Thursday - April 26, 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 – Titanium Metals (TIE)
Titanium Metals (TIE) is enjoying strong demand for its products and is focused on investment in expansion of its productive capacity. The stock is only covered by one analyst, but earnings estimates have jumped. Over the past 60 days, this year's estimates have risen 13 cents to $1.65 per share. The stock is attractive at 17.9x next year's estimates, below its projected growth rate of 25%. Read the full analysis on TIE now!
QUALCOMM Incorporated (QCOM) topped analysts’ earnings expectations in 10 out of the last 12 quarters. Earnings per share are projected to grow 17% over the next 3-5 years. In mid March, the company raised its second-quarter profit guidance (it is scheduled to release second-quarter results today). QCOM has a current dividend yield of 1.12% and a five-year average dividend yield of 0.67%. Read the full analysis on QCOM now!
Momentum – Bio-Reference Laboratories Inc. (BRLI)
Bio-Reference Laboratories Inc. (BRLI) has returned over 19% for 2007 and is currently trading at record highs. The most recent earnings surprise, coupled with an increase in full-year estimates should keep BRLI in its consistent upward trend; however, the stock’s historic volatility should be watched closely. Read the full analysis on BRLI now!
Schnitzer Steel Industries, Inc. (SCHN), a Zacks #1 Rank stock, exceeded analysts’ earnings expectations in three out of the past four quarters by an average margin of 30.4%. Profits and revenues for the second quarter of fiscal 2007 were solid. Consensus earnings estimates have been on the rise over the past 30 days. The company has returned value to its shareholders through both dividend payments and share buybacks. SCHN has a price-to-book ratio of 2.0, compared to 4.5 for the market. Read the full analysis on SCHN 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:
Beris (Rank #16 with $153,996)
ABB MIGHT SURPRISE AND SEE THEIR PROFITS DOUBLE! (ABB)
Dreyerd (Rank #523 with $111,425)
TIME NOT NOW FOR GOLD MINING STOCKS (GDX)
Typically a large and mid-cap investor, Samuel Law Yi Soon (A.K.A. yisoon) is taking advantage of the Simulator by exercising more aggressive trades. The Zacks $100K Challenge player climbed up to second place while experimenting with his not-so-conservative style and managed to almost double his investment since the beginning of 2007.
While maintaining his aggressive approach, the Simulator contestant applies a three prong screening strategy. Samuel looks for various catalysts. His first concern is what he refers to as the “Macro Catalyst,” which means Samuel is watching the Fed, looking at GDP data, keeping an eye on crude oil prices, paying attention to the geopolitical environment, and monitoring seasonal trends. Then this investor investigates different sectors. Samuel calls this the “Sector Catalyst.” This market watcher also screens for “Internal Catalysts,” such as earnings announcements, stock splits and other company news.Take a look at his complete trading history by clicking here.
3. ZACKS EQUITY RESEARCH
There is a noticeable differentiation between companies that are issuing positive surprises and those that are issuing negative surprises. Among S&P 1500 companies, 249 have beat earnings expectations and 100 have missed earnings expectations. Among those that have issued positive surprises, the median growth first-quarter EPS rate is 14.2%. Among those companies that have issued negative surprises, the median EPS growth rate is -7.2%.
Industry and economic trends are having an impact on how companies are performing.
For example, 10 machinery companies have reported better-than-expected earnings versus just three disappointments. The median growth rate is 18.3%. Astec Industries (ASTE) topped expectations by a penny with profits of 69 cents per share. Profits were pushed 38% higher by improved sales of asphalt equipment and recycling equipment. Cooper Industries (CBE) earned 71 cents in the first quarter, five cents better than brokerage analyst forecasts and 24.6% over above year prior results. The company benefited from sustained strength in the utility and aerospace markets, as well as international economic growth. First-quarter sales of heavy-duty truck equipment and “Brazilian agricultural equipment” were better than the company expected and helped to offset some of the weakness in the U.S. ASTE is a Zacks #1 Rank (“strong buy”) classified in Machinery-Construction/Mining and CBE is a Zacks #2 Rank (“buy”) stock classified in Machinery-General Industrial.
