Thursday - April 12, 2007
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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 – Bio-Reference Laboratories, Inc. (BRLI)
Bio-Reference Laboratories, Inc. (BRLI) has met or exceeded earnings estimates in four out of the past five quarters, with the most recent quarter registering a 16.7% surprise. Year-over-year growth has averaged over 40% over this time period. One of the two analysts that cover the stock raised his estimates for both this year and next. The stock is attractive at 21.2x next year's estimate of $1.22 per share. Read the full analysis on BRLI now!
L-3 Communications Holdings, Inc. (LLL) exceeded analysts’ earnings expectations in 15 out of the past 16 quarters. Citing anticipated defense spending in the U.S., LLL upped its earnings per share outlook for 2007. On Feb 6, the Board of Directors boosted its regular quarterly cash dividend by 33.3% to 25 cents per share. LLL is currently yielding 1.1% and its return on equity easily surpasses that of the industry average—12% compared to 2%. Read the full analysis on LLL now!
Momentum – Chicago Bridge & Iron Company N.V. (CBI)
Chicago Bridge & Iron Company N.V. (CBI) is benefiting from consistent earnings momentum, higher estimate revisions and a recent upgrade. Momentum should continue in the direction of the underlying trend. Read the full analysis on CBI now!
Consensus earnings estimates for Arcelor Mittal (MT) have been on the rise over the past two months. The company recently raised its offer for the shares it doesn't already own in Arcelor Brasil SA. MT’s $590-million share repurchase program recently kicked off and a 32.5-cent interim dividend was announced in early-February. This Zacks #1 Rank stock is currently trading at a valuation of 8.8x current fiscal-year estimated earnings and at 7.8x next fiscal-year estimated earnings. Read the full analysis on MT 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:
Dreyerd (Rank #177 with $117,443)
ATTEMPTING BREAKOUT TO MULTI-YEAR HIGHS (GLBL, DNDN)
Beris (Rank #19 with $144,819)
ALUMINUM GIANTS TO FLY AGAIN: SOUNDING CONSOLIDATION BELLS (CENX)
Jim Treyens (aka Seatac) describes himself as diversified and eclectic when it comes to trading stocks. This Simulator player will also employ aggressive strategies if needed.
“Some of my stocks should have potential for explosive growth, kind of like a venture capital fund that knows it won't make money on eight of ten investments but can make a whole lot of money on one or two,” mentioned Jim.
The savvy investor currently holds second place in the Zacks $100K Challenge. He has earned an overall return of more then 100% since the beginning of this year.
His current Zacks $100K Challenge stocks include Natus Medical Inc. (BABY), Dendreon Corp. (DNDN), Gilead Sciences Inc. (GILD), ZymoGenetics, Inc. (ZGEN) and Seattle Genetics Inc. (SGEN). Take a look at his complete trading history by clicking here.
3. ZACKS EQUITY RESEARCH
Two weeks ago, I discussed rising earnings estimates for oil refining companies. The trend is continuing – within the past week, brokerage analysts have raised both first-quarter and full-year profit projections on Frontier Oil (FTO), Sunoco (SUN), Valero (VLO) and Western Refining (WNR). FTO, VLO and WNR are Zacks #1 Rank (“strong buy”) stocks; SUN is a Zacks #3 Rank (“hold”) stock.
The cost of Texas Tea is staying in the mid-$60 range and comments out of some oil-producing countries suggest that they are happy with the current price levels. Gasoline inventories in the U.S. have fallen for eight consecutive weeks and another drop is anticipated when the Department of Energy releases its weekly survey later today. Prices at the pump are up 18 cents over the past two weeks and are now up by about 50 cents per gallon since the end of January. Then there is the ongoing problem with Iran and its intent to go nuclear.
More. . .
Refiners not only benefit from higher oil prices, but they are also in a favorable position from a supply/demand standpoint. Refineries in the U.S. are operating at almost full-utilization. Sustained economic growth results in more cars on the road due to both higher employment and more vacations. Combined, these factors are positives for companies whose earnings are dependant on the size of the margins they can command.
Given this backdrop and the trend in earnings estimate revisions, companies within Oil Refining & Marketing could issue positive first-quarter earnings surprises.
Valero intends to report on Apr 24 and brokerage analysts currently expect earnings of $1.62 per share (versus $1.58 last week). Sunoco intends to report on May 2 and brokerage analysts expect earnings of $1.24 per share (versus $1.22 last week). Frontier Oil and Western Refining will likely report in May, though neither company has announced a date.
Although the housing market remains weak, commercial construction (both new and remodeling) is helping to keep demand for lighting fixtures strong. Evidence of this strength was seen in Acuity Brands’ (AYI) fiscal second-quarter results. The company reported record second-quarter profits of 55 cents per share, surpassing expectations by a margin of six cents per share. Net sales of lighting fixtures rose 4.6% and operating margins expanded. AYI was able to push through price increases at the same time it was enjoying higher volume – a good combination. CEO Vernon Nagel made optimistic comments about the outlook for the lighting fixtures market noting still favorable economic conditions and a 7% increase in his company’s backlog.
The four covering brokerage analysts seemed to agree. All of them raised their full-year forecasts following the earnings report. The new consensus estimate calls for AYI to earn $3.40 per share this year; last week, the consensus estimate had projected profits of $3.23 per share.
AYI is a Zacks #1 Rank (“strong buy”) stock and is classified in Building Product-Lighting Fixtures. This group also contains one Zacks #2 Rank (“buy”) stock, LSI Industries (LYTS).
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 Harmony Gold (HMY), aQuantive (AQNT), Rockwell Automation (ROK) and MedImmune (MEDI). To see their latest posts, click here.
