Thursday - November 29 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 - Greenhill & Co. (GHL)
Greenhill & Co. (GHL) is experiencing superb growth. Its latest quarter was a thing of beauty, exceeding estimates by over 50%. The past two quarters have averaged a 66% positive surprise. Earnings estimates for this year have soared 86 cents to $4.05 per share. The stock has an unbelievable 72% ROE and a 28.4% net profit margin. Read the full analysis on GHL now!
Tempur-Pedic International, Inc. (TPX) recently declared a fourth-quarter dividend of eight cents per share, which will be paid on December 14, 2007 to stockholders of record as of November 30, 2007. TPX is currently yielding 0.9%. The Zacks #1 Rank (Strong Buy) company has seen Wall Street increase earnings estimates after TPX released its third-quarter report, which included earnings per share of 49 cents. The earnings result surpassed the year-prior 34 cents and eclipsed the consensus estimate by 9%. Over the next 3 - 5 years, Tempur- Pedic's earnings per share are expