Thursday - May 24, 2007
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Over the next several weeks, the number of revisions to full- year estimates will drop substantially. Part of the reason lies in the fact that first-quarter earnings season is mostly over. The other reason is that brokerage analysts have been less likely to adjust their forecasts between earnings seasons (and when they do adjust their estimates mid-quarter, they are more likely to adjust the estimates downward than upward).This is a trend that has been amplified during the past two quarters and, given the continuing uncertainty about the pace of economic growth, I expect this trend to continue.
What does this mean for the markets? Simply, the lack of estimate revisions is one less catalyst to move stocks higher.
Not a bearish event, but rather less wood to fuel the current bullish fire.
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 - NVIDIA Corporation (NVDA)
Listen to the audio podcast on NVDA through Zacks' NEW Audio Feature
NVIDIA Corporation (NVDA) has met or exceeded earnings estimates in nine out of the past 10 quarters, with six of them posting double-digit surprises. Nine analysts have raised their estimates for this fiscal year. This year's estimates have increased eight cents to $1.53, while next year's numbers have jumped 12 cents to $1.73 per share. The stock sports an ROE of 27%. Read the full analysis on NVDA now!
Baxter International, Inc. (BAX) exceeded analysts' earnings expectations for 10 consecutive quarters, most recently by 10.9% in the first quarter. The company raised its full-year profit and sales guidance after reporting strong first-quarter results. Consensus estimates have risen over the past 60 days. Management has returned value to shareholders through both share repurchases and dividend payments. BAX is currently yielding 1.2%. Read the full analysis on BAX now!
Momentum - Foster Wheeler Ltd. (FWLT)
Foster Wheeler Ltd. (FWLT) has soared 35% since reporting a 113% earnings surprise on May 9. Despite such strong performance, the stock continues to make new highs on strong volume. While the momentum looks to continue, investors should monitor their positions carefully, with well defined entry and exit points going forward. Read the full analysis on FWLT now!
Complete Production Services, Inc. (CPX), a Zacks #1 Rank stock, exceeded analysts' earnings expectations in three out of the past four quarters, most recently by 6.6% in the first quarter. Analysts have been upping their earnings estimates for CPX over the past 30 days. Earnings per share are projected to grow 21% over the next 3-5 years. The company has a price-to-book ratio of 2.5, compared to 4.5 for the market and 2.8 for the industry average. Its PEG ratio currently sits at 0.50. Read the full analysis on CPX 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:
Shoelessjoe (Rank #24 with $145,805)
DANGER OF HOLDING OVER-NIGHT (VION) I have 10,000 shares that I bought at $1.97 yesterday, now they are going for 88 cents. Huge drop, I have recovered before and this will be no different....
Java J (Rank #23 with $146,129)
>> JAVA'S MARKET MUSINGS #58 <<
Joakim Slettvoll (aka: annunaki joakim) is a short-term trader, who looks for undervalued plays. However, it's not all about momentum with this Zacks $100K Challenge player. Earnings growth is an important factor for Joakim. In fact, this contestant' investment style is somewhat of a mixed bag. When conducting research, Joakim looks for bargains in terms of price to sales multiples, and he likes companies with new technology could kick start earnings growth. This market enthusiast also trades on momentum, by seeking out powerful news story that can create interest in a stock. Joakim also monitors charts for technical break-outs on high volume or sell-offs on big volume.
This competitor's investment strategy has placed his Simulator portfolio among the top 30 with an overall return of roughly 42% since the beginning of this year. Some of Joakim's holdings include Coffee Pacifica, Inc. (CFPC), CryoPort Inc. (CYRX) and Unigene Laboratories Inc. (UGNE). Take a look at his complete trading history by clicking here.
3. ZACKS EQUITY RESEARCH
Listen to the audio podcast of the Industry Rank Analysis through Zacks' NEW Audio Feature.
Last week's earnings report from Deere & Company (DE) highlighted the ongoing dichotomy between the agriculture and residential construction industries. Ethanol production has been playing a major role in boosting the entire agricultural sector. (A growing international economy and globalization are also helping.) Conversely, the bursting of the housing bubble is having an adverse impact on companies with exposure to residential real estate. Industry and sector trends can be a tailwind or a headwind, as DE's fiscal-second quarter report showed.
DE generated profits from continuing operations of $2.72 per share. The results were 31 cents above expectations and up compared to year-ago results of $2.36 per share. Revenues rose 5% to $6.88 billion. Agricultural equipment was the primary growth engine for the company with sales increasing 14%. In addition to selling more equipment, DE also had some pricing power and benefited from the weaker dollar.
More. . .
Not surprisingly, ethanol is helping fuel the demand. DE noted in its press release that industry sales in South America are projected to be up about 20% this year, primarily due to the sugarcane crop in Brazil. Sales in North America are also expected to be higher, where corn prices have risen.
