Friday - March 16, 2007
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This week’s mix of relative calmness and volatility may have seemed a bit strange, but it is reflective of how stocks typically perform. The daily shifts in market conditions just seem different because we are in a span of nearly 1,000 days with hardly any true volatility.
The good news is there are still many stocks that are performing well. For example, there are more than 100 stocks within the S&P 500 that are trading at or near 52-week highs. The key to handling fluctuating market environments, such as this, is to do your research and be selective.
Wishing you prosperity,
Charles Rotblut, CFA
1. ZACKS RANK BUY STOCKS
Zacks #1 Rank 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 – Longs Drug Stores Corporation (LDG)
Longs Drug Stores Corporation’s (LDG) stock has been performing extremely well. The company has exceeded earnings estimates in 12 consecutive quarters, posting robust year-over-year growth over that time period. Two analysts have raised their numbers for this fiscal year. Earnings estimates for this fiscal year have risen 15 cents per share to $2.37 over the past month. Similarly, estimates for the quarter ending July have jumped seven cents to 59 cents per share. Read the full analysis on LDG now!
Trinity Industries, Inc. (TRN) has beaten the consensus earnings estimate in eight consecutive quarters by an average margin of 71.3%. The company recently reported record revenues and profits for 2006. Consensus earnings estimates for this year and next are up over the past month. Earnings per share are projected to grow 20% over the next 3-5 years. Read the full analysis on TRN now!
On Feb 6, Dawson Geophysical Company (DWSN) reported fiscal first quarter EPS of 71 cents, topping earnings expectations by 15 cents, a 26.8% surprise. Earnings were 137% above year-ago levels. The company also reported record revenues of $53 million, a 51% increase from fiscal 2006. Despite lower commodity prices, the industry is committed to maintaining exploration activities, allowing Dawson’s order book to remain strong. Read the full analysis on DWSN now!
COMSYS IT Partners, Inc. (CITP) beat the consensus earnings estimate in three out of the past four quarters by an average margin of 50.8%. The company recently released solid results for both the fourth quarter and full year of 2006. Consensus earnings estimates are up over the past 30 days. This Zacks #1 Rank stock has a price-to-book ratio of 3.9 and its PEG ratio currently sits at 0.95. CITP’s return on equity of 21% tops the industry average of 13%. Read the full analysis on CITP 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
Profit Tracks: PEG Ratio
This strategy uses the PEG Ratio to find attractively priced stocks poised for price appreciation. The PEG Ratio is simply the P/E (Price divided by Earnings) of a stock divided by its 5-year projected growth rate. Too often investors think of value investing being the antithesis of growth investing. The beauty of using PEG is that you can find value stocks even amongst hot growth stocks. Let's take a closer look.
A company with a P/E Ratio of 20 and a Growth Rate of 10% will have a PEG Ratio of 2.0 (20 / 10 = 2.0).
While a company with a P/E Ratio of 40 and a Growth Rate of 50% will have a PEG Ratio of only 0.8 ( 40 / 50 = 0.8)
The stock with the P/E of 40 is actually the better bargain since its PEG Ratio is lower (0.8) implying it's undervalued with more upside potential. In general, a PEG value of less than 1 is considered undervalued while greater than 1 is thought to be fully valued to overvalued. The lower the PEG, the better the value, because the investor would be paying less for each unit of earnings growth.
Here are four stocks that make the grade for the PEG Ratio Profit Track:
American Commercial Lines Inc. (ACLI) offers a PEG ratio of 0.45. The company announced fourth-quarter results in early February. Earnings per share increased on a year-over-year basis. Although ACLI missed Wall Street’s fourth-quarter earnings estimate by 12.75%, the company’s earnings were ahead of analyst expectations for the previous four consecutive quarters. Continue your research on ACLI now!
Syntax-Brillian Corporation (BRLC) released fiscal second-quarter results in early February. GAAP earnings per share of 25 cents reversed the year-prior loss of four cents. The company stated that revenue and earnings hit new records as sell-through of the Olevia brand at the retail level continues to exceed expectations and BRLC expands distribution into new national channels. The company's PEG ratio currently stands at 0.43. Continue your research on BRLC now!
Pinnacle Airlines Corp. (PNCL), a Zacks #1 Rank (Strong Buy) company, posted fourth-quarter financial results in late February. Earnings per share of 56 cents, excluding items, eclipsed the consensus estimate by 4%. PNCL's quarterly earnings per share came in above Wall Street expectations each time over the past five consecutive quarters. The company meets the criteria for this Profit Track with a PEG ratio of 0.29. Continue your research on PNCL now!
Superior Energy Services, Inc. (SPN) has PEG ratio of 0.26. The company reported fourth-quarter earnings of 76 cents per share in late February. The result topped the consensus estimate by almost 9% and outperformed the year-ago total. SPN stated that it continued to grow earnings both year-over-year and sequentially. The company believes that the combination of its expanding international and domestic land operations with its diversified portfolio of products and services provides its shareholders a cushion to fluctuations in commodity prices. Continue your research on SPN 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”.
Kevin Matras goes over a price and volume screen that weeds out the weak stocks from the strong. More...
3. ZACKS EQUITY RESEARCH
Checking in with what’s going on in the European markets lately, we recently spoke with senior Analyst Duong Vuong, CFA, who covers different regions in Europe, most notably the United Kingdom [U.K.].
Have the recent jittery markets in the U.S. and China caused a reaction in the U.K. and other European markets? If so, how?
Stock markets in the U.K. and European markets reacted negatively to what happened in China, but the correction is not too significant. Overall, the European markets are now only around 7-8% off their year highs, having recovered from 10-12% off their year highs when the news of the Chinese market first got through.
More. . .
How much has the troubled sub-prime lending market affected the European exchanges?
It's not really a problem for the European markets as a whole, as it only concerns European lenders (banks) who lend to U.S. customers. There are a few, but the majority of lenders' operations are still domestic.
Mergers and acquisitions [M&A] appear to be as big a deal in Europe as they are in the U.S. What's the outlook on M&A activity going forward?
I think M&A will continue to be a theme as it was last year, but activity will be less in terms of private equity buy-outs as valuation have gone up. However that does not mean that stock-stock swap is going to be happening less as companies might be using their stock currency to use to buy others.
Do you have any particular Buy recommendations at this time?
I have BUY on Aegon (AEG) and Allianz (AZ), two European insurers.
Would this be a good time to increase positions in European stocks, or would you wait for a pullback first?
I think a good time to buy is when there is weakness, such as a couple of weeks ago when European stocks got affected by China. Overall, valuation is still not expensive, and the markets normally recover somewhat after a significant drop.
Duong Vuong, CFA is a senior analyst covering various industries in the European markets.
Real-time market insights from Zacks Equity Research Analysts. Stocks featured recently include Vodafone (VOD), Abbott Labs (ABT), Zumiez (ZUMZ) and Yahoo! (YHOO). To see their latest posts, click here.
4. FEATURED EXPERTS
Here we cast the spotlight on timely Featured Expert commentaries that recently appeared on Zacks.com.
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 Ranked stocks.
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Regards and Happy Investing,
Charles Rotblut, CFA
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The Zacks Performance Rank performance is the total return of equal weighted simulated portfolios consisting of those stocks with the indicated Zacks Rank net of fees. Results reflect the reinvestment of dividends and other earnings. Simulated results do not represent actual trading and may not reflect the impact that economic and market factors might have had on decision-making if an adviser were actually managing a client's money.
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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