Monday - October 8, 2007
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As I state in this week's Earnings Preview article, the bond markets will be closed today in observance of Columbus Day. The NYSE and the Nasdaq will be open for trading, however.
Tomorrow at about 2pm ET, the Fed will publish the minutes from its October meeting. This report will provide insight on the severity of the current credit crunch, and offer clues on what the Fed is likely to do about rates in the foreseeable future. You will be able to read the minutes on the Federal Reserve's web site, federalreserve.gov.
Third-quarter earnings season will also officially begin after the close of trading tomorrow afternoon with Alcoa's (AA) third-quarter report. We are still about two weeks away from the heart of earnings season, though the number of reports will rise substantially next week.
Wishing you prosperity,
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 - OmniVision Technologies, Inc. (OVTI)
OmniVision Technologies, Inc. (OVTI) is seeing an explosion in earnings. Analysts are forecasting a 130% jump this year.
Earnings estimates have escalated higher as well. Over the past 60 days, this year's estimates have soared 57 cents to
$1.06 per share. Analysts project long-term earnings growth of 18.33%. The stock has jumped about 67% so far this year. Read the full analysis on OVTI now!
Growth & Income - Baker Hughes Incorporated (BHI)
Baker Hughes Incorporated (BHI) has returned value to shareholders through both share repurchases and dividend payments, with the company currently yielding 0.56%.
Consensus earnings estimates are up over the past 30 days.
Earnings per share are projected to grow 19% over the next 3-
5 years. BHI's return on equity surpasses that of the industry average-27% compared to 17%. Read the full analysis on BHI now!
Momentum - Alexion Pharmaceuticals, Inc. (ALXN)
Listen to the audio podcast on ALXN through Zacks' Audio Feature:
Alexion Pharmaceuticals, Inc.'s (ALXN) has a knack for blowing away earnings estimates. It has done so by at least 22% in each of the past five quarters. Over the past two months, this year's earnings estimates have increased 15 cents to $1.33 per share. The company beat and guided higher during their most recent quarter. The chart is looking excellent as well. It just broke to fresh 52-week highs and looks poised for further gains. Read the full analysis on ALXN now!
Value - Perry Ellis International, Inc. (PERY)
Perry Ellis International, Inc. (PERY), a Zacks #1 Rank stock, recently reported strong second-quarter and first-half fiscal 2008 results. The company also boosted its fiscal 2008 earnings guidance to between $1.87 and $1.91 per share.
Consensus earnings estimates for both this year and next year are up over the past two months. PERY has a price-to-book ratio of 1.5, compared to 2.0 for the industry. Read the full analysis on PERY now!
Zacks Rank Resources
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
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:
Cincinnati Financial Corp. (CINF) recently reiterated its full-year outlook for insurance and investment operations, stating that it anticipates that consolidated property casualty written premiums may be in the same range as last year's $3.178 billion and that the full-year combined ratio could be at or below 95% on either a GAAP or statutory basis. The company added that it continues to believe that pretax investment income growth should be approximately 6% in 2007. Third-quarter results should be released on October 31, 2007. CINF offers a price-to-book (P/B) multiple of 1.10 and a price-to- earnings (P/E) multiple of 13.81. Continue your research on CINF now!
Ethan Allen Interiors Inc. (ETH) recently noted that its retail written sales on a comparable store basis were up modestly in June and July. This positive trend has continued in August. However, the company remains cautiously aware of the fact that consumer confidence can be impacted by several factors that are beyond its control. Ethan Allen added that it continues to believe that the strong operating performance that it has been able to sustain during what have been very challenging times for its industry are the direct result of several initiatives that the company has put in place that are focused on providing solutions and service. ETH has a price-to-earnings (P/E) multiple of 14.16 and a price-to-book (P/B) multiple of 2.61. Continue your research on ETH now!