Brokerage analysts were quick to boost their fiscal 2007 profit projections on DE following the bullish report. Within the past seven days, 10 of the 16 covering analysts revised their forecasts, pushing the consensus estimate 22 cents higher to $6.86 per share. It's worth noting that analysts were also quick to raise their forecasts on AGCO Corporation (AG) and CNH Global (CNH) following bullish first-quarter earnings reports from both companies. AG, CNH and DE are classified in Machinery-Farm. CNH and AG are Zacks #1 Rank ("strong buy") stocks and DE is a Zacks #2 Rank ("buy") stock.
The one weak spot in Deere's earnings report was in the company's Construction & Forestry division. Sales for this division fell 12% last quarter due to the ongoing slump in the housing industry. DE expects the division to be under pressure for the remainder and predicted that rental channel sales would "decline significantly".
The weakness in residential construction also had an adverse effect on Lowe's (LOW), which missed expectations on Monday. The home improvement retailer earned 48 cents per share, two cents below the consensus estimate and down 9.4% from a year prior. Same-store sales declined 6.3%. The miss followed disappointing results from primary competitor Home Depot (HD) last week. The majority of the covering brokerage analysts cut their forecasts on HD following its report and we are starting to see additional cuts to Lowe's earnings estimates as well. Both stocks are classified in Building Product- Retail/Wholesale. HD is a Zacks #5 Rank ("strong sell") stock and LOW is a Zacks #4 Rank ("sell") stock.
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 Transocean (RIG), GlaxoSmithKline (GSK), AutoZone (AZO) and Move (MOVE). To see their latest posts, click here.
Listen to the audio podcast of Earnings Trends through Zacks' NEW Audio Feature.
Estimates Rise in Response to First-Quarter Results
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
Recent Price Strength
This screen looks for stocks trading in the upper range of their 52-week highs along with attractive Zacks Rank and Broker Ratings. This strategy proves that the "trend is your friend" with a +35.5% return versus +4.9% for the S&P 500 in 2005.
Corrections Corp. of America (CXW) recently announced first-quarter earnings of 52 cents per share. The result topped the consensus estimate by 13% and exceeded the year-ago total. CXW's total revenue for the first quarter increased 11.5% to $350.9 million from the previous year's $314.6 million. The company has seen its share price increase by 11% during the past four weeks and it recently reached a new 52-week high. Continue your research on CXW now!
GigaMedia Ltd. (GIGM) has advanced in share price by 4% over the past four weeks and is trading near its 52-week high. The company recently posted first-quarter earnings of 14 cents per share, more than doubling the year-prior result. Consolidated revenues soared 95% on a year-over-year basis. GigaMedia mentioned that it is very excited about its upcoming launch this summer of new games and products in Asia, including its suite of real-money Japanese games. Continue your research on GIGM now!
Matrix Service Co. (MTRX) reported fiscal third-quarter earnings of 24 cents per share in early April, eclipsing the consensus estimate by 33%. The company stated that its quarterly performance significantly exceeded its expectations as MTRX was able to add to its strong talent pools in the construction services groups allowing the company to capture and execute more projects, particularly in the Downstream Petroleum Industry. Matrix is trading very close to its 52-week high and has seen its share price increase 7% over the past four weeks. Continue your research on MTRX now!
Mettler-Toledo International, Inc. (MTD) recently released financial results for the first quarter. Earnings per share of 78 cents outpaced the year-ago total of 57 cents and beat the consensus estimate by 15%. Sales were $387.8 million, up from last year's $346.2 million. The company noted that first-quarter results set a record, adding that sales growth was broad-based, and operating profit margins and cash flow generation were strong. Shares of MTD increased by 5% over the past four weeks and are trading within reach of their 52-week high. Continue your research on MTD 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”.
Listen to the audio podcast of the Screen of the Week through Zacks' NEW Audio Feature.
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...
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.
The company's competitive position strengthened significantly following its merger with Varco, which diversified its product offerings and enhanced its geographical footprint.
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.
NOV released financial results for the first quarter in late April. Earnings per share of $1.55 topped the consensus estimate by 16.5% and surpassed the earnings result for the year-ago quarter.
Pete Miller, Chairman, President and CEO of National Oilwell Varco, remarked, "We are off to a great start in 2007. The demand for our oilfield products and services remained strong during the quarter, and we believe that activity will continue to grow internationally. We expect demand for our drilling equipment, particularly for international offshore projects, to remain strong into 2007. Our record backlog for drilling equipment continues to provide us with unprecedented visibility. We remain optimistic about our opportunities for this year."
Since the release of the quarterly report, shares of National- Oilwell Varco have been reaching all-time high records. Today NOV is trading slightly below its recently established 52-week high.
Wall Street has been bullish on earnings forecasts for NOV. Current full-year 2007 projections of $6.24 per share moved up from last month's level of $5.54.
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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*Zacks Rank performance is the total return (price changes + dividends) of equal weighted portfolios, consisting of those stocks with the indicated Zacks Rank, assuming zero transaction costs. These returns are not the result of a backtest; these are actual returns since 1988. The stocks in the Zacks Rank portfolios were available to Zacks clients before the beginning of each month (monthly rebalancing). Performance results from 1988 through September 2006 are based on a subset of all Zacks Rank stocks that excludes stocks covered by only one analyst and ADR’s.
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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