Friday - October 26, 2007
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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 - Polycom, Inc. (PLCM)
Polycom, Inc. (PLCM) is riding the wave of video conferencing. The trend has helped fuel the company's earnings. Just over the past week, this year's earnings estimates have leapt 16 cents to 88 cents per share. Next year, analysts expect earnings to grow another 37.9%. The company has no debt on the balance sheet and an ROE of 8%, above the industry average of 5%. Read the full analysis on PLCM now!
Sotheby's (BID) is a Zacks #1 Rank name. In early August, the company raised its dividend by 50% to 15 cents per share. Bid offers a current dividend yield of 1.2%. The company's return on equity (ROE) of 47% by far exceeds its industry average of 15%. Also in early August, Sotheby's reported second-quarter results, which included record revenues for both the second quarter and the first six-month period. Read the full analysis on BID now!
DryShips Inc. (DRYS) has posted an incredible year and shares of its stock have sky rocketed from $13 to its current trading range of $120 plus. After two tough days on Oct 19 and 22 when the market experienced a steep sell off, DRYS rebounded nicely and now appears ready for a push to the upside. In addition, two analysts have raised their third quarter estimates in the last 30 days. Read the full analysis on DRYS now!
OM Group, Inc. (OMG) , a Zacks #1 Rank stock, recently announced that it has agreed to acquire all of Rockwood Holdings, Inc's Electronics business, excluding its French entity. OMG also recently completed the acquisition of Borchers GmbH, a leading European-based specialty coatings additive supplier. In early August, the company posted second- quarter results with earnings per share jumping ahead of the consensus estimate by 25%. The earnings result also increased on a year-over-year basis. Net sales were $231.3 million compared with the year-prior net sales of $175.2 million. The release of results for the third quarter is scheduled for November 2, 2007. The company has a price-to-book ratio of 1.7, compared to 4.9 for the market and 2.3 for the industry. Read the full analysis on OMG 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: Low Price Stocks
Many investors prefer stocks priced below $20 because the low prices allow them to accumulate more shares. Fortunately, lower prices do not necessarily mean lower quality.
This strategy identifies stocks priced below $20 that are trading at discount valuations and have a Zacks Rank of #1 ("Strong Buy") or #2 ("Buy"). The stocks identified by this search strategy trade at price-to-sales (P/S) multiples of 1.0 or below. The strong Zacks Rank is indicative of positive revisions in earnings estimates. Combining these characteristics can result in high-dollar returns.
Here are four stocks that make the grade for the PEG Ratio Profit Track:
CenterPoint Energy, Inc. (CNP) is a domestic energy delivery company, which makes the grade for the Low Price profit track with a share price of about $16. (The profit track calls for a share price of less than $20). The company will report its third-quarter results on Nov 2. For its second quarter, earnings per share declined year over year but managed to come in line with the consensus at 20 cents. Revenues advanced to $2.03 billion from $1.84 billion. This Zacks #2 Rank company attributed its solid results in the face of several challenges to the value of its balanced portfolio of gas and electric businesses. Continue your research on CNP now!
FTD Group, Inc. (FTD) announced in August fiscal fourth quarter earnings per share of 36 cents, which advanced year over year from 30 cents and beat the consensus by more than 28%. Consolidated revenues of $169.8 million advanced 20% from $141.5 million in the fiscal fourth quarter of 2006. Looking forward, the floral-related products company said it is positioned to demonstrate continued growth, and its focus will remain on operating margins and net income growth. At the moment, FTD's share price is hovering around $15, which qualifies it as a Low Price profit track with good possibilities moving forward. Continue your research on FTD now!
G-III Apparel Group, Ltd.'s (GIII) share price remains below $20, which qualifies this outerwear and sportswear retailer for the Low Price profit track. In addition, this Zacks #2 Rank has watched its earnings estimates for this year rise 4.3% over the past two months. During its second-quarter report from September, G-III boosted its earnings per share outlook for the full fiscal year to between 98 cents and $1.03, compared to its previous guidance of 90 cents to 95 cents. In addition, its net sales guidance was enhanced to $510 million from $500 million. For the quarter, G-III narrowed its earnings per share loss from the previous year while net sales gained 21%. Continue your research on GIII now!
The Phoenix Companies, Inc. (PNX) has a current price of approximately $13, and its earnings estimates for this year are up about 5.5% over the past three months. These factors suggest that this financial services provider is a high- quality company with a low price. The Phoenix Companies will report its third-quarter results on Oct 31. For its second- quarter, earnings per share of 30 cents topped the consensus by 20%, and also easily surpassed the year-earlier result. Continue your research on PNX 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 shows how to create your own price targets and how to estimate a stock's future earnings multiple: More...
3. ZACKS EQUITY RESEARCH
Zacks senior Latin American markets analyst Claudio Freitas, CFA has been examining the tremendous growth this year in Brazil and elsewhere on the continent. As third quarter earnings start to heat up, we wanted to get his perspective on these markets into the near future.
Are you expecting a strong showing from Latin American stocks this quarter? Why or why not?
Yes I am. Up until now, results have been quite positive, and there are many reasons to believe that other results to be released in the following weeks will be encouraging, too. In fact, results for the third quarter 2007 are still a consequence of the continued benign international economic/business environment, with continued demand of basic products and commodities from Asian countries, particularly China.