MHI Hospitality Corp. (MDH) satisfies the criteria for this Profit Track as evidenced by its price-to- earnings (P/E) multiple of 9.2 and a price-to-book (P/B) multiple of 1.57. In early August, the company posted second-quarter Funds from Operations ("FFO") of 33 cents per share, outperforming the previous year's 29 cents and exceeding the consensus estimate by 10%. Third-quarter results should be available on November 8, 2007. Continue your research on MDH now!
MGP Ingredients, Inc. (MGPI) boasts a price-to- earnings (P/E) multiple of 9.22 and a price-to- book (P/B) multiple of 1.07. The company declared a semi-annual dividend of 15 cents per share in late August. The dividend was paid on October 3, 2007. In mid-August, the company released fiscal fourth-quarter results, noting that the year consisted of record sales and profits as well as several other notable achievements. Continue your research on MGPI 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 why you should look for stocks with new analyst coverage. Read more...
3. ZACKS EQUITY RESEARCH
The U.S. bond markets will be closed on Monday in observance of Columbus Day. Government offices, including post offices, will be closed as well. The U.S. equity markets, however, will be open.
Third-quarter earnings "officially" starts after the close of trading on Tuesday, with Alcoa's (AA) third-quarter report. As I'll explain below, it may not be a very good start, however, given that earnings estimates for the Dow component have been falling.
Joining Alcoa in reporting will be 32 other companies, eight of which are also in the S&P 500: Costco Wholesale (COST), Host Hotels & Resorts (HST), Monsanto (MON), M&T Bank (MTB), PepsiCo (PEP), Progressive (PGR), Safeway (SWY) and Yum! Brands (YUM). Outside of AA's direct impact in the Dow, none of these stocks are likely to move the markets in any notable direction, though positive (or negative reports) could still influence overall sentiment.
More. . .
The only economic reports that could have any true impact on market direction will by the September PPI and the advanced retail sales data. The ideal spin on both reports will be contained inflation and just enough weakness to increase the odds of a rate cut at the October meeting. Joining these two reports on Friday will be the preliminary University of Michigan consumer confidence index and August business inventories. Prior to these four reports will be August wholesale trade (Wednesday) and August trade deficit (Thursday).
What could influence market direction are the minutes from the September Federal Open Market Committee meeting, which should be released on Tuesday afternoon. The key question will be whether the market believes the Fed understands the severity of the credit crunch and is willing to do whatever is necessary to prevent a recession from occurring. A 25- basis point rate cut at the October meeting seems likely and anything suggesting that this won't happen will not be taken lightly. I don't anticipate any surprises in the Fed minutes, but it is important for investors to understand that in this case, perception is reality. And, in the case of the Fed minutes, perception could be a two-way sword.
Companies That Could Issue Positive Earnings Surprises during the Week of Oct 8 - 12
A few weeks ago, Monsanto (MON) raised its fiscal 2007 profit guidance to approximately $2 per share from $1.75 to $1.80 per share. The company cited an effective tax rate of 30%, sustained strength in corn seeds and the ability to charge more for Roundup herbicides. The revised forecast led five of the covering brokerage analysts to improve their forecasts for the fiscal fourth-quarter. The current consensus estimate now calls for a fiscal fourth-quarter loss of 22 cents per share, 12 cents narrower than the average projection of a month ago. The most accurate consensus is more bullish at a loss of 16 cents per share. MON has topped expectations for three consecutive quarters, most recently by a margin of two cents per share. Monsanto is scheduled to report on Wednesday, Oct 10, before the start of trading.
Charles Rotblut, CFA, is the senior market analyst for Zacks.com. He can be reached at email@example.com.
Real-time market insights from Zacks Equity Research Analysts. Stocks featured recently include Jones Soda (JSDA), Sonoco Products Company (SON), Tenneco (TEN) and Marriott Int'l (MAR). To see their latest posts, click here.
4. FEATURED EXPERTS
Here we cast the spotlight on timely Featured Expert commentaries that recently appeared on Zacks.com.
Profiting from Emerging Europe
OTHER TOOLS FROM ZACKS
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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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