More. . .
Metal companies have also reported strong earnings, with 10 of out 11 exceeding expectations. The median growth rate is 12.9%. Aerospace and non-residential construction helped Alcoa (AA) beat brokerage analysts’ forecasts. The company earned 79 cents per share versus 70 cents a year prior. (Analysts had been expecting profits of 77 cents per share.) U.S. Steel (X) said yesterday that first-quarter earnings totaled $2.30 per share, 46 cents above forecasts and 22 cents above year-ago results. X benefited from higher contract prices and cost-cutting measures. The company also said that it expects shipment volumes of flat rolled-steel to improve in the second quarter. AA is a Zacks #3 Rank (“strong buy”) stock and is classified in Mining-Non Ferrous. U.S. Steel (X) is a Zacks #1 Rank (“Strong Buy”) stock and is classified in Steel-Producers.
Conversely, profits for semiconductor companies are lackluster. The median growth rate among the 11 S&P 1500 chip companies that have reported is -4.3%. Three companies generated triple-digit declines with Advanced Micro Devices (AMD) reporting the biggest drop in year-over-year results. AMD generated a loss of 91 cents per share versus a profit of 41 cents per share. Downward pressure on prices and a lower number of shipments adversely impacted the company. Micron Technology (MU) attributed lower pricing for causing it to swing to a loss of seven cents from a year earlier profit of seven cents. Prices for NAND flash memory products fell by approximately 30%. AMD is a Zacks #5 Rank (“strong sell”) stock and MU is a Zacks #3 Rank stock; both are classified in Electronics-Semiconductors.
The problems with the housing sector are weighing on Banks & Thrifts. The median growth rate among the 46 S&P 1500 firms that have reported is -2.4%. Slightly more companies have missed expectations than beat (19 negative surprises versus 18 positive surprises). Both First Horizon National (FHN) and Washington Mutual (WM) saw their profits fall. WM was also adversely affected by the ongoing deterioration in the subprime market. FHN is a Zacks #3 Rank stock classified in Banks-Southeast and WM is a Zacks #3 Rank stock classified in Finance-Savings & Loan. (The Zacks Rank for both FHN and WM is not worse because the comparatively large number of analysts covering both stocks. Although multiple brokerage analysts have cut full-year estimates on both stocks, not every analyst has revised their forecasts. Agreement is one of the four factors that determine the Zacks Rank.)
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 Everest Re (RE), China Mobile (CHL), Millicom (MICC) and Cree (CREE). 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: Discounted Fundamental Strength
This Profit Track identifies stocks with strong underlying fundamentals and low valuations. These are companies with solid balance sheets and a history of profitability that are reasonably priced. Although conservative in approach, this strategy has generated double-digit returns for five consecutive years.
Dynamics Research Corp. (DRCO) offers a PEG ratio of 0.84. The company’s current ratio stands at 1.55. The company will release results for the first quarter on May 2, 2007. In early February, DRCO announced fourth-quarter earnings of 16 cents per share. The result was below last year’s 31 cents but topped the consensus estimate by 23%. Dynamics Research noted that quarterly results reflect significant improvement over the third quarter and significant progress in adapting to a changed industry environment and positioning the company to sustain organic growth and improve profitability. Continue your research on DRCO now!
Kforce Inc. (KFRC) released fourth-quarter earnings of 22 cents per share in early February. The result matched the consensus estimate and outperformed the year-ago result. Revenues were an all time high of $243.1 million, versus the year-prior total of $203.6 million. First-quarter results will be released on May 1, 2007. The company’s debt/equity level is 0.30 and its current ratio stands at 1.75. Continue your research on KFRC now!
Regal-Beloit Corp. (RBC) will report first-quarter results on April 30, 2007. RBC meets the criteria for this Profit Track with a PEG ratio of 0.80 and a price to sales multiple of 0.86. The company recently declared a dividend of 15 cents per share. The dividend represents the 188th consecutive dividend declared by Regal-Beloit Corp. and is a 7.1% increase over the prior dividend rate. Continue your research on RBC now!
