Friday - June 22, 2007
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1. ZACKS RANK BUY STOCKS
Zacks #1 Rank stocks average a 31.9% 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 – NETGEAR (NTGR)
NETGEAR (NTGR) is enjoying strong demand for its products. The company posted a 17.7% earnings surprise in its first-quarter on a solid jump in revenues. Over the past 60 days, this year's earnings estimates have increased 12 cents to $1.55 per share, while next year's numbers have jumped 17 cents to $1.76 per share. The company has met or exceeded estimates in 12 out of the past 14 quarters. Five analysts have raised their estimates for this year. Read the full analysis on NTGR now!
Listen to the audio podcast on FDS through Zacks’ NEW Audio Feature.
FactSet Research Systems, Inc. (FDS) has returned 26% since it was last featured as a Growth and Income stock on Jan 10 . The company topped the Street’s earnings estimate for eight consecutive quarters. Earnings per share are projected to grow 19% over the next 3-5 years. On Mar 20, the Board of Directors approved a 100% increase in the company’s quarterly cash dividend to 12 cents per share. Read the full analysis on FDS now!
Bankrate Inc. (RATE) has reported two consecutive double-digit earnings surprises, and full-year estimates are on the rise. A break above resistance levels would confirm the stock’s continued momentum. Read the full analysis on RATE now!
Portland General Electric Company (POR) exceeded analysts’ earnings expectations in three out of the past four quarters by an average margin of 56.6%. Consensus earnings estimates for this year and next have risen over the past week. On May 2, the Board of Directors declared a quarterly cash dividend of 23.5 cents per share. This Zacks #1 Rank stock has a price-to-book ratio of 1.4, compared to 4.6 for the market and 1.9 for the industry. Read the full analysis on POR now!
2. 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 we highlight...
Profit Tracks: Growth and Income
This screen looks for stocks that are paying dividend yields of greater than 8% along with other attractive fundamental attributes. Although this screen is based on a long-term and lower risk approach to investing, it has a history of outperforming the S&P 500.
Here are four stocks that make the grade for the Growth and Income Profit Track:
Eagle Bulk Shipping, Inc. (EGLE) sports a current dividend yield of 9.19%. The company released first-quarter results in early May, stating that the strong performance of its fleet continues to generate significant free cash flow, allowing its shareholders to participate in the strength of the drybulk market through EGLE’s dividends. Eagle Bulk Shipping added that with this quarter's declared dividend of 50 cents per share, the company has now declared and paid aggregate dividends of $3.63 per share in just seven quarters of operations. Continue your research on EGLE now!
Healthcare Realty Trust Inc. (HR) declared a first-quarter dividend of 66 cents per share in late April. Shortly after that HR announced financial results for the first quarter. Revenues of $53.0 million were ahead of the previous year’s first-quarter total of $51.9 million. Healthcare Realty Trust meets the requirements for this Profit Track as evidenced by its current dividend yield of 9.32%. Continue your research on HR now!
NorthStar Realty Finance Corp. (NRF) reported first-quarter adjusted funds from operations ("AFFO") of 39 cents in early May. The result surpassed the consensus estimate by 11% and improved on the year-prior total. The company mentioned that this quarter's results mark another record earnings quarter for the NorthStar franchise and its ninth consecutive quarter of strong credit results. In late April, the company declared a first-quarter dividend of 36 cents per share. NRF offers a current dividend yield of 10.75%. Continue your research on NRF now!
RAIT Financial Trust (RAS) recently declared a second-quarter dividend of 84 cents per share, which is an increase of four cents over the prior quarter's 80 cents. RAS satisfies the criteria for this Profit Track with a current dividend yield of 10.73%. In late April, RAS posted first-quarter financial results, which included earnings per share that were ahead of the year-ago total. Continue your research on RAS 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”.
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Kevin Matras explains why you want to own stocks with new analyst coverage: More...
3. ZACKS EQUITY RESEARCH
An inventory correction in the semiconductor market is just one of the topics we wanted to bring up today with Zacks senior technology analyst Larry Orlowski, CFA. He was kind enough to join us for a discussion about his coverage universe.
Larry, it seems the semiconductor group was expecting a strong 2007, but it has yet to materialize. What do you make of that?
Well, recently there has been a revision by the SIA, which is a trade group for the semiconductor industry, in which they now have revised their sales growth for the semiconductors down from 10% to 1.8%, despite solid fundamentals and continued strong unit growth. Part of the problem seems to be that there’s rapid price attrition in three key market segments: microprocessors, Trans- and NAND-Flash memories. Therefore, they are contributing to lower growth than previously expected. However, there are end-markets that I think are strong, and which I think can still be attractive to investors interested in semiconductor companies.
