Friday - September 21, 2007
Want to view the archive of past issues? Click here.
Manage Profit from the Pros subscription:
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 - Perceptron, Inc. (PRCP)
Perceptron (PRCP) is covered by a lone analyst, but has explosive prospects nonetheless. Total new order bookings are growing nicely, which portends good things for future earnings. Over the past month, this year's earnings estimates have increased 19 cents to 72 cents per share. The company also sports no debt, which is impressive for a micro-cap stock. Analysts expect earnings to grow 33.3% next year and 15% for the long term. Read the full analysis on PRCP now!
Listen to the audio podcast on MMM through Zacks' Audio Feature.
3M Company (MMM), after reporting strong results for the first half of 2007, boosted its full-year profit guidance to between $5.40 and $5.60 per share. Consensus earnings estimates for both this year and next year are up over the past two months. Earnings per share are projected to grow 11% over the next 3-5 years. On Aug 13, the Board of Directors declared a cash dividend of 48 cents per share. MMM is currently yielding 2.2%. Read the full analysis on MMM now!
Calgon Carbon (CCC) is doing everything right and its chart shows it. The stock is in an excellent uptrend with no signs of it ending anytime soon. The moving averages are acting as solid support lines. This year's earnings estimates have increased six cents to 25 cents per share over the past 60 days. Over the past two quarters, the company has averaged a 240% positive earnings surprise. Read the full analysis on CCC now!
TriMas Corporation (TRS) posted record second-quarter sales in early August, and also surpassed the Street's earnings per share estimate of 26 cents by 53.9%. Consensus earnings estimates for both this year and next year have risen over the past two months. This Zacks #1 Rank stock has a price-to-book ratio of 1.1, compared to 4.7 for the market and 1.9 for the industry. Read the full analysis on TRS 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: 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.
Here are four stocks that make the grade for the High Rank Value Profit Track:
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 11.82 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 1.27 and a price-to-earnings (P/E) multiple of 9.56. 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 13.3 and a price-to-book (P/B) multiple that stands at 0.78. 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 13.85 and a price-to-book (P/B) multiple of 2.59. 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: More...
3. ZACKS EQUITY RESEARCH
While the entire market seemed to spark from the 50-basis-point interest rate cuts (on both the Fed funds and discount rates), we were interested specifically in how it may have affected a relatively commodity-driven market, such as utilities. Zacks senior utilities industry analyst Jon Kolb was available to answer a few questions on the subject.
How do you assess utility industry earnings in the last quarter?
First of all, as we've discussed several times in previous meetings, the utility industry continues on a long-term trend of focusing on core electric and natural gas utility operations, while selling what companies consider non-core assets not positively and/or directly contributing to the on-going earnings powers of the companies we follow. Specifically, in other words, the public utilities we cover continue to selectively exit international operations, underperforming assets, and other potentially faster-growing yet more volatile facilities.
More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The reason I highlight this trend is that, in some cases, quarterly earnings as quoted under GAAP (or Generally Accepted Accounting Principles) do not necessarily follow a close correlation with Earnings from Continuing Operations, or Ongoing Operating Earnings, or sometimes as referred to as Core Earnings. The important point being that whatever a company reports as earnings for a given quarter is not necessarily indicative on the current earnings power of the company, its current operations, nor what the company may report in the subsequent quarter(s). Anyway, you get the point; ongoing operating earnings are the critical benchmark.
So, having said that, for the second quarter of fiscal 2007, aside from the average utility dividend yielding about two-fold that of the broader market as measured by the S&P 500, from 3% to 4% on average with several over 5% and very competitive to US Treasuries after this week's rate cut, utilities appear relatively attractive for conservative investors.
In the aggregate, all public utilities delivered 20% better earnings compared to 14% better in the comparable quarter a year ago. Aside from relatively even year-over-year stock performance for water utilities at +13%, which in the long-term we view poised for high growth given worldwide water shortages, multi-utilities (which are involved in electric, natural gas, water and/or water services) were the big winners with approximately 138% increases in aggregate operating earnings, compared to only coincidentally 38% a year ago.
Meanwhile, gas distribution utilities delivered nearly an 80% increase in operating earnings over, and compared to, a year ago, while electric utilities performed the poorest at roughly negative 2% growth in operating earnings versus positive 14% growth in net income. At the end of the day, the numbers were mixed, as they often are, but the bottom line for utilities and conservative investors clearly appears to be very competitive dividend yields following a 50 basis point Fed rate cut.
There are a lot of utilities reports you've updated recently. What stands out to you?
I guess I'd have to say the fact that I have a Buy recommendation on Alliant Energy (LNT) makes it stand out. Alliant is well positioned based on a decline in fuel costs following interim rate cuts, improving earnings visibility through rising generation capacity, debt reduction, as well as divestiture of international assets and better performance of non-regulated operations.
This company suffered some price depreciation after its most recent quarterly earnings report, didn't it?
Yes, its EPS was off by a few cents. But they were lower largely due to non-recurring tax benefits associated with a sale the company made in the 1st quarter of 2006. Prior to the recent share price decline, LNT consistently and significantly outperformed the broader S&P 500 Index, and we expect this upward trend to return over the near-term.
Meanwhile, the stock trades approximately in-line with the range of its industry peers with respect to relative multiples of sales and book value, and at the upper end of the range of comparable cash flow multiples. Looking ahead, increased regulated rates, lower fuel costs, following interim rate cuts, improving earnings visibility via additional generating capacity, debt reduction, international asset sales, divestiture of underperforming assets, improving performance of non-regulated operations, and an improving balance sheet, collectively, favor the company's outlook.
Have you found, in general, that sell-offs tend to improve the bottom-lines for utility companies?
