Wednesday - August 8, 2007
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1. ZACKS RANK BUY STOCKS
Zacks #1 Rank stocks average a 32.2% 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 – FARO Technologies (FARO)
FARO Technologies (FARO) is performing exceptionally well just as the broader market is struggling through a correction. Earnings have been wonderful as evidenced by the last two quarters. Those quarters have averaged a positive surprise of 48%. Just over the past week, this year's estimates have jumped 11 cents to $1.31 per share, while next year's numbers have risen eight cents to $1.68 per share. Analysts project long-term earnings growth of 23.33%. Read the analysis of FARO now!
Growth & Income – Jones Lang LaSalle Incorporated (JLL)
Jones Lang LaSalle Incorporated (JLL) exceeded analysts’ earnings expectations in five out of the past six quarters, most recently by 127.5% in the second quarter. Consensus earnings estimates for this year and next year are up over the past 30 days. Earnings per share are projected to grow 15% over the next 3-5 years. On May 1, the Board of Directors declared a semi-annual cash dividend of 35 cents per share. JLL has a current dividend yield of 0.67%. Read the full analysis on JLL now!
Momentum – Trimble Navigation Ltd. (TRMB)
Trimble Navigation Ltd. (TRMB) has gained over 51% year to date, reflecting the increasing popularity of GPS technologies. With increasing estimates and above average earnings growth rates, TRMB should continue moving higher. Read the analysis of TRMB now!
Value – RLI Corp. (RLI)
RLI Corp. (RLI), a Zacks #1 Rank stock, exceeded analysts’ earnings expectations in four straight quarters by an average margin of 45.4%. Consensus earnings estimates have risen over the past 30 days. On May 3, the Board of Directors announced a 10% boost in its quarterly dividend to 22 cents per share and authorized a new stock repurchase program for up to $100 million of the company’s common stock. RLI has a price-to-book ratio of 1.7, compared to 4.6 for the market. Read the full analysis on RLI 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. Learn more about the Research Wizard.
”Using Common Sense to Manage your Portfolio”
This week I’d like to focus on evaluating your holdings, monitoring your watchlists and getting rid of losing stocks.
As the title suggests, there’s no particular magic in making money (or keeping it), just good old fashioned common sense. The trick is exercising it.
And in light of the recent volatility, now is the time to do it.
If you’ve used our Research Wizard program, then you’ve either built your own proven, profitable Screening Strategies or selected a few of the Pre-defined Strategies that came with the program.
But your work isn’t over.
Whatever your stocks are - whether they be actual holdings or stocks you’re considering - don’t stop monitoring their fundamentals.
If one of the initial criteria for getting into a stock was a low Debt to Equity ratio, but that ratio subsequently changed to an unacceptable level, then you should consider exiting it and looking for a replacement. One that currently does meet your criteria.
Let’s say, for instance, that you use the Zacks Rank as a timing indicator and look at the Zacks #1 Rank list for immediate movers. If in a few weeks, as Zacks aggregates EPS Estimate Revisions, it sees that the prospects for the company’s earnings are to deteriorate and therefore degrades it to a Zacks #3 Rank or Zacks #4 Rank, take note and consider dumping it.
Think about it; if you never would have gotten into a Zacks #3 Rank or Zacks #4 Rank in the first place, why would you now want to hold onto one?
That’s using your common sense.
What if you’re a momentum investor and you generally look for stocks trading within 10% of its 52 week high (a great item by the way) and it suddenly falls below that level? Well, if you’re only interested in focusing on stocks within 10% of its high and it’s now 15% or 20% (or more) off its high, ... move on. The momentum has seemingly shifted and so should your focus.
And don’t convince yourself to hang onto losers either. If you got into a stock expecting great things and it’s now down 10%, get out. Don’t let your love of a stock (or denial) ruin your portfolio. Almost every big losing trade anybody has ever had in their portfolio could have been avoided when they were just beginning to crumble.
If you get out and it zips back up, you can always get back in. But if it keeps going down, you’re just losing more and more money.
However, just because some stocks are going down or others have changed their colors – doesn’t mean you should get rid of everything.
If one stock posts a negative surprise, but your other stocks still look good fundamentally, sell the one that doesn’t fit the funnel anymore and keep the ones that do.
