Thursday - September 20, 2007
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Charles Rotblut, CFA
1. ZACKS RANK BUY STOCKS
Zacks #1 Rank stocks average a 32% 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 - Qualcomm, Inc. (QCOM)
Qualcomm, Inc. (QCOM) was a stock that soared 2600% in 1999 and then got hit in the bear market. The company is back in a big way. QCOM's CDMA technology has it uniquely positioned in the high-growth wireless industry. It has exceeded earnings estimates in four straight quarters. This year's earnings estimates have risen six cents to $1.76 over the past 60 days. Analysts project long-term growth of 19.51%. Read the full analysis on QCOM now!
Mentor Corporation (MNT) exceeded analysts' earnings expectations in 10 out of the past 11 quarters. After reporting impressive second-quarter results, MNT upped its full-year outlook. Earnings per share are projected to grow 21% over the next 3-5 years. In mid June the Board of Directors raised its quarterly dividend by 11% to 20 cents per share. MNT is currently yielding 1.8%. Read the full analysis on MNT now!
Momentum - DryShips, Inc. (DRYS)
DryShips, Inc. (DRYS) is enjoying a stratospheric rise over the past year. However, despite the runup, the chart is still friendly. Recent consolidation has alleviated the overbought condition and the stock is at support right now. Earnings estimates have soared over the past 90 days. This year's estimates have risen $2.33 to $7.22 per share. Analysts predict another 34.6% growth in earnings next year. Read the full analysis on DRYS now!
NOVA Chemicals Corporation (NCX), a Zacks #1 Rank stock, exceeded analysts' earnings expectations for the past four quarters by an average margin of 51.4%. Consensus earnings estimates for both this quarter and the full year are up over the past week. NCX has a price-to-book ratio of 2.2 compared to 4.7 for the market and 3.0 for the industry. The company has a current dividend yield of 1.0%. Read the full analysis on NCX 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:
RebelPOW (Rank #15 with $171,707)
WHITHER NOW THE DOW?
Given the projected track of the latter, I believe it probably will affect...
Shoelessjoe (Rank #1 with $372,156)
Jason Kosmatka (aka: JasonK) is a disciplined growth style investor. The Zacks $100K Challenge player explained that he picks stocks with growth potential that have solid numbers. He stated that he devotes a great deal of focus on dividends, especially ones that are being raised. The savvy investor also likes firms that buy back shares as well as companies that meet or exceed earnings expectations. "I also like a company that has more than one of these things that I just mentioned," added Jason.
He went on to say that he monitors his Simulator stocks monthly rather than daily or weekly. Therefore, he screens for names that he believes will do well for at least six months. How does such trading compare to the other Simulator portfolios? Jason's overall return of roughly 51% indicates that he knows his stuff when it comes to picking growth stocks.
Picks in his current portfolio include Excel Maritime Carriers, Ltd. (EXM), NPS Pharmaceuticals Inc. (NPSP), Odyssey Marine Exploration Inc. (OMEX) and Weatherford International Ltd. (WFT). Take a look at his entire trading history by clicking here.
3. ZACKS EQUITY RESEARCH
Listen to the audio podcast of the Industry Rank Analysis through Zacks' NEW Audio Feature.
Despite the turmoil that is occurring within the credit markets, the outlook for third-quarter profits is rather positive. Brokerage analysts expect companies within the S&P 1500 (S&P 500, S&P MidCap 400 and S&P SmallCap 600) to post median growth of 8.5%. Although this would be a slower pace of growth than a year ago (Q306), it is still indicative of notable increases in corporate profits. If earnings come in above expectations, it is reasonable to expect the median company within the S&P 500 to report double-digit growth.
There are a few reasons why profits are continuing to rise. Many companies have been able to leverage higher raw material costs into higher prices. Corporations are continuing to invest in software and equipment. The consumer, despite the rise in foreclosures, is continuing to spend. (Just yesterday, Best Buy (BBY) said that demand for high definition TVs remains strong.) The weak dollar both makes exports more competitive and increases the value of profits earned abroad. Share repurchases are increasing the relative proportion of profits per share. And, most importantly, the economy is still expanding.
At the industry level, there are relatively few surprises as to the type of company that is likely to report strong growth and the type that is likely to report weak growth.
More. . .
On the positive side, Aerospace appears set for another round of good reports. Air traffic has been on the rise worldwide, airlines are investing in their fleets and demand for parts remains healthy. Boeing (BA) has been a beneficiary of these trends with a lengthy backlog for its new Dreamliner jet last years, even though the aircraft has yet to go on its inaugural flight. On the replacement parts side of the industry, Precision Castparts (PCP) is projected to generate a 60% increase when it reports this fall. BA and PCP are both Zacks #2 Rank ("buy") stocks.
Beverage makers appear likely to generate median double-digit growth. Demand for bottled water and flavored beverages are helping to offset the traditional dependence on soda. Price increases have also helped. Pepsi Bottling Group (PBG), which topped second-quarter expectations by seven cents, is expected to report am 11% rise in third-quarter earnings. PBG is a Zacks #2 Rank stock.
