Wednesday - April 25, 2007
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Manage Profit from the Pros subscription:
Dear PFP Subscriber,
I’m happy to announce the launch of two new unique products that many of you have requested: Stocks to Double and the Zacks Elite Dividend Yield portfolio.
Stocks to Double is a special report that discusses six stocks priced below $20, which could double in price during the next 1-3 years. This is a great report for those of you who are looking for low-priced, aggressive growth stocks.
Dividend Yield is a portfolio of 15 stocks that pay dividends of 5% or more. This is a great portfolio for those of you looking for conservative, income-generating stocks. (The Dividend Yield portfolio is available exclusively to Zacks Elite subscribers.)
Wishing you prosperity,
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 – Schering Plough Corporation (SGP)
In a relative rarity, Schering Plough Corporation (SGP) has engineered an excellent turnaround that shows no signs of abating. The company crushed estimates by almost 45% in its most recent quarter and raised guidance. Over the past month, this year's estimates have increased seven cents to $1.16 per share. The stock is still attractive at about 22x next year's earnings, below its long-term growth rate of 26.56%. Read the analysis of SGP now!
Growth & Income – Acuity Brands, Inc. (AYI)
Acuity Brands, Inc. (AYI), which was last highlighted as a Growth and Income pick on Nov 1, is up nearly 26%. The company recently reported record earnings per share, net income and net sales for both the second quarter and first half of fiscal 2007. Consensus estimates have risen over the past 30 days. Earnings per share are projected to grow 23% over the next 3-5 years. AYI is currently yielding 0.97%. Read the full analysis on AYI now!
Momentum – AptarGroup Inc. (ATR)
AptarGroup Inc. (ATR) recently reported first-quarter results and issued second-quarter guidance that surpassed analysts’ expectations. The company also announced a 2-for-1 stock split and boosted its dividend. The news should further upward momentum and drive the stock price to new highs. Read the analysis of ATR now!
Value – JPMorgan Chase & Co. (JPM)
JPMorgan Chase & Co. (JPM) topped the Street’s earnings estimate in nine consecutive quarters. The company recently released solid results for the first quarter of 2007. The Board of Directors announced an increase in its quarterly cash dividend and authorized a new $10 billion common stock repurchase program. Consensus estimates for both this year and next are up over the past week. This Zacks #1 Rank stock has a price-to-book ratio of 1.6 compared to 4.5 for the market. Read the full analysis on JPM 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.
”Creating a Custom Consensus”
Every week in this article, I either go over a unique way to screen for stocks or publish a proven profitable screening strategy.
If you’re a regular reader of this feature, you know that most of our strategies have done fantastic. The only real decision is choosing which one(s) you want to use.
Well, instead of choosing just one, why not look at them all and create a Custom Consensus of some of our winningest strategies?
This is another great strategy to pick winning stocks from many diversified approaches. Aside from using the Zacks Rank for many of the screens, there are several other filters layered on the top to find the best stocks from different styles.
The screens I’m currently using in my Custom Consensus strategy come loaded with the Research Wizard program:
Simply run each screen, generate a list of qualified tickers for each one and then count how many times a stock appears in all of those screens.
If they appear in two or more screens, they qualify for the Consensus portfolio.
Here are four stocks from this week’s Consensus list (4/23/07):
Sign up now for your two-week free trial to the Research Wizard and get this Custom Consensus list week after week, along with all of the individual strategies as well. In addition, learn how easy it is to build and test your own winning strategies. You can do it. Click here and see how.
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
Recently, we met with Zacks’ senior technology analyst Larry Orlowski, CFA over first quarter earnings, an expected economic slow-down, and what can be expected from the tech industry going forward.
What are some of the main issues affecting the technology sector during this first-quarter earnings season?
Well, first of all I will tell you that my overall feeling about the market right now – including tech – is one of caution. The reasons why point to a number of factors, and these have been translated into a number of changed recommendations I’ve made to my coverage of companies so far.
More. . .
The main thing that I’m worried about is the lack of capital spending. Orders for capital goods, such as machinery and hi-tech hardware fell 1.2% in February. And the three-year moving average of orders, which tries to give an idea of the trend, dropped dramatically. Therefore, with questions over how well the overall economy will grow this year, this is troubling for the tech sector, in my view.
And I think what’s really paradoxical about this is that companies weren’t spending, yet at the same time – in terms of cash, in terms of profits and so forth – companies have been flush with cash. Profitability has been, for the past several years, quite high. So the question is, ‘Why haven’t they been spending?’ They’re financing stock buybacks and so forth, but if our businesses are investing in the future, what will be the productive capability and efficiency?
How does this relate directly to the technology industry?
I’ll go into that now. Part of the trend is related to consumer confidence and the unraveling of the sub-prime market, so there is a real concern that consumer demand is going to fall off. So companies will then have to make the decision, ‘If consumer demand is falling off, then why should we invest? Maybe we should wait.’ Because if we do capital spending and our profit margins fall, we’ll come under pressure as demand is falling.