Too many people use a pull-back in the market or increased volatility to bail out of everything. But historically, that’s not such a great idea. Instead, tighten up your stock picking criteria, or at least your requirements for holding onto your stocks. This will make you a better and more disciplined investor, which ultimately means more profitable.
So once you’ve found the items that have proven to work well in picking profitable stocks, be sure to monitor those values. And if they no longer meet the winning criteria, get rid of them fast and find new ones that do.
The Research Wizard’s backtesting feature is the best way to do that! Backtest your strategies to see what works and what doesn’t.
Here are three new stocks that look great and that are currently coming up on some of our best screening strategies:
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.
Take note: Backtesting isn’t available in all screeners (in fact it’s rarely available in any screener), but it is available in the Research Wizard.
So sign up now you’re your free trial to the Research Wizard and pick and choose from some of our profitable strategies or put your own ideas to the test and start making better decisions today: Sign up for your free trial now.
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
When we sat down with Zacks senior European markets analyst Santiago Burgaleta, CFA recently, he had just wrapped up several new research reports on companies in his coverage. We wanted to find out from him where he thought the best European buys are at this time.
How do you see the state of European markets at this time?
The expected pullback in Euro markets finally came, as rising rates and credit concerns have taken their toll on risky assets. We believe “the storm” will pass, and although we have been early in calling for a pullback, yield to date European markets are nearly flat. We would start doing some careful buying in large-caps with clean balance sheets and improving earnings revisions.
More. . .
Are you favoring any particular regions?
We are pretty bullish on France with TOTAL (TOT) and France Telecom (FTE) as our top Buy recommendations. We are also positive on economic developments in Germany. Basically, French and German consumers are not as indebted as their Spanish or British counterparts at this time. Also, real state markets have not been so speculative, and financials are not as exposed to the sub-prime theme as the rest of Europe.
Didn’t France Telecom recently release its earnings report?
Yes, late last week. France Telecom posted on a better-than-expected 1.7 percent rise in half-year underlying earnings, which was helped by solid mobile sales in emerging markets. EBITDA numbers came at of 9.416 billion euros, or $12.87 billion. The operator confirmed its organic full-year cash flow target of 6.8 billion euros.
Net income rose to 3.308 billion euros from 2.346 billion euros in the half-year 2006. France Telecom's sales in the six months to June 30 rose to 25.913 billion euros from 25.371 billion euros, as revenues from high-speed Internet services helped compensate the decline in traditional fixed-line voice activities.
And you say you are keeping your Buy recommendation on FTE?
Right. We believe there is still upside risk to numbers with excellent cost controls, including the domestic fixed line. Improving trends in UK mobile and improving margins in the domestic fixed-line business, together with good cost controls, support our view.
Also, earnings momentum is improving, which should help P/E expansion going forward, as FTE is probably one the cheapest telecoms in the space. Free cash flow is growing fast enough to cover dividends, and we only see as a negative the recent placement by the French Government, which still owns 18.17% of the company.
What other companies in your coverage have issued earnings reports recently?
Syngenta (SYT) results were pretty strong across the board. Sales at constant exchange rates (CER) were six percent higher, with growth of seven percent in Crop Protection and four percent in Seeds. EBITDA was 10 percent higher (CER) at $1.75 billion including a $50 million non-recurring payment from Delta & Pine Land, following change of control relating to the VipCot technology agreement. Operational efficiency savings of $84 million more than offset increased marketing and development expenditure of $37 million in growth areas of the business.
Earnings per share, excluding restructuring and impairment, rose 16 percent to $12.13. Excluding the non-recurring payment from Delta & Pine Land, earnings per share were 12 per cent higher. After charges for restructuring and impairment, earnings per share were $12.43 (2006: $9.51); including a capital gain from the sale of a site in Basel.
Furthermore, Crop Protection increased sales across all product lines and in all regions, with the strongest contributions coming from Europe, Africa and the Middle East (EAME), and Latin America. The Western European market, stimulated by higher crop prices, recovered after poor weather conditions in 2006. In Eastern Europe, Syngenta again registered double-digit sales growth, building on its leading market position and the drive to modernize agriculture.