Those food companies able to pass along higher commodity prices should also fare well. Corn Products International (CPO) reaffirmed its full-year guidance last month. Heinz (HNZ) raised its full-year guidance last month, citing good sales performance of its beans, soups, Smart Ones diet frozen meals and its Classico sauces. The company also realized a 13% increase in ketchup sales during its fiscal first-quarter. CPO is a Zacks #1 Rank ("strong buy") stock and HNZ is a Zacks #2 Rank stock.
Staying with the agriculture theme for a moment, Deere & Co (DE) is projected to report 27% profit growth this quarter. Those who regularly read this column will know that the push for increased use of ethanol and worldwide economic growth has created a booming agricultural economy. Prices of several food-related commodities have recently hit new highs. DE is a Zacks #1 Rank stock.
Tech giants Hewlett-Packard (HPQ) and Cisco Systems (CSCO) both pleasantly surprised their shareholders last quarter and are expected to achieve another good quarter. Strong sales of laptop computers are providing a boost to HPQ. Brokerage analysts believe the company could deliver 19% growth this quarter. Higher corporate spending and ever-growing reliance on networks should enable CSCO to generate 18% growth this quarter. Two analysts have raised their fiscal first-quarter forecasts on the company within the past month. Both HPQ and CSCO are Zacks #2 Rank stocks.
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 iPass (IPAS), D.R. Horton (DHI), Beazer (BZH) and Pulte (PHM). 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 we highlight...
Profit Tracks: High Rank Value
Two of the most commonly accepted measures of a value stock are a price-to-earnings (P/E) multiple of 15.0 and a price-to- book (P/B) multiple of 3.0. Although many studies have shown performance advantages to investing in value stocks, not all value stocks are actually bargains. A value a stock is only a good buy if earnings are expected to improve in the future.
High Rank Value is a strategy designed to find the true bargains among value stocks. By requiring a Zacks Rank of #1 ("Strong Buy") or #2 ("Buy"), this strategy restricts the pool of value stocks to only those with positive revisions in earnings estimates. In other words, profits are expected to improve in the future at a faster pace than originally anticipated.
Colony Bankcorp, Inc. (CBAN) posted second-quarter results in mid-July. Earnings per share totaled 38 cents, beating the year-prior 36 cents and exceeding the consensus estimate by 3%. The company's total assets increased by 2.96% on a year-over-year basis. Colony Bankcorp satisfies the criteria for this Profit Track as evidenced by its price-to-earnings (P/E) multiple of 11.81 and a price-to-book (P/B) multiple of 1.56. Continue your research on CBAN now!
First United Corporation (FUNC) recently declared a dividend of $0.195 per share. The dividend will be payable on November 1, 2007 to shareholders of record as of October 15, 2007. In early August, the company reported second-quarter earnings of 52 cents per share, surpassing last year's 50 cents and topping the consensus estimate by 8%. FUNC offers a price-to-book (P/B) multiple of 1.28 and a price-to-earnings (P/E) multiple of 9.61. Continue your research on FUNC now!
Hercules Technology Growth Capital, Inc. (HTGC) announced record second-quarter results in early August and declared its eighth dividend since inception of 30 cents per share. The company stated that it not only achieved record commitments, funding and earnings, but it also greatly expanded its capital base to support continued investment momentum in promising life sciences and technology companies. HTGC has a price-to-earnings (P/E) multiple of 12.88 and a price-to-book (P/B) multiple that stands at 0.76. Continue your research on HTGC now!
Olin Corp. (OLN), a Zacks #1 Rank (Strong Buy) company, boasts a price-to-earnings (P/E) multiple of 13.6 and a price-to-book (P/B) multiple of 2.54. The company released second-quarter earnings of 48 cents per share in late July. The result topped the year-prior 45 cents. Olin Corp also declared a dividend of 20 cents per share, the company's 323rd consecutive dividend. Continue your research on OLN 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 explains how you can increase your odds for success. 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...
Cummins, Inc. (CMI) recently hit a 52-week high and is trading a few dollars below that level right now.
The company is one of the leading worldwide designers and manufacturers of diesel engines. The company also produces natural gas engines and engine components and subsystems.
Cummins provides power and components for a wide variety of equipment in its key businesses: engine, power generation, and filtration.
In late July, CMI released record results for the second quarter. Earnings per share of $2.13 jumped ahead of the consensus estimate by 34%. Second-quarter revenues of $3.34 billion were up 18% on a year-over-year basis.
"This was a tremendous quarter for Cummins and is further proof that the work we have done to diversify our business is paying off," said Cummins Chairman and Chief Executive Officer Tim Solso. "Our strong performance in the first half of the year has put us in a position to make 2007 Cummins' most profitable year ever - which would be a significant feat given the challenges we have faced in the heavy-duty truck engine market."
Cummins raised its 2007 earnings guidance to a range of $7.15 to $7.65 per share from $6.00 to $6.50 per share. Analysts are in agreement as evidenced by current expectations of $7.54 for 2007, up from last week's estimates of $7.51. Forecasts came in at $7.49 last month, and analysts were projecting $6.43 two months ago.
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.
FREE PORTFOLIO TRACKER
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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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