Wednesday - November 21, 2007
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The U.S. financial markets will be closed tomorrow, Thursday, in observance of Thanksgiving. Trading will resume on Friday, but the U.S. markets will close early at 1 p.m. ET on Nov 23.
Daily updates for Breakout Trader, Momentum Trader, Surprise Trader and Value Trader will be sent out today and Friday.
Zacks.com and Zacks Elite portfolio updates will be sent on Thursday morning and Saturday morning.
The next edition of Profit From the Pros (this newsletter) will be sent on Monday, Nov 26.
On behalf of everyone at Zacks, I hope you have a happy Thanksgiving.
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 based on the four main schools of investing: Aggressive Growth, Momentum, Growth & Income and Value.
Aggressive Growth - Sykes Enterprises (SYKE)
Sykes Enterprises, Incorporated (SYKE) is cashing in on the trend towards outsourcing. The company's third quarter exceeded estimates by close to 60%. Analyst agreement is perfect with all four analysts raising this year's numbers over the past month. For the current year, this helped push the consensus number to $1.00 from 89 cents per share 30 days ago. Analysts expect a further 13% gain next year to $1.13 per share. Read the analysis of SYKE now!
Growth & Income - K-SEA Transportation Partners LP (KSP)
K-SEA Transportation Partners LP (KSP) recently released its fiscal first-quarter report, which included the announcement that its distribution to unit holders for the first quarter increased by 2 cents, or 2.9%, to 72 cents per unit. KSP noted that this is the tenth consecutive quarter of increased distributions, and the twelfth increase since its IPO in January 2004. K-SEA is currently yielding 7.9%, more than doubling the industry average of 3.0%. The company's earnings per unit of 62 cents outperformed the year-prior 40 cents and eclipsed the consensus estimate by 68%. Two out of the four covering analysts increased forecasts for the year ending June of 2008 to $2.13 per share from last month's $1.92. Read the full analysis on KSP now!
Momentum - Dolby Laboratories (DLB)
Value - Thor Industries (THO)
Thor Industries (THO) is counting on the baby boomer demographic to drive its results well into the future. Consumers between 55 and 65 are the most likely to buy an RV and this group is growing at five times the rate of the overall population. The company just said that it has a record backlog at the end of the third quarter. The stock has not performed well which could spell opportunity for investors willing to search for value. 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.
"New Analyst Coverage"
I'm not a big fan of Broker Recommendations. This is largely because of their overwhelmingly bullish bias.
But Broker Recommendations have their place. From small individual investors to large institutional portfolio mangers, people do pay attention to them when making their investment decisions. (Although I should note that, in general, the changes in the average broker recommendation is a better indicator than the actual recommendation itself.)
Today I want to talk about companies that receive new analyst coverage.
One thing that generates analyst coverage is investor interest. How else can you explain the increased analyst coverage for Google - which hasn't even been public for three full years - compared to a company like GE, which has been public for approximately 40 years.
As new coverage is initiated, it becomes more visible, which in turn means potentially more demand (read higher prices).
This is often the case because analysts usually initiate coverage with a positive recommendation. (Why write a research report on a company not widely followed only to say it stinks?)
When it comes to companies with little to no analyst coverage, that one new recommendation can sometimes give portfolio managers the validation they need to build a position. (And the more money they can invest, the more they can potentially influence prices.)
The best way to use this information is to look for companies whose analyst coverage has increased over the last four weeks.
Simply look at the number of analyst recommendations at present, compared to the number of analyst recommendations four weeks ago. An increase in coverage is bullish whereas a decrease in coverage is bearish.
It's typically more bullish if the increase went from none to one or if the coverage was minimal to begin with. (Going from 25 to 26 isn't going to have the same impact because that 26th analyst isn't discovering something `new'.) But increased coverage is better than decreased coverage -- assuming the coverage is positive of course.
Here's a screen to try:
And for good measure ...
Here are three stocks from this week's screen (11/20/07):
Get the rest of the stocks on this list and see what new stocks the analysts are talking about. And don't stop there. Try finding companies with no coverage four weeks ago that are finally being looked at today.
Most screeners won't let you search for the number of analysts covering a stock, let alone comparing the amount of coverage they had weeks or even months ago. The same goes for changes in the Average Broker Rating and Estimate Revisions. But you can with the Research Wizard. You can also backtest it all.
Find out how to pick the right stocks right now by learning more about our free trial to the Research Wizard stock picking and backtesting program. 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
Freddie Mac (FRE) reported a $1.2 billion write-down for credit losses and total GAAP mark-to-market losses of $3.6 billion. The third-quarter losses from the government- chartered company added to the growing amount of recorded losses for multiple banks and financial firms.
These losses have greatly increased the uncertainty about 2008 profits.
For example, out of the approximate 400 banks and thrifts within the Zacks Rank universe, brokerage analysts have cut 2008 profit projections on 202 of them. At least 10 analysts have lowered their forecasts on BankAtlantic (BBX), Bank of America (BAC), Citigroup (C), National City (NCC), Prosperity Bancshares (PRSP), Synovus (SNV), TCF Financial (TCB), Wachovia (WB) and Washington Mutual (WM).
More. . .
Cumulatively, 110 earnings estimates have been revised up for next year and 568 have been cut, a Zacks Revision Ratio of 0.19. To put this number in perspective, the Revisions Ratio for the entire Zacks Rank universe is 1.11, meaning more earnings estimates have been raised than lowered.
The pessimism is not just limited to banks and thrifts. Earnings estimates for 2008 are being revised on credit card companies (eight analysts have slashed forecasts on Capital One (COF)), mortgage lenders (seven analysts have cut forecasts on Countrywide Financial (CFC)) and investment banks (11 analysts have lowered forecasts on Merrill Lynch (MER)).
Bluntly stated, brokerage analysts are not sure how bad profits are going to be next year for the financial sector.
How did so many financial firms get themselves into such a mess?
The answer starts with the housing industry. Historically low interest rates and lax lending standards prompted many people to either become first-time homebuyers or trade up. As demand for housing rose, so did demand for mortgages. Seeing an opportunity to expand their profits, banks and other financial companies beefed up their mortgage teams.
There is nothing wrong with providing mortgages to qualified homebuyers, but there is a problem when lending standards are relaxed. As Paul McCulley, managing director at PIMCO puts it, lenders gave homebuyers a call option without requiring them to put any skin into the game. In other words, homebuyers were given interest only mortgages (a call option to buy the house at a set price) with no money down.
Compounding matters were mortgage calculations that approved borrowers for a more expensive house than they should purchase, real estate agents who encouraged non-traditional loans and consumers who didn't bother to calculate whether or not they could afford the mortgage once it reset.
At the same time, financial professionals concocted new ways to package loans and provide funding.
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 Corel Corp. (CREL), American Tower (AMT), Caterpillar (CAT) and Amdocs (DOX). To see their latest posts, click here.
Listen to the audio podcast for the Earnings Preview through Zacks' Audio Feature.
We would favor things that benefit from the falling dollar; we think it still has more to decline. More...
The median firm saw EPS growth of 11.3%, even as total net income advanced just 1.9%. 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:
>> JAVA'S MARKET MUSINGS #183 <<
ETF STRATEGIST: SELL CHINA BUY FXP!
TARGET ANNOUNCED HUGE BUYBACK (TGT)
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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We hope you enjoyed this issue of "Profit from the Pros", And we look forward to visiting with you again next week.
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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.
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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