Earnings Season Kicks Off with Subdued Expectations
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: High Rank Value
Two of the most commonly accepted measures of a value stock are a price-to-earnings (P/E) multiple of 15.0 and a price-to-book (P/B) multiple of 3.0. Although many studies have shown performance advantages to investing in value stocks, not all value stocks are actually bargains. A value a stock is only a good buy if earnings are expected to improve in the future.
High Rank Value is a strategy designed to find the true bargains among value stocks. By requiring a Zacks Rank of #1 (“Strong Buy”) or #2 (“Buy”), this strategy restricts the pool of value stocks to only those with positive revisions in earnings estimates. In other words, profits are expected to improve in the future at a faster pace than originally anticipated.
Asbury Automotive Group, Inc. (ABG), a Zacks #1 Rank (Strong Buy) company, offers a price-to-earnings (P/E) multiple is 13.94 and a price-to-book (P/B) multiple of 1.47. ABG will announce financial results for the first quarter on April 25, 2007. In mid-February, Asbury Automotive posted fourth quarter earnings per share that outperformed the consensus estimate by 8% and increased on a year-over-year basis. Continue your research on BW now!
The Chubb Corporation (CB) satisfies the criteria for this Profit Track as evidenced by its price-to-earnings (P/E) multiple of 9.3 and a price-to-book (P/B) multiple of 1.58. The company will issue its report for the first quarter on April 23, 2007. CB released fourth-quarter results in late January. Operating income per share reached a record $1.46, compared to last year’s $1.17. Wall Street forecasted fourth-quarter earnings of $1.33 per share. Continue your research on CB now!
DryShips, Inc. (DRYS) is also a Zacks #1 Rank (Strong Buy) name. The company recently declared a quarterly cash dividend of 20 cents per share. DRYS reported full-year and fourth-quarter results in late February. Earnings per share, excluding an item, totaled 77 cents for the fourth quarter, beating the consensus by 3%. The company stated that it enters 2007 with a bigger and significantly younger fleet and about 64% of the total vessel operating days unfixed which places DryShips in a unique position to capitalize on the strong dry bulk industry fundamentals. DRYS has a price to-earnings (P/E) multiple is 10.5 and its price-to-book (P/B) multiple is 2.08. Continue your research on DRYS now!
Diana Shipping Inc. (DSX), a Zacks #1 Rank (Strong Buy) company, has a price-to-earnings (P/E) multiple is 14.98 and a price-to-book (P/B) multiple of 2.69. The company released its report for the fourth quarter in late February. Earnings per share totaled 37 cents, which surpassed the consensus estimate by 3% and outperformed the year-ago result. Continue your research on DSX 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 explains why a good stock screener can be your best tool for picking options: 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...
Ludwigshafen, Germany-based BASF Aktiengesellschaft (BF) is the world’s leading chemical company with customers in more than 170 countries and production sites in 41 countries. It operates through five segments. The plastics segment (24% of revenue) makes styrenic plastics, engineering and high-performance plastics, and polyurethane. The chemicals segment (22%) makes basic petrochemicals and inorganic chemicals, as well as specialty intermediates for the chemical, construction, automotive, and electronics industries. The performance products segment (19%) produces high-value products such as surfactants, pigments, automotive and industrial coatings, and adhesive raw materials. The agricultural products and nutrition segment (9%) is made up of two separate operational units agricultural products and fine chemicals. The oil and gas segment (20%) is involved in the exploration and production (E&P) of crude oil and the marketing and trading of natural gas in Central and Eastern Europe. Other operations generated the remaining revenue. Nearly 60% of revenue comes from Europe, with Germany alone accounting for 44%. North America generated 22%, Asia/Pacific 14% and South America, Africa, Middle East 4%.
BASF’s strength lies in its ability to withstand challenging market conditions to grow faster than the market. The company s operations are linked to Verbund (integrated production) concept, which gives it a competitive advantage over its peers. Under this concept, BASF utilizes byproducts of one process as raw materials for the other process, thus resulting in cost savings. Additionally, it also applies this interconnectivity concept in other fields like R&D, purchasing, and managing customer relationships enabling it to improve its productivity. The company has various growth opportunities and is well positioned in the various fields in which it operates. Business conditions are improving, with Asia and North America driving growth. The company is witnessing robust demand across most product lines, with a considerable rise in new orders. Increased shipment volumes are resulting in higher capacity utilization, and consequently better absorption of fixed overheads. The rising demand has also restored some pricing power in the industry enabling BASF to institute long-awaited price increases. The company has also initiated price increases across all product lines in North America to address the problem of rising energy costs.
BASF is witnessing sales and earnings growth due to better end-markets. All segments are experiencing improvements, with the chemicals segment emerging as the primary growth driver. Further, strong volumes and better prices are resulting in market share gains worldwide. The company also remains on track to complete its cost reduction program.
In late March, BASF and Monsanto Company have announced a long-term joint research and development (R&D) and commercialization collaboration in plant biotechnology that will focus on the development of high yielding crops and crops that are more tolerant to adverse environmental conditions such as drought.
The company released 2006 results in late February, noting that for the first time in BF’s history, sales passed the EUR 50 billion mark, and income from operations (EBIT) before special items climbed to a new record of more than EUR 7.2 billion.
In 2007, BASF expects significantly higher sales than in 2006. The company stated that higher sales will be driven by both the businesses acquired in 2006 as well as organic growth in the company's existing businesses. Despite the significant decline in the price of oil and the associated impact on the earnings of the Oil & Gas segment, BASF has set itself the ambitious goal of at least matching the record level of EBIT before special items that it posted in 2006. Due to the sustained strengthening of its earnings power, BASF expects to at least earn its cost of capital in any given year, irrespective of the economic situation.
Results for the first quarter will be available on April 26, 2007.
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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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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