Santiago Burgaleta, CFA is a senior analyst covering the European markets for Zacks Equity Research.
Real-time market insights from Zacks Equity Research Analysts. Stocks featured recently include Taiwan Semiconductor (TSM), Moody’s Corp. (MCO), Santarus (SNTS) and U.S. Auto Parts (PRTS). To see their latest posts, click here.
Listen to the audio podcast of the Earnings Trends through Zacks' NEW Audio Feature
Over the last two weeks, the median EPS growth rate for the S&P 500 has climbed to 13.7%. More...
4. ZACKS WEALTH MANAGEMENT
Every week, Zacks Wealth Management provides informative articles on how to build and protect wealth. Today’s topic is:
The Pension Protection Act of 2006 has changed some of the rules regarding Individual Retirement Accounts (IRA). We will go over some of the changes occurring over the next few years. As more companies decide to make do without the traditional pension plans, the burden of retirement savings falls on you. Knowing the new IRA rules will make your life so much easier as an investor.
Having an IRA is the easiest way to supplement your employer’s retirement plan. That contribution of $4000-$5000 every year may not seem much compared to what you may need in retirement, but it will add up over time to supplement whatever income you will receive in your golden years. For example, a 35-year-old who contributes the maximum allowed for the next 30 years could have an extra $458,000.00 at a 7% rate of return. That could mean an extra $15,000 to $20,000 a year of income, on a conservative withdrawal rate during retirement. With that said, the following are key areas to pay attention to.
Starting in 2009 IRA contribution limits will be indexed for inflation. Before the Pensions Protection Act, IRA limits were scheduled to revert to pre 2002 levels in the year 2010. Today’s limits will remain as scheduled with EGTRRA permanency provision in effect. This year contribution limits are $4,000, and in the year 2008 limits will be $5,000. There is also a $1,000 catch up provision for people over 50. Keep in mind that catch up contributions will not be indexed for inflation on IRAs. So if you are over 50 this year you may contribute $4,000 plus the $1,000 catch up contribution. For 2008, the contribution would be $5,000 and the catch up amount would still remain $1,000.
The benefits of a Roth IRA are non-deductible, after-tax contributions that may be drawn out tax free depending on the timing of your distributions. Also, there is no mandatory required minimum distribution at age 70 and ½ unlike the traditional IRA. If you are eligible, this should be part of your financial plan.
Beginning January 2008, the Pension Protection Act made amendments to the Internal Revenue Code of 1986 to allow for direct rollovers into Roth IRAs from retirement plans as long as you meet the requirements for converting a traditional IRAs to a Roth IRA. There are two requirements for this conversion: you must report the amount converted as income, and modified adjusted gross income must be less than $100,000(not counting amount converted). Please double check with your tax preparer on your eligibility.
Also remember the act signed by George Bush in May 2006. It eliminates the $100,000 income limitation on Roth IRA conversions and rollovers effective January 1, 2010. Anyone who elects to rollover or convert to a Roth IRA will have the benefit of deferring taxes out to 2011 and 2012.
In 2007, income ranges for Roth IRA eligibility and IRA deductibility will be indexed to inflation. Prior to the Pension Protection Act of 2006, income limits for IRA deductibility for people participating in an employer sponsored retirement plan was a fixed amount in the years following 2007. These amounts will be indexed in $1,000 increments. Income limits for Roth IRA contributions will also be indexed. So if the limit is currently at $100,000 today, then that limit will be higher after the year 2008.
Now go out and take care of your retirement and take advantage of IRAs. This market correction gives you a tremendous opportunity. If you are unsure as to your eligibility and deductibility of IRA contributions please seek counsel from your advisors. They can help you navigate through the rules and regulations and, at the very least, get you headed in the right direction.
Jonas Zamora is a Certified Financial Planner™ 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:
TheInstitutional (Rank #8 with $177,642)
THE MARKET IS STILL VULNERABLE!
Lilnev2000 (Rank #17 with $156,560)
PLATINUM GROUP METALS – NEXT PLATINUM COMPANY TO BE BOUGHT OUT (PLG)
MackTheKnife (Rank #10 with $170,940)
EMERGENT BIOSOLUTIONS’ REVENUE DOUBLES DURING Q2 (EBS)
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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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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