Wednesday - April 18, 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 – The Middleby Corporation (MIDD)
In a relative rarity, The Middleby Corporation (MIDD) has met or exceeded earnings estimates in 13 consecutive quarters, with 12 of those periods registering positive surprises. One analyst raised his numbers for this year. Over the past 60 days, this year's earnings estimates have increased 22 cents to $6.02 per share. The stock is trading at 20x next year's estimates compared to its long-term growth rate of 15%. Read the analysis of MIDD now!
Growth & Income – MasterCard Incorporated (MA)
MasterCard Incorporated (MA) topped analysts’ earnings expectations over the past three quarters by an average margin of 55%. Consensus estimates have jumped over the past two months. On Feb 9, the Board of Directors declared a 66.7% boost in its quarterly cash dividend to 15 cents per share from nine cents. MA’s return on equity tops that of the industry average—23% compared to 16%. Read the full analysis on MA now!
Momentum – Arcelor Mittal (MT)
Arcelor Mittal (MT) is up over 28% for 2007, and while slightly off its highs, momentum should continue to the upside. Supporting the trend, the latest earnings surprise was followed by upward earnings revisions and the announcement of a share buyback program. Read the analysis of MT now!
Value – United States Steel Corporation (X)
United States Steel Corporation (X) exceeded analysts’ earnings expectations in four straight quarters by an average margin of 20.8%. Consensus earnings estimates for both this year and next are up over the past 30 days. On Mar 29, X announced that it will acquire Lone Star Technologies, Inc., making it North America's largest producer of tubular steel. X has a price-to-book ratio of 2.9 and a current dividend yield of 0.76%. Read the full analysis on X now!
2. SCREEN OF THE WEEK
Zacks.com offers three unique weekly commentaries that all
further our mission to help you Profit from the Pros. Today is
the latest installment of Screen of the Week from Kevin Matras.
Each week, Kevin shares with you another winning screen he has
discovered using the Research Wizard software from Zacks
Investment Research. Click here to learn more about the Research Wizard.
”Great Stocks often have Great Peers”
We’ve mentioned it before, but it’s worth saying again; nearly half of a stock’s price movement is tied to the performance of its respective group (sector and industry).
That being said, most great stocks from great groups often have some great peers as well.
If you find yourself in a killer trade (or wished you were in one), take a look at the characteristics of THAT STOCK and then hunt within its group to find OTHER STOCKS that share the same characteristics.
Does a certain outstanding stock exhibit great sales growth? I’m sure there are at least a few within its group that are also showing similar numbers.
What about increasing margins? If the stock is doing well, it’s likely that the industry itself is experiencing meaningful increases in margins too.
This type of screening is often called ‘modeling’. Figure out the components of what makes something successful and concentrate on that.
If you’re in love with a certain stock or sector but it’s not doing anything, or even moving against you, then move on.
If you see great stocks in great groups while you’re bemoaning your misfortune in laggards or non-movers, find what stocks are successful and model them.
If the winningest stocks in a particular sector or industry are trading at PE ratios that you generally won’t consider, ... instead consider this; if you had considered them, they would be winning for you.
So therefore, see what characteristics some of the best stocks have in common and try getting on some of those.
Here’s something to start you off.
The top four Sectors based on the percentage of stocks at (or within 10% of) their 52 week highs are listed below.
Here are a few stocks from each of those current top sectors for Tuesday 4/17/07):
Now try screening for stocks in these Sectors that are in the best Industries.
In fact, in the Research Wizard, you can rank the Industries on whatever item you choose. (Same thing for the Sectors.)
Want to find the ‘best’ Industries based on the Zacks Rank? You can. What about the highest ROE or biggest Earnings Estimate Revision? No problem! Whatever items you want to use to rank your Industries can all be done with a few clicks of the mouse.
And then you can even narrow it down to the best stocks within those groups, again based on whatever criteria you choose.
To search for the best stocks (and Groups) yourself, sign up for your two-week FREE trial to the Research Wizard. Remember the key to successful screening is in discovering those screens that have produced profitable results in the past. And that’s exactly what you get with the powerful Screening and Backtesting ability of Research Wizard. You can do it. Learn how, today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
3. ZACKS EQUITY RESEARCH
In yesterday’s interview with senior energy analyst Sheraz Mian , we focused on more of the big picture regarding the oil industry going forward. Today, we wanted to address some of the specific sub-groups in the industry, instead.
Let’s talk about some of these sub-groups in the oil industry. How is E&P [Exploration and Production] doing, for instance?
One major differentiating factor between E&P companies and the large, integrated major oil companies is their commodity exposures. In addition to crude oil and natural gas prices, the integrateds are exposed to refining margins, marketing margins as well as chemical margins – not just in the U.S. but on a global level. The E&P companies, on the other hand, have a disproportionate exposure to U.S. natural gas prices.
More. . .