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The subprime mortgage crisis is too recent; there was not enough time for it to influence the real economy. As a matter of fact, results of the third quarter still reflect the very positive situation we had until some months ago. The source of concern now is that the short-to-medium term outlook is not that positive anymore.
Is this still a good time to be accumulating Brazilian stocks, or are things beginning to flatten out?
There are still some interesting stocks in the Brazilian market that deserve some attention; however, we must be more careful nowadays. The economic outlook for Brazil for the medium-term remains promising, since we believe that the continued improvement in the Brazilian economic environment will make Brazil reach investment grade within the following 12 months, thus leading to a multiple expansion for Brazilian stocks.
However, the Brazilian Central Bank decided to stop cutting basic interest rates in the very short-term. Indeed, after the August Bank meeting an official report was released with strong comments on domestic inflation pressures, and in October it was decided to leave rates unchanged for the first time in two years.
Additionally, the considerable risk of recession in the U.S. market remains a threat for commodity producers. The bottom line is that there are still some interesting opportunities, but the risk has increased and we must be very cautious in searching for the right stocks.
Which Latin markets look most attractive on a valuation basis?
Despite all the problems, I still believe Brazil is the best option for Latin American stocks. There are some interesting growth stories in the Brazilian market. NET Servicos (NETC) is a good example of this. Despite the continued appreciation, the valuation of the market remains attractive. Other markets have some problems: Chile is too expensive, Argentina is facing increasing inflation and political problems due to presidential elections that will happen this weekend, and Mexico is too much dependent on the U.S. - and the recession risk in the U.S. is a huge concern.
Claudio Freitas, CFA is a senior analyst covering the Latin American markets for Zacks Equity Research.
Real-time market insights from Zacks Equity Research Analysts. Stocks featured recently include Weatherford Int'l (WFT), AK Steel Holding (AKS), Tractor Supply Company (TSCO) and Dr. Reddy's Labs (RDY). To see their latest posts, click here.
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 attractive dividend-yielding stocks:
Uncertainty about the pace of economic growth, oil trading near $90 and somewhat lackluster third-quarter earnings have caused the U.S. stock markets to pull back this week. Such market volatility may make the income generated by dividend yielding stocks an attractive option for some investors.
Dividends help to cushion the day-to-day fluctuation of stock prices by providing investors a regular cash payout. As an added bonus, when stock prices rise, dividends can increase an investor's overall profits.
Moreover, the longer a company has been paying dividends, the more likely it will continue to do so going forward. Investors have come to expect this cash flow and if terminated, the company runs the risk of upsetting or even losing its investor base. Furthermore, a solid, dividend-paying company may increase its yield each year. That is music to investors' ears.
So, how does one go about uncovering fundamentally-sound, dividend-paying companies? One method is to use a simple, yet effective stock screen. This screen, which is outlined below, can be run on zacks.com by utilizing the Custom Screener. However, please keep in mind that only Premium subscribers can screen using the Zacks Rank. However, there are close to 100 screening parameters that we currently offer free of charge.
Zacks Rank: <= 2 By restricting your analysis to only those stocks with either a #1 Rank (Strong Buy) or #2 Rank (Buy), you are singling out companies with favorable trends in earnings estimate revisions and that are producing EPS surprises.
Dividend Yield: >= 4% Only companies with a fairly sizeable dividend yield make the cut.
Market Capitalization: >= $1 billion Larger companies typically have the resources on hand to continue making dividend payments.
EPS Growth: >= 10% Companies with a projected annualized earnings per share growth greater than or equal to 10% for the next three to five years are only considered.
Return on Equity (ROE): >= 10% Return on equity is a measure that can help investors in their search for lean, mean profit machines. This will lead to extra cash to distribute in the form of dividends.
Stocks recently identified by this dividend screen include:
Equity Inns, Inc. (ENN)
Equity Inns, a Zacks #1 Rank (Strong Buy) stock, is in the business of acquiring equity interests in hotel properties. The company recently announced that it expects its previously announced merger with an affiliate of Whitehall Street Global Real Estate Limited Partnership 2007 ("Whitehall") to close on or about Thursday, October 25, 2007. ENN added that in connection with the closing of the merger, it has declared a pro rated dividend, subject to the satisfaction or waiver of the closing conditions to the merger. The record date is expected to be October 24, 2007. The dividend amount is expected to be $0.07065 per share, which will be paid on the third business day after the closing date of the merger. Equity Inns offers a current dividend yield of 4.36%.
Wall Street forecasts have been on the rise for ENN. Current earnings estimates of $1.60 per share moved up by a penny over the past month. Two months ago, analyst expectations stood at $1.57, which was an increase from the three month-ago level of $1.55. ENN is expected to grow by 13.5% over the next three to five years.
France Telecom (FTE)
France Telecom provides fixed telephony and mobile telecommunications, data transmission, Internet and multimedia services to consumers, businesses, and other telecommunications operators in France, the United Kingdom, Spain and Poland. In addition to being a globally recognized company, FTE pays a solid dividend of 4.1%. The dividend is probably quite safe as it throws off decent cash flow. This strong company could provide a nice buffer due to its yield and market presence if the market takes a hit. Its price/book ratio of 2.6 is less than its industry average of 3.0.
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.
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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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