This sort of thing has been going on for awhile, hasn’t it?
That’s a very good point, and this is something we could talk about for hours. During our expansion, growth in capital spending has not matched the pace of expansion in the 1990’s. In 2006, for example, there was only a 4.4% growth rate in equipment outlays, which is a real slow-down. In fact, capital spending is not even keeping up with the pace at which older machines are wearing out.
It used to be new machines were replenished every three years, then that went to every five years. Now it seems companies are even waiting longer than that, so we’re seeing the replacement cycle being stretched and extended.
Does this have something to do with what upgrades are out there, so that maybe it’s not as necessary to go to the newer technology at the same pace as before?
I think part of it is that there is so much capability in PCs and so forth that companies do ask whether or not they need to upgrade at the rate of previous cycles. But with Microsoft (MSFT) Vista having come out, I think there will be more applications based on this new platform that will enable all sorts of different abilities and efficiencies. Right now, companies are missing an opportunity to take advantage of that.
But instead of looking for new opportunities to expand and grow businesses, right now the focus seems to be on just cost cutting. There’s almost like a reluctance in the board room to spend.
Larry Orlowski, CFA is a senior analyst covering the technology sector for Zacks Equity Research.
Real-time market insights from Zacks Equity Research Analysts. Stocks featured recently include Alcatel-Lucent (ALU), Harman International (HAR), Baxter International (BAX) and China Mobile (CHL). 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:
Even though the markets have performed well and continue to be a good value, many folks still don’t trust simply owning stocks for the long-term. Add to that historically low interest rates and the fact that higher future interest rates mean lower bond prices it begs the questions:
What do we invest in?
One solution can be found with alternative investment strategies. They come in all shapes and sizes these days. What was once only available to investors who can handle high minimum investments, today they are becoming part of the investment mainstream. There are traditional hedge funds, hedge strategies and even mutual funds that use the same techniques hedge funds use.
Goals of alternative investments
Relative return. This style of investing typically focuses on performance compared to a performance of a benchmark like the S&P 500 or the Lehman Aggregate Bond Index. The goal for these hedge funds is to achieve stock market returns with the same risk characteristics as bonds. The manager’s objective is to attain excess returns above the benchmark as well as maintain less downside risk.
Absolute return. The objective here is to get consistent returns without regard to a benchmark. Perhaps your money manager can target a certain return above inflation or a bond index with the goal of having less risk than the stock market. This style of investing may be considered more conservative.
With these goals in mind let’s focus on strategies to accomplish the above mentioned objectives.Long/Short Equity
This strategy involves investing in equities on the long and short sides of the market. Remember that when you sell a stock short, you are hoping to sell high and by back at a lower price. In long/short funds, the manager combines his long positions with his short positions. The manager may overweight in either direction depending on his view of the market, certain stocks, sectors, investment styles, or regions. Typically the objective is to do better than a benchmark like the Credit Suisse First Boston Long/Short Index.
This is another type of long/short strategy. Market neutral may pit one stock against another. Let’s take the Zacks Rank as an example. The money manager may buy our #1 Rank (“strong buy”) stocks and may choose to short sell the negatively correlated stocks like our #4 Rank (“sell”) or #5 Rank (“strong sell”) stocks. Another example would be buying ABC Chicken and matching that with a short sale of XYZ Beef because the manager hears the news about an occurrence of mad cow disease. The dollar value of the long positions and short positions are equal. This type of strategy is used mostly used as a proxy for fixed-income and is considered an absolute return strategy. It may be appropriate in this interest rate environment.
What are the fees?
That depends. If you cannot meet the higher minimums of hedge funds (partnership structure) or hedge strategies (separately managed account structure), there are mutual funds you can purchase. You may get load or no load funds although expense ratios may be higher because of the specialization of this type of investing.
Hedge funds and strategies may charge a percentage of assets (around 1% to 2%) and a performance based fee that is usually based on 20% of your profits. Many firms charge just the performance fee. In this scenario, performance fees are charged only after your investment hits a new high water mark. For example, you invest $1,000,000 and you make 10% or $100,000 for the first quarter. You would pay your manager $20,000 and you keep and reinvest the other $80,000 making your portfolio worth $1,080,000. If your account does not go above $1,080,000 the following quarter, you don’t pay a fee.
Keep in mind that these investments are not for everyone. Many hedge strategies have high minimums and mutual funds may be the better route. Hedge funds and strategies require you to be a qualified investor with at least a $1.5 million net worth.
Are these investments right for you? If you want alternatives to your traditional stock, bond and cash asset allocation these strategies may be the answer.
Jonas Zamora is a Certified Financial Planner™ professional. You may contact him at firstname.lastname@example.org.
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:
Java J (Rank #61 with $129,953)
>> JAVA’S MARKET MUSINGS #37
MO'S MARKET THOUGHT AND ANALYSIS
Beris (Rank #18 with $154,393)
WILL NORTHERN DYNASTY BE SCOOPED UP BY RIO TINTO OR FREEPORT MCMORAN? (NAK)
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 (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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