Developments in U.S. natural gas markets, in turn, have a strong impact on how stock prices of E&P companies perform. Natural gas prices have generally been weak since early 2006, primarily due to unfavorable weather. A late chill in the most recent winter helped improve the commodity’s storage level to some extent, but it still remains above historical levels. As a result, while the commodity’s price outlook has improved to some extent, it still remains relatively tentative. In addition to facing commodity price pressures, the E&Ps are also dealing with a fairly steady cost creep, both from the oilfield and personnel sides. So margins are getting squeezed, and this is reflected in the stock prices. On balance, though, we expect the group to do better this year compared to 2006.
What about for the Oilfield Service group?
This group is in pretty good shape, with respect to earnings power and cash flows. We can look at this group by breaking it up into three distinct sub-groups.
The first group contains the larger names that service the industry on a global level – not just the U.S.-based and international publicly traded oil and gas companies, but also national oil companies, the state-owned oil companies of OPEC and non-OPEC countries. These companies – some typical names are Schlumberger (SLB), Baker-Hughes (BHI), and Halliburton (HAL). We like all three, but prefer the latter two on valuation grounds.
The other sub-group is exposed to drilling operations within the on-shore U.S. So if the natural gas markets remain relatively tentative and weak, then drilling operations in the U.S. might suffer, and that might impact the results and the stock performances of these companies. You have companies like BJ Services (BJS) and Nabors (NBR) in this group. There is some evidence that onshore drilling has been softening in response to weakness in natural gas prices, which has been weighing on these stocks for a while.
Then you have the offshore drillers. Of this group, the ones who have fleets that can drill in deep waters, both in the U.S. and internationally, are well positioned – both right now and on a long-term basis. You have companies like Diamond Offshore (DO) and Transocean (RIG) in this group.
So in a broader outlook, look for differentiated names within the sector, but on the whole the outlook is pretty much positive. This has been so in the recent past, as well, and is expected to continue in 2007.
Sheraz Mian is a senior analyst covering the oil & gas industry for Zacks Equity Research.
Real-time market insights from Zacks Equity Research Analysts. Stocks featured recently include Horizon Offshore (HOFF), Joy Global (JOYG), Amdocs (DOX) and Johnson & Johnson (JNJ). To see their latest posts, click here.
4. ZACKS WEALTH MANAGEMENT
Every week, Zacks Wealth Management provides informative articles on how to build and protect wealth. Today’s topic is:
In past commentaries we discussed the optimal level of risk based upon various personal criteria. In that discussion (or any discussion) there are major assumptions we make about the performance of various asset classes. It is important that we keep in mind that these historical numbers are based on years of data.
Your portfolio performance matters most during the period when you have the most invested. We as professionals tend to make the mistake of quoting historical returns of the market based upon decade’s worth of data whereas the average person plans his or her life in three, five, or ten year segments at best. Some studies have shown that since 1925, large and small-cap stocks combined have lost money 31% of the time over one-year rolling periods; over five years they have lost money 13% of the time. Only over 20 year rolling periods did they not lose money. So what is the best way to utilize various asset classes within a shorter-time frame?
Remember the basic principle of investing – “buy low, sell high!” If you are in the growth stage of your wealth, add to the asset class that has been underperforming. This is contrarian in nature but will have a significant impact on long-term returns. Rebalancing your portfolio on a regular basis will help you optimize this strategy.
It is more challenging for those already in retirement who are in the distribution phase of their assets. Regardless, the same principle applies. If the bond portion of your portfolio is outperforming equities, you may want to make your withdrawals from your bond allocation and allow for the equity portion to recover.
It is always wise to have a cushion of cash and cash-related positions so you are not forced into a situation of having to draw assets out during a market correction. This reserve should generally range from three to six months of living expenses.
The bottom line is this: separate your decisions of what to invest in or draw from based upon the relative performance of the various asset classes in your portfolio. In the long-run, this will have a dramatic impact on the actual returns of your portfolio and also keep the portfolio from becoming too unbalanced.
Feel free to contact me at email@example.com if you have any questions or comments.
Fritz Fiebig a Certified Financial PlannerTM professional.
This article is provided for informational purposes only and does not constitute legal or tax advice. Zacks Investment Management, Inc. is not engaged in rendering legal, tax, accounting or other professional services. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.
CFP Board, a nonprofit regulatory organization, fosters professional standards in personal financial planning so that the public values, has access to and benefits from competent and ethical financial planning. CFP Board owns the certification marks CFP®, Certified Financial Planner™ and federally registered CFP (with flame logo), which it awards to individuals who successfully complete initial and ongoing certification requirements. CFP Board currently authorizes more than 50,000 individuals to use these marks in the United States. For more about CFP Board, visit www.CFP.net.
5. 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:
Zoroleheros (Rank #2 with $190,696)
MARKET IS OVERBOUGHT
Java J (Rank #106 with $125,020)
>> JAVA’S MARKET MUSINGS #32 <<
Beris (Rank #15 with $154,476)
WHEN THINKING LATIN, THINK BRAZIL (ELP)
OTHER TOOLS FROM ZACKS
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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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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.
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