity Research continued...

Didn't we see several reports from retailers earlier this month?

We did. Those were sales reports, and many retailers issue sales reports on a monthly or quarterly basis. On February 8th, retailers reported their sales numbers for January and/or for the fourth quarter. Those reports gave investors a sneak peek at the holiday season.

So what did we find out about fourth quarter sales?

To me, it looked like a mixed bag. There were a fair amount of winners and losers. Among those whose sales numbers were good, there is Aeropostale ARO, American Eagle AEOS, Claire's CLE, Dollar General DG, Dress Barn DBRN, Federated FD, Guess? GES, Limited LTD, Saks SKS, Target TGT, Nordstrom JWN, Gap GPS, Citi Trends CTRN and Zumiez ZUMZ.

Then there were those who didn't do as well. These companies include Abercrombie ANF, Ann Taylor ANN, bebe BEBE, Chico's CHS, Children's Place PLCE, Christopher & Banks CBK, Costco COST, Family Dollar FDO, Gymboree GYMB, Joseph A. Banks JOSB, Pacific Sun PSUN, Pier One PIR and Wet Seal WTSLA.

What should investors be looking for as retailers report earnings beginning this week?

I will be looking at profit margins to see which retailers had to resort to discounts in order to get shoppers to buy their products. I will also be looking at inventory levels. Larger-than-expected inventories could lead to large discounts in future quarters, as the company clears its shelves to make room for the next season's inventory. Of course, if the retailer's business is doing particularly well, the higher inventory levels will generate more sales and profits.

So be sure to understand the whole picture, not just sales growth or the profits or just inventory levels. Also, economic factors such as interest rates, gas prices, job growth and housing prices all impact consumer discretionary income, which dictates how much consumers will spend at the mall.

Click here to read the complete Analyst Interview.

Rob Plaza, CFA is a senior analyst covering the retail sector for Zacks Equity Research.

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MORE FROM ZACKS EQUITY RESEARCH…

 
Analyst Blog

Real-time market insights from Zacks Equity Research Analysts. Stocks featured recently include Tech Data (TECD), CACI International (CAI), Telmex (TMX) and Monster Worldwide (MNST). See their latest posts: click here.

 
BULL OF THE DAY

Nordstrom (JWN) - Firing on All Cylinders. For full Zacks research report, click here.

 
BEAR OF THE DAY

Avici Systems (AVCI) - Too Narrow a Base. For full Zacks research report, click here.

 
EARNINGS PREVIEW

The Week of Feb 19 - Feb 23

Retailers will be in the spotlight, accounting for approximately one out of every 10 reports. More...

 
ZACKS EARNINGS TRENDS

Positives Maintaining Big Lead

With more than 75% of the reports in, it is clear that positive surprises will once again swamp disappointments. More...

 
Rating Upgrades - NEW! 

Find out which stocks have been recently upgraded by Zacks Equity Research: click here.

 
Zacks Equity Research Buys - NEW! 

Read the reports on all of the stocks on the Zacks Equity Research Buy List: click here.

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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.

Free Online Options Research.

Zacks/Schaeffer’s Options Trading service.

 
Here is this week's article on how Schaeffer's Tools can help you Profit with Options.

For the past two weeks, we examined the Zacks Unusually High Put Volume filter. Today we'll revisit the Put/Call Open Interest Ratio Filter.

What is the Put/Call Open Interest Ratio Filter? Well, let's first define a put and a call. Puts are simply a bet that the underlying stock is going to move lower, while calls are a bet that the underlying stock is going to move higher. According to our glossary, the Schaeffer's put/call open interest ratio (SOIR) is a ratio of open puts to open calls among options set to expire within three months for a given underlying security. A SOIR greater than one indicates that more puts are open than calls, indicative of pessimism from the speculative options crowd. This filter focuses on stocks whose put/call ratios have exceeded 1.00. Furthermore, a SOIR greater than one indicates that an unwinding of the existing pessimism could serve to push the underlying stock higher.

This week's filter on Zacks lists stocks with a SOIR greater than one. You can sort the results either alphabetically, or from highest SOIR to lowest SOIR.

Before looking at a particular stock, let's address our Schaeffer's methodology.

We are contrarian-based investors, indicating that we want to see skepticism toward an outperforming stock. On the other hand, we want to see optimism toward an underperformer. In our eyes, too much optimism is a sign that nearly everyone who wants to invest in a particular stock already has. Just because a stock sees substantial optimism doesn't mean that we will blindly short that particular security; we need to see some negative price action or a major catalyst for a downside move in order to pull the trigger.

