Wednesday - November 14, 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 based on the four main schools of investing: Aggressive Growth, Momentum, Growth & Income and Value.
Aggressive Growth - GameStop Corporation (GME)
GameStop Corporation (GME) seems to have the wind at its back heading into its fiscal third-quarter earnings report on Nov 20. The world's leading video game retailer crushed its fiscal second quarter earnings expectations, and brokerage analysts have been raising their full-year forecasts in hopes of another high score. Read the analysis of GME now!
Growth & Income - Methanex Corp. (MEOH)
Methanex Corp. (MEOH) posted third-quarter earnings per share of 24 cents in late October, missing the consensus estimate by four cents. However, since reporting, the Zacks #1 Rank (Strong Buy) company has hit a couple of 52-week highs and has seen analysts lift earnings estimates. Current fourth-quarter forecasts of 74 cents per share moved up from last week's 54 cents. Full-year projections stand at $2.71 per share, with the most accurate estimate coming in at $2.83. Last month, the consensus expectation was $2.38. Read the full analysis on MEOH now!
Momentum - Amerigroup Corporation (AGP)
Amerigroup Corporation (AGP) held up very well over the last week when the overall market was taking a big hit. The company recently reported another very strong quarter and analysts have been steadily raising projections for next quarter's earnings. Read the analysis of AGP now!
Value - Expedia (EXPE)
Shares of Expedia (EXPE) are trading at less than 1.5x book value despite the biggest earnings surprise in more than four quarters. The online travel company recently reported third- quarter profits of 36 cents per share, two cents above expectations, as European booking surged by 47%. EXPE is a Zacks #1 Rank stock. Read the full analysis on EXPE 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.
Minimizing Market Risk and Volatility with `Beta'
This week I want to talk about `beta'.
As investors try to protect themselves from market risk, a quick look at your stock's beta could help you determine your co-movement measure.
First and foremost, beta is a measure of an asset's risk relative to the market (usually the S&P 500). (It's typically calculated as the performance a stock has experienced in the last five years as the S&P has moved up and down.)
A beta of 1 means the stock's relative volatility is equal to that of the market. Therefore, a beta that's greater than 1 is more volatile than the market and a beta that's less than 1 is less volatile. (It can also be explained as its excess movement or `return'.)
For instance, a beta of 1.5 will have 1 1/2 times the market's movement (50% more movement than the market). But if the market is plummeting, than you're probably dropping even more than the market.
Take the following statistics for example. I ran four tests on the Research Wizard; one for stocks with betas half as much as the market and one with betas 50% more than the market. The results give a great illustration of beta or co-movement (a.k.a. covariance).
Over the last four-week and one-week periods, the S&P 500's percentage price change was down by approximately 7.07% and 4.19%, respectively.
However, by focusing on stocks with betas of less than .5 (half the market's volatility), the average four-week and one- week percentage price change was only down 5.08% and 2.68%, respectively. (While the low beta stocks in these examples didn't cut the losses by half, it did reduce the downside by a significant amount.)
This is in contrast to stocks that had betas of one and a half times the market (50% more market risk/volatility). The average four-week and one-week percentage price change on those stocks was down 8.73% and 4.69%.
And again, while these stocks didn't see twice the downside of the market, the losses on these stocks were indeed greater than what the market was serving up.
Both tests were applied to stocks with prices >= $5 and average daily share volume of >= 50,000.)
Of course, beta alone isn't a magic item, but used in conjunction with other proven stock-picking techniques can help you minimize unnecessary market risk and volatility. Here's a screen I'm currently using to scan for good stocks with half the market's volatility.
Zacks Rank = 1
Currently, there are 15 stocks on this list. Here are three that look ready to breakout:
BMI Badger Meter, Inc.
Start using the beta indicator in some of your own screens and see if it helps you smooth out your portfolio's volatility. Then test it all with our backtesting feature
Sign up now for your free trial to the Research Wizard and pick and choose from some of our proven, profitable strategies or put your own ideas to the test and start making better decisions today. Click here.
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
Now that third quarter earnings season has begun to wind down and holiday season is right around the corner, we were interested in speaking about the consumer non-durables sector - how it has performed thus far, and what is expected going forward. Joining me today is Zacks senior consumer products analyst Steven Ralston with his perspective.
We wanted to start this off by asking about Hershey's, which is in your coverage. Can you get us up to speed on what's going on? Well, the stock has been languishing, at best - basically going sideways from the low-$40s to $50 for the last couple of years. And management has brought in some disappointing earnings results, most recently because of higher dairy costs.
And it looks like the Hershey trust, which owns a majority stake in the company, has decided to take some action, and asked eight directors to leave.
More. . .
I personally believe this is a positive development. But it kind of gives one pause that possibly the Hershey trust should have accepted the $2.5 billion offer from Wrigley's five years ago, considering that the market cap for the stock today is only $9.6 billion.
Is this having anything to do with holiday season right around the corner, or is this just something that was going to happen, anyway?
Hershey's is like a machine, generating new products to aid its growth, not only in units and volume, but also in net sales. And it's difficult to have 17 balls in the air if you're a juggler, and that's what Hershey's does. I think they've failed slightly in their execution.