Well, in the case of UIL Holdings (UIL), earlier this year it sold its Xcelecom systems integration Businesses, but we reaffirm our Hold recommendation on UIL. At this point, UIL continues to generate the majority of its revenue from its expanding regulated electricity operations, and continues to modestly improve financial results. But our outlook is tempered by modest near-term projected earnings growth, very high projected dividend payouts, and weak performance in one particular segment.
How high is its current dividend?
UIL has a current annual dividend yield of $1.73 per share. This makes it very competitive among its peers at 5.3%, although it is realistically unsustainable, as it represents earnings payouts of 95% of our 2007 EPS estimate and 92% of our forward 2007 EPS estimate. Therefore, it potentially presents the stimulus for a declining share price if the company is forced to cut its dividend.
Greg Aurand, CFA is a senior analyst covering the medical devices and supplies industry for Zacks Equity Research.
Real-time market insights from Zacks Equity Research Analysts. Stocks featured recently include BASF AG (BF), Lucent (ALU), DJO Incorporated (DJO) and ISIS Pharmaceuticals Inc. (ISIS). To see their latest posts, click here.
Listen to the audio podcast of the Industry Rank Analysis through Zacks' NEW Audio Feature.
Listen to the audio podcast of Earnings Trends through Zacks' NEW Audio Feature.
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 rapidly-growing companies:
Every year FORTUNE magazine publishes its 100 Fastest-Growing Companies list. We here at Zacks provide the data behind the study in which each company is analyzed based on three years of revenue and profit growth along with its total return. Some of the other guidelines include only companies that are incorporated in the United States are considered, they must have a minimum market capitalization of $250 million, a stock price of at least $5 and have revenue and net income for the four quarters ended on or before May 31, 2007 of at least $50 million and $10 million, respectively.
I thought it would be interesting to take a look at the top companies on this list and identify which are currently Zacks #1 Rank (strong buy) or Zacks #2 Rank (buy) stocks. I figured combining a list of this nature with a proven stock picking system would be a great way to go. It is interesting to note that my search did not go beyond the top five on the list.
Hansen Natural Corporation (HANS)
Hansen Natural Corporation, through its subsidiaries, engages in the development, marketing, sale and distribution of beverages in the United States and Canada. The company offers natural sodas, fruit juices and juice drinks, energy drinks and energy sports drinks, fruit juice smoothies and functional drinks, non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, children's multi-vitamin juice drinks, and non-carbonated lightly flavored energy waters. HANS may be best known for its energy drink named Monster Energy.
HANS recently reported second-quarter earnings per share of 39 cents, beating the consensus earnings estimate by two cents. Revenues ballooned 57% to $244.8 million from $156 million a year ago. The company's quarterly results were fueled by sales of its Monster Energy brand energy drinks, and sales of new products including Java Monster non-carbonated dairy-based coffee drinks and Monster M-80 drinks. HANS has also returned value to its shareholder through share buybacks. In September of 2006, the Board of Directors authorized an increase in its current $50 million stock repurchase program to $75 million. The company's return on equity, a common measure of profitability, more than triples that of the industry average- 44% compared to 14%. Earnings per share are expected to grow 20% over the next 3-5 years. The industry is projected to grow by only 11%. HANS is a Zacks #2 Rank stock.
Intuitive Surgical, Inc. (ISRG)
Intuitive Surgical, Inc. designs, manufactures and markets the da Vinci Surgical System, which is an advanced robot-assisted surgical system that the company believes represents a new generation in surgery. The da Vinci Surgical System consists of a surgeon's console, a patient-side cart and a high performance vision system. The product line also includes proprietary "wristed" instruments and surgical accessories. The da Vinci Surgical System translates the surgeon's natural hand movements on instrument controls at a console into corresponding micro-movements of instruments positioned inside the patient through small puncture incisions, or ports.
When it comes to beating the Street's earnings estimate, ISRG is one of the best. The company topped the consensus estimate for 13 consecutive quarters. In 10 out of the 13 aforementioned quarters, ISRG surprised to the upside by a double-digit percentage. On two other occasions it produced triple-digit percentage surprise. On Jul 19, ISRG reported second-quarter profits of 79 cents per share. The result amounted to a solid 17.9% positive surprise with analysts expecting 67 cents per share. Compared to earnings of 44 cents per share in the prior-year period, the result marked an impressive 79.5% year-over-year improvement. Revenues rose 61.2% to $140.2 million from $87.0 million for the same quarter of 2006. ISRG also raised its full-year revenue growth outlook to between 45% and 50% growth, from an earlier projection of 40% growth. Over the next 3-5 years, earnings per share are projected to grow by a robust 45%. ISRG is a Zacks #1 Rank stock.
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.
FREE PORTFOLIO TRACKER
Do you believe that these events affect stock prices?
If you answered yes, then how are you staying on top of these changes for your stocks? If you are one of the 55,000 investors who wake up every morning to the Daily Portfolio Updates emails from Zacks.com, then you are all set. If not, then sign up now to get this vital information sent to you daily to help take definitive action to improve your portfolio's performance. Did we mention it's free? Get started now!
We hope you enjoyed this issue of "Profit from the Pros", And we look forward to visiting with you again next week.
If you enjoy this e-mail newsletter, then please pass it along to a friend. Simply forward them the link below to sign up for their own free subscription. If you're reading a forwarded copy, sign up for your own, so you get this wealth of information every week. Just click here. THANKS!
Regards and Happy Investing,
Charles Rotblut, CFA
p.s. What is the mission for Zacks Profit from the Pros? Click here to find out how we will help you become a more successful investor.
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.
To contact us by mail:
Zacks Investment Research
To unsubscribe from receiving "Profit from the Pros" e-mail newsletter, click here.