Tesoro Corp. (TSO) has a current ratio of 1.68 and a price/sales ratio of 0.41. In late January, the company posted record fourth-quarter earnings of $2.28 per share. The result beat the consensus estimate by 32% and outperformed the year-prior result. The company stated that its knowledge and experience in optimizing its system continues to develop and its decisions around crude oil purchasing and clean product management are significantly improving earnings. TSO will report financial results for the first quarter on May 3, 2007. Continue your research on TSO 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 an exciting screening strategy called ‘Best Buys’: 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...
GameStop Corp. (GME) sells software, hardware, and game accessories for video game systems and personal computers. The company is also the largest reseller of used video games. It currently operates 4,778 retail stores across North America and Europe. GameStop makes its stores easily accessible to clients of all age groups by locating its stores within walking or biking distance. The company has focused on high-traffic areas. Most of its stores are located in strip malls, with the remaining stores located in shopping malls. GameStop Corp. also offers strategy guides, action figures, as well as other computer and video game magazines to its customers. The company’s strategy is to grow through store expansions in favorable localities, by providing the largest title collection of used and new video games, and by leveraging its first-to-market distribution network to offer the latest hardware and software releases.
On October 10, 2005, GameStop and Electronics Boutique completed their merger. The combined company instantly became the leading global video game retailer. Under the terms of the agreement, Electronics Boutique shareholders received $38.15 in cash, plus the equivalent of 0.78795 shares of GameStop Class A common stock for each share of Electronics Boutique. GameStop is the largest specialty retailer focusing on video game software and hardware sales. The company caters to the hardcore gamer, as well as the casual video game buyer. The retailer has 4,778 stores, sells new and used software and hardware and generated over $5.3 billion in sales this year. However, competition in this space is fierce and video game shoppers have many alternatives. Big-box retailers, such Best Buy, Wal-Mart, and Target look at video games as high margin sales that can help drive store traffic. These companies focus on new hardware and software sales. There are also video rental chains, such as Blockbuster and Hollywood Entertainment that opened video game stores within their current locations to buy and sell new and used games. Another area of increasing competitive pressure comes from numerous websites that buy, sell, and rent new and used video games. Still, GameStop has an advantage over its larger competitors. Video game sales are not just a part of its business; those sales make up all of its business. Whether it is knowing what new titles will be popular, how much inventory to have on hand, or valuing used titles, GameStop has the upper hand in all phases of its core business over other retailers that view video games as just another product.
In late March, GME announced financial results for the fourth quarter and the full year ended February 3, 2007. Earnings per share totaled 82 cents, excluding an item. The result exceeded the consensus estimate by 2.5% and outperformed the previous year’s fourth-quarter total. During the past five consecutive quarters, the company surpassed Wall Street forecasts three times, matched once and missed once.
Fourth-quarter GameStop sales increased 38.2% to $2,304.0 million, versus the year-prior $1,666.9 million. On a comparable store basis, sales grew 26.5% during the fourth quarter. GameStop sales reached $5,318.9 million for fiscal 2006, up 72% from fiscal 2005 sales of $3,091.8 million. On a comparable store basis, sales were up 11.9% during fiscal 2006.
"2006 was a remarkable year for GameStop. Total sales increased 72%, operating earnings grew by 73%, net earnings were up 57%, and comparable store sales increased 12%; by any retail measurement, a remarkable year," indicated R. Richard Fontaine, GameStop's Chairman and Chief Executive Officer. "In addition, we finished the year with a strong balance sheet and a year-end cash balance of over $650 million.”
GME’s outlook for the first quarter ranges between 15 cents and 16 cents per share. Wall Street is in agreement as evidenced by current consensus projections of 16 cents, which advanced from last month’s expectations of 13 cents.
The video game and software retailer noted that earnings per share for the full year are expected to range from $1.37 to $1.40. Analysts have been more upbeat lately. Current estimates of $1.43 moved up from $1.35 over the past 30 trading days.
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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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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