Part of this is they have promotional products for every season of the year, and making sure not only Halloween candy sells, but also Christmas candy, Easter candy, etc. And sometimes, if you don't get it perfectly, especially compared to the year-before comparison, you can have disappointing earnings results.
Are you starting to see the impact of high corn and other commodity costs in earnings reports for consumer non-durables stocks so far this earnings season?
Commodity costs are negatively impacting the margins of almost all food companies, but especially in the dairy industry where there has been the greatest cost inflation. Corn is being used to manufacture ethanol, which in turn has caused a rise in the feed costs for cattle and dairy cows, and as a result, raw milk prices have increased. This has caused earnings disappointments in two of my companies: Hershey Foods (HSY) and Dean Foods (DF), which are heavily exposed to milk costs.
Other commodity pressures include higher energy prices that increase costs not only during the manufacture of food products, but also in the transportation of the products to the retail shelves. In addition, higher energy prices increase packaging costs too.
Managements of better-run companies proactively implement productivity initiatives in order to maintain or improve the company's operating margin in a rising cost environment. However, in order to boost sales after implementing price increases, companies must increase marketing expenses, which often offsets the benefits derived from the productivity programs.
Hain Celestial has been the most successful company that I follow in implementing price increases starting in 2004 with a 4% price increase and continues to raise prices annually by 3% to 4%. Hain is rated a Buy.
Steven Ralston is Zacks' senior consumer products analyst.
Real-time market insights from Zacks Equity Research Analysts. Stocks featured recently include Northrop Grumman (NOC), Wal-Mart (WMT), ConocoPhillips (COP) and Del Monte Foods (DLM). To see their latest posts, click here.
Listen to the audio podcast for the Earnings Preview through Zacks' Audio Feature.
Several high profile massive losses, the "normal" S&P 500 firm has reported surprisingly good EPS growth. More...
4. ZACKS WEALTH MANAGEMENT
Every week, Zacks Wealth Management provides informative articles on how to build and protect wealth. Today’s topic is:
With our natural inclination towards fear and greed, we must ask ourselves whether we are "hard wired" to be good investors. Take a moment to review your investment decisions over the last ten years. Those decisions, for most people, ranged from chasing technology returns (after it was too late) to sitting in CDs earning 3%-4% while the market moved up over 30% in 2003. I used to like roller coasters as a kid but as I have grown older and wiser I have become more honest with myself. Now I follow a much more disciplined approach by letting Ben Zacks manage my assets.
The returns we saw, for example in 2002 when the market was down over 20% and up over 30% in 2003, creates situations in which we are driven by fear and greed. We are not "put together" to make the right investment decisions because we are mainly acting on emotions. These two years are what we know as "outliers" because they deviate beyond historical mean returns. I truly believe that in the long-run everything returns to its historical average. We have seen this occur within the technology sector, we are seeing that currently in real estate, and we will eventually see that in the international arena.
My best advice is to step back and count to ten before selling at lows and buying at highs. Or better yet, do not look at your portfolio on a daily basis. Do not lose the forest in the trees! What has happened in the past is water under the bridge - DO NOT TAKE ON TOO MUCH RISK NOW ATTEMPTING TO MAKE UP FOR LOSSES IN THE PAST! The market historically returns about 10% on an annual basis- not 20% (I refer you to Exhibit A - Sowood Capital, led by one of the brightest managers from Harvard, annualized 19% over the last ten years until it crashed just a couple of weeks ago).
The transparency of the stock market always allows us to see the risk/volatility on a moment by moment basis right in front us. Real estate, however, lacks this transparency and people presume that it appreciates in a straight line which is not the case. By being in the market, we can be rewarded with good returns by taking on risk. We are able to decide how much risk we want to take, and subsequently how much of a return we may receive.
Find an allocation that will work for your long-term objectives and risk parameters. Feel free to contact me at 888-600-2783 x 9251 to discuss an appropriate allocation for yourself.
Fritz Fiebig 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:
Beris (Rank #47 with $158,232)
FINANCIAL STOCKS: QUICK UPDATE
MackTheKnife (Rank #14 with $188,428)
XFMEDIA SHARE PRICE: CRUISIN' FOR A BRUISIN'? (XFML)
Jhigginbottom (Rank #25 with $171,236)
EDUCATE YOURSELF ON SALLIE MAE! (SLM)
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 generated 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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The performance of the Zacks Rank portfolios shown above for annual and year-to-date periods are the linked monthly total returns (price changes + dividends) of equal weighted hypothetical portfolios, consisting of those stocks with the indicated Zacks Rank, assuming monthly rebalancing and zero transaction costs. These are not the returns of actual portfolios. The hypothetical portfolios were created at the beginning of each month from Jan 1988 forward based on the values of the Zacks Rank available to Zacks' clients before the beginning of each month. The portfolios created monthly from 1988 through September 2006 exclude ADRS and are comprised of stocks that have the indicated Zacks Rank and were covered by at least two analysts at the time of the stocks inclusion in the portfolio. Starting in October 2006 and going forward, the portfolios are comprised of all stocks with the indicated Zacks Rank and do not exclude ADRs, which is more reflective of the list of stocks that customers will find on the Zacks web sites. 2007 returns are for the period of Jan 1 - Jun 30, 2007. These performance numbers have been audited from 1995 through 2003 by Autschuler Melovan, a division of American Express Financial.
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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