Other indicators we tend to use to measure overall sentiment include short interest, magazine cover stories, media comments, and analyst ratings.

Scanning Friday's list, several attractive potential plays caught my attention, including: ASML Holding (ASML), Four Seasons Hotels (FS), Kinder Morgan (KMI), M.D.C. Holdings (MDC), and VCA Antech (WOOF). Along with these companies, the filter turned up Southern Company (SO), which provides a rather attractive bullish opportunity. With a high SOIR, it is given that pessimism from the options pits runs high toward the electricity distributor. SO's SOIR checks in at 3.54 and is higher than 96% of the past year's worth of readings.

So, is the pessimism warranted? Let's take a look.

Technically, the shares have pulled back a bit since their near-term high of 37.40, which was hit in the middle of December. However, notice that this pullback seems to have found a floor in the form of the 36 level, which has provided support on various occasions in the past month. In addition, the 36 level provided support in November, following a brief period where it provided resistance.

Now should the 36 level fail as support, all hope is not lost. Peak put open interest for the March options series rests at the 35 level. This collection of bearish bets could provide a layer of support if needed.

The 36 level and peak put open interest are not all alone in their role as support. If needed, SO's 10-month moving and 20-month moving averages are both advancing through the 35 level. Since March 2000, the equity has finished below this dynamic duo less than 10 times. Furthermore, the 10-month moving average has bullishly crossed its 20-month moving average. A bullish cross is a technical formation that often precedes a continued run higher. The 36 level may prop the shares long enough to allow the 10-month trendline to catch up and push the stock higher.

Now that we have looked at SO's technical assets, let's look at a few of the sentiment indicators we like to use. We already know that pessimism from the speculative options crowd is running near an all-time high. This is a big plus from our contrarian point of view; heavy pessimism toward a solid performer.

Short interest toward SO is inviting. Only 2.5% of the company's float is sold short, which isn't much. I like to see at least 5% of a company's float sold short. However, I do like the fact that it would take more than 8.5 days to buy back the shorted shares. This affords ample opportunity for a short-covering rally, which could push the stock higher. Should this situation come to fruition, the short struggle with resistance in the 37 region could come to an end.

Another good way to get a gauge of sentiment is to look at analysts' opinions, and this is where I find the best aspect of SO's sentiment backdrop. According to Zacks, SO is followed by 13 analysts. Of this group, one rates the company a "buy," one rates it a "strong sell." This leaves 11 analysts, all of which rate SO a "hold." This sizeable group of fence sitters could quickly change their mind and issue upgrades, which could serve to push the stock higher.

SO's performance amid rather bearish sentiment earns it a Schaeffer's Equity Scorecard rating of 8.0 out of a possible 10. This high rating suggests that there is enough money waiting on the sidelines to push the stock higher as investors are drawn into the game. If you agree with my assessment, add SO to your bullish watch list. A bullish play on this energy company lines up rather nice from our contrarian point of view.

Make sure to continue utilizing all of the valuable filters on these pages for more money-making ideas. Moreover, don't be afraid to make a few paper trades in order to see what strategy works best for you. Please remember that, when it comes to options, the majority of your trades are going to be losers. Don't get discouraged, because that's the beauty of the leverage that options provide. It takes only a few winners out of every 10 trades to make you a very happy investor. Thanks for reading, best of luck in your trading!

To learn more about the Put/Call Ratio over 1.0 filter, click here.

Discover all the tools and commentary available from the Zacks.com Options Center.

 
Zacks Rank + Options = Trading Success!

Leverage the timeliness of Zacks #1 Rank stocks with options trades that maximize profits and minimize risks. Learn more about our new Options Trading service.

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

 
Stay Fully Invested

Donald Rowe says investors should focus on capturing profits from 2007-2010. Read his commentary and recommendations. More...

 
Building a Nice Head of Steam

 
More Sideways Action

Ken Trester expects to see continued sideways action. Read his market outlook and check out an option play. More...

OTHER TOOLS FROM ZACKS

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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:

• +31.8% average annual return since 1988 versus +11.8% 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.

Or view the full list of Zacks #1 Rank stocks.

FREE PORTFOLIO TRACKER

Do you believe that these events affect stock prices?

• Broker Recommendation changes
• Earning Estimate revisions
• Earnings Announcements
• Zacks Rank changes

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We hope you enjoyed this issue of "Profit from the Pros", And we look forward to visiting with you again next week.

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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.

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