Thursday - March 22, 2007
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Yesterday was a good day to be in the markets. As you know, stock prices soared following the FOMC’s statement.
The FOMC acknowledged ongoing problems in the housing markets, but continued to stay on neutral ground, giving itself room to maneuver. Although some will view the change in wording as a precursor to action on rates (the words “additional firming” were dropped), I still believe that calls for rate cuts are premature.
Wishing you prosperity,
Charles Rotblut, CFA
1. ZACKS RANK BUY STOCKS
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 - Unilever PLC (UL)
Earnings estimates have been on the rise for Unilever PLC (UL), especially over the past month. During that time period, this year's estimates have risen 13 cents to $1.81 per share, while next year's numbers have increased 21 cents to $1.91 per share. The stock is attractively valued at 15.2x next year's estimates, slightly below the company's projected long-term growth rate of 16%. Read the full analysis on UL now!
There are several positive factors impacting Parker Hannifin's (PH) business segments, including margin improvement from increased volume, strategic procurement, pricing, and lean manufacturing efforts undertaken by the company. The company's cash flow position remains healthy and its balance sheet is extremely strong, with a very low net debt/capitalization ratio (23.8%). Read the full analysis on PH now!
Momentum - Commscope Inc. (CTV)
Commscope Inc. (CTV) is up 40% for 2007. Continued earnings momentum, favorable estimate revisions and an analyst upgrade should support this Zacks #1 Rank stock’s upward trend. Read the full analysis on CTV now!
Celanese Corporation (CE), a Zacks #1 Rank Stock, has beat analyst expectations, raised guidance, and announced a debt restructuring and share buyback. These developments have allowed the stock to return over 16% for the year, well above the market averages. In addition, CE continues to trade at multiples well below both the overall market and its respective industry, despite superior profitability. Read the full analysis on CE now!
2. Best of the Zacks $100,000 Challenge
Zacks is conducting a nationwide talent search to find the very best stock pickers. The winner gets a $100,000 dream job with Zacks! . Sign up for free to join the competition, or just read what stocks the leading players are trading on the Zacks Challenge Player Blogs.
Here's what the leading players are saying lately:
Java J (Rank #1 with $1,473,600)
LA JOLLA...SET UP FOR A NICE 10% MOVE??? (LJPC) La Jolla Pharmaceutical has displayed some very bullish trading activity this morning...a very strong upside reversal has occurred accompanied by heavy volume...In my view, LJPC has set the stage for another move up to possibly retest initial resistance...
Narwhal (Rank #48 with $120,783)
DEAD CAT BOUNCE 101 (LEND) Most stocks seem to overshoot the level that they will eventually arrive at. Therefore, if a stock is going through the roof or floor it will probably arrive at a turning point where it will bounce, hence the dead cat bounce. Today this worked beautifully with Accredited Home Lenders (LEND)...
Neville Maycock, Jr. (aka: lilnev2000) is a fan of companies in the basic materials/precious metals field. “After being burned on technology stocks between 2001-2004, I wanted to find a sector that I could understand and where the technological changes didn't have a huge effect on the price of the stock. After seeing a link to the kitco.com site in an email I received, I got hooked on the precious and base metal sectors. I saw that the managements’ desire and knowledge had more of an effect on the stock price than the technology,” remarked Neville.
This type of investing has led this Simulator player into the top 30 of the Zacks $100K Challenge 2007. With overall return that is approaching the 30%, Neville has turned $100,000 into more than $128,000 since the beginning of this year.
Some of this participant’s Simulator portfolio holdings include Nevsun Resources Ltd. (NSU), Anooraq Resources Corporation (ANO) and Rubicon Minerals Corp. (RBY). Take a look at his complete trading history by clicking here.
3. ZACKS EQUITY RESEARCH
CommScope (CTV) raised its revenue and operating margin guidance last week. Citing “positive trends in sales, orders and operations” the company now expects first-quarter revenues to total between $415 and $425 million with an operating margin in the range of 12.5% and 13.5%. Previously, the company had forecast revenues of between $390 and $410 million and an operating margin of 10.5% to 11.5%. CTV did not, however, raise its full-year guidance.
Nearly all of the covering brokerage analysts revised both their first-quarter and full-year forecasts. The consensus estimate for first-quarter earnings now stands at 52 cents per share, versus 43 cents a week ago. The consensus estimate for full-year earnings now stands at $2.22 per share, versus $2.06 a week ago.