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What’s behind this pullback in estimates?
It is a price fall, and I think it’s because of – part of the reason – is the price war between Intel (INTC) and AMD (AMD), in terms of microprocessors. I also think it looks as if there’s growing supply – and maybe an oversupply – of memory, and that’s going to affect prices, as well. Unless demand picks up and reduces some of the slack in memory supply, I think we’re going to have weakness there. Fortunately, the semiconductor market is varied, and there are some interesting companies I think should do well for the rest of 2007.
We’re all ears. Which do you expect to do well?
Well, there are a number of companies we are recommending in the semiconductor space. But the two companies I’m recommending are National Semiconductor (NSM) and Skyworks Solutions (SWKS).
Recently, National Semiconductor reported their revenue in Q4, which was up 6% sequentially. But the interesting thing is that their overall bookings increased 6% sequentially. And due to higher opening backlog and an historically low level of distributor inventory, Q1 is expected to rise 1%-4% sequentially. National is an analog player, it operates in the analog space, and they’re seeing a rebound in orders. So they’re growing faster than the industry.
What I find interesting about them – and I’ll say this about Skyworks later on – why I like National is that they have been transitioning to higher premium products, in terms of more high performance analog, which has greater margins. And actually, even when revenue was falling, they had been able to keep their gross margins up. So gross margins in Q4 reached 62.5% compared to 59.8%, and gross margins are expected to reach 63% in Q1.
So again, despite my overall comments about a weaker-than-expected revision in the overall semiconductor market, I think a company like National Semi, which plays on more higher-quality products and produces premium analog products, I think is a way to play this.
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 Mid-America Apartment Communities (MAA), Varian Semiconductor (VSEA), Bausch & Lomb (BOL) and NCR Corporation (NCR). To see their latest posts, click here.
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4. INVESTMENT IDEAS
The editors at Zacks.com constantly analyze the universe of stocks to find the best investment ideas. Today, learn how you can profit from Father’s Day:
Three members of the investment banking “bulge bracket” reported earnings last week and only one received fanfare from investors. The subjective term “bulge bracket” refers to the largest and most profitable investment banks, as typically measured by deal or market share rankings. The obvious US members include: Goldman Sachs, Morgan Stanley, Lehman Brothers and Bear Stearns, among others. Overseas-based players include Deutsche Bank, UBS and Credit Suisse. These institutions have benefited from strong equity markets, increasing deal-flow and proprietary trading profits. However, worsening conditions in the subprime market, or loans to borrowers with shaky credit histories, have impacted this elite group in varying degrees.
Most recently, The Mortgage Bankers Association reported that the percentage of payments that were 30 days or more past due for subprime adjustable-rate home mortgages surged to 15.75% in the January-March quarter, the highest on record. Although Bernanke has predicted increases in delinquencies and foreclosures this year and next, he also said that it was unlikely the troubles in the sector would spill over to the broader economy or the financial system. Despite the mixed picture, the subprime debacle has affected some of the most profitable and successful financial institutions in the world. The question is whether the effects are truly overblown. Is now the time to buy?
Goldman Sachs Group Inc. (GS) is a leading global investment banking, securities and investment management firm. Goldman’s track record of blow-out earnings momentum had the stock priced for perfection and the resulting 3% decline was the result. So was the decline warranted? The company has a diverse business model and currently generates 52% of its revenues overseas, which positions itself favorably in the event of a slowing US economy. In addition, full-year consensus estimates are increasing, having been revised upwards four times in the last three months. Furthermore, despite trading at a discount to its peers, the company has a trailing ROE of 31.8%, over twice the industry average. Do disappointing numbers from one of many fixed income product lines in one segment of the firm warrant a sell-off? I’ll leave that up to you to decide, but I’ve made my case.
Bear Stearns Companies Inc. (BSC) provides investment banking, securities and derivatives trading, clearance and brokerage services worldwide. Bear Stearns is the second largest US underwriter of mortgage bonds. In fact, fixed income revenue comprises roughly half of total revenue. In addition to a less diverse business model, the firm is also more limited geographically, as it currently receives over 80% of its revenues from the US. This picture is changing as the company is beefing up its European and Asian presence, but some analysts are wondering if Bear is more than merely late to the party. Furthermore, full-year consensus estimates have fallen to $14.65 from $15.39 three months ago. Lastly, while the company trades at a discount, the ROE of 16.9%, albeit higher than industry average, lags better positioned peers. If the mortgage industry has bottomed, Bear Stearns could be set for a rebound; however, the jury is still out and until then, investors should consider staying on the sidelines.
5. FEATURED EXPERTS
Here we cast the spotlight on timely Featured Expert commentaries that recently appeared on Zacks.com.
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 stocks (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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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.
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