There might be more to the earnings estimate revision than just positive company trends. Last year, several companies in the Wire & Cable Products group, including CTV, benefited from the combination of economic growth, investment in technology (more demand for networking, broadband and high-definition products) and rising copper prices. The latter was important because it helped to provide wire and cable companies with pricing power. Since early February, copper prices have rebounded by more than 25%, reversing a four-month slide. CTV did not mention copper, but it seems logical that the covering analysts have noticed the rise in the metal’s prices.
More. . .
CTV is a Zacks #1 Rank stock. The Wire & Cable Products group also contains two other Zacks #1 Rank stocks: Belden CDT (BDC) and General Cable (BGC). All three stocks are trading at or near 52-week highs.
The Mortgage Bankers Association said this morning that applications, for both new and refinanced loans, fell last week. The decline follows yesterday’s news that building permits fell last month and comes at a time when the problems with subprime mortgages are making headlines. It remains too early to assess the scope of the problem with subprime mortgages and to predict with any accuracy the actual impact on the entire mortgage industry. Industry participants and observers are not waiting for the problem to worsen to act, however.
Last week IndyMac Bancorp (NDE) published a lengthy press release refuting claims that it was primarily a subprime lender (only 3% of the firm’s $90 billion mortgage loan production last year was subprime), discussing the credit strength of its loan portfolio and explaining its strategy in response to the current market conditions (the company tightening its underwriting guidelines). NDE still does expect loan delinquencies to “rise significantly” this year, however. This expectation, combined with tighter underwriting standards, has caused brokerage analysts to cut their profit expectations for this year. The current consensus estimate for profits of $3.78 per share is 28% below the forecast of 60 days ago ($5.25 per share). NDE is a Zacks #5 Rank stock.
IndyMac is not the only mortgage lender that brokerage analysts are cutting estimates on. Out of the 66 companies classified in Finance-Savings & Loan, 24 (36%) have a Zacks Rank of 4 (“sell”) or 5 (“strong sell”).
For example, during the past two months, the full-year consensus earnings estimate for Washington Mutual (WM) has fallen by three cents to $3.90 per share. Not a material decline, but one that does extend an ongoing trend of falling forecasts – a bearish sign for a company that has missed earnings expectations during each of the past two quarters. Real estate loans account for the overwhelming majority of Washington Mutual’s loan portfolio.
The gradual erosion in earnings estimates that is occurring with WM is typical of what is occurring for multiple companies in the Savings & Loans group. Concerns about both a rising level of defaults and a lower level of mortgage originations are what is causing brokerage analysts to be more conservative. It should be noted that profits are still expected to grow for the companies in this group, though the average growth rate is in the low single digits. In other words, there are better industry groups to invest in right now.
To read the complete Industry Rank Analysis, click here.
Charles Rotblut, CFA is the senior market analyst for Zacks Equity Research.
Real-time market insights from Zacks Equity Research Analysts. Stocks featured recently include Solectron Corp. (SLR), RenaissanceRe (RNR), Jabil Circuit (JBL) and Cerus Corporation (CERS). To see their latest posts, click here.
4. 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: Low Price Stocks
Many investors prefer stocks priced below $20 because the low prices allow them to accumulate more shares. Fortunately, lower prices do not necessarily mean lower quality.
This strategy identifies stocks priced below $20 that are trading at discount valuations and have a Zacks Rank of #1 ("Strong Buy") or #2 ("Buy"). The stocks identified by this search strategy trade at price-to-sales (P/S) multiples of 1.0 or below. The strong Zacks Rank is indicative of positive revisions in earnings estimates. Combining these characteristics can result in high-dollar returns.
CPI International, Inc. (CPII) meets the criteria for this Profit Track with a price-to-sales ratio of 0.89 and earnings per share profitability of $1.24 over the past 12 months. In early February, the company announced fiscal first-quarter earnings of 33 cents per share, topping the consensus estimate by 14%. The company reconfirmed its previous fiscal 2007 guidance of $1.24 to $1.30 per share. Analysts are in agreement as evidenced by current estimates of $1.29, which is up a penny from two months ago. Continue your research on CPII now!
Delek US Holdings Inc. (DK) recently reported fourth-quarter earnings of 22 cents per share, beating the consensus estimate by a penny. The company noted that it expanded its businesses and achieved steady operating improvements during 2006 even while volatile energy prices impacted comparable-period results. DK’s price-to-sales ratio stands at 0.29, and the company experienced earnings per share profitability of $1.94 over the past 12 months. Continue your research on DK now!
Goodman Global Inc. (GGL) earned $1.00 per share during the past 12 months and sports a price-to-sales ratio of 0.68. The company recently posted fourth-quarter earnings of 16 cents per share, which matched Wall Street estimates. "We delivered a strong finish to a very good year. We came close to matching our own industry-leading fourth-quarter 2005 sales performance, and, as a result, produced the best sales results in the industry, again," remarked Charles A. Carroll, president and chief executive officer. Continue your research on GGL now!
Lifetime Brands, Inc. (LCUT) recently reported fourth-quarter earnings of 62 cents per share, surpassing the previous year’s 60 cents and eclipsing analysts’ expectations by a penny. The company expects full-year 2007 earnings per share of $1.40 to $1.70. Wall Street is currently forecasting $1.59 per share for 2007, which is up two cents from last month’s estimates. LCUT offers a price-to-sales ratio of 0.57. During the past 12 months, Lifetime Brands earned $1.03 per share. Continue your research on LCUT 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 shows how to find great growth stocks at an excellent value: Click here.
5. ZacksElite.com TIMELY BUY of the WEEK
Here you'll discover a Zacks #1 Rank stock hand selected by Ben Zacks to outperform the market over the next 30 to 90 days. This week's Timely Buy is...
Houston, Texas based National-Oilwell Varco, Inc. (NOV), formerly National-Oilwell, is a worldwide leader in the design, manufacture, and sale of comprehensive systems, components, products, and equipment used in oil and gas drilling and production worldwide. The company reached its current form following the March-2005 merger between National-Oilwell and Varco International.
Following the merger, National-Oilwell Varco re-organized its operations in three business segments: Rig Technology, Petroleum Services & Supplies, and Distribution Services. The Rig Technology segment (accounted for 51% of the company's 2006 revenue) designs and manufactures integrated drilling systems and components for land and offshore drilling rigs. The Petroleum Services & Supplies segment (35%) consists of a number of the company's services and consumables, including inspection and quality assurance services for tubular goods, solids controls and rig instrumentation. The Drilling Services segment (14%) sells and rents technical equipment used in the drilling process.
Management has recently undertaken a number of process- improvement initiatives in its manufacturing operations to increase throughput and efficiency levels, including quick response cellular manufacturing and lean operations. Meaningful improvements have been achieved, as is evident from the fourth-quarter gains in revenue and margins, significantly above earlier guidance. In the services end of the business, new technologies are making a meaningful impact on the company’s results by bringing in new customers. Among noteworthy new technologies/products are the fiberglass pipes that are used in corrosive oil field environments. It is also the largest provider of thermal desorption technologies used to clean drill cutting waste and recycle oil-based drilling fluids. The company provides over 500 satellite communication systems for rigs, including e-mail account for drillers and tool pushers. Over half of the rigs world-wide use the company’s drift tools to measure hole deviations.
Being one of the largest manufacturers of drilling equipment in the world, National-Oilwell Varco enjoys strong leverage to the current oilfield cycle.
Growing demand for new rig construction, refurbishment of existing units, and parts supplies to its large installed base of rigs should help drive earnings momentum in the near to medium term.
In early February, the company announced financial results for the fourth quarter and full-year 2006. Fourth-quarter earnings per share of $1.35 eclipsed the consensus estimate by nearly 29% and outperformed the prior-year result. During the past four consecutive quarters, earnings per share remained ahead of analysts’ expectations.
Pete Miller, Chairman, President and CEO of National Oilwell Varco, remarked, "Our company enjoyed a very successful 2006. Each of our three segments reported higher year-over-year sales and profits for the year, and we enter 2007 with a very healthy backlog of equipment and technology to deliver to our customers.
Wall Street has been bullish on earnings forecasts for NOV. Current expectations for the first quarter are $1.33 per share, which is up from the two months-ago level of $1.11. Full-year 2007 projections of $5.54 per share moved up from last month’s $5.47 and the two months-ago level of $4.74.
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 Rank (Strong Buy) List has produced the following results for investors:
And just as importantly, our #5 Ranked stocks (Strong Sells) have alerted investors as to which stocks to dump from their portfolios to avoid unnecessary losses.
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Regards and Happy Investing,
Charles Rotblut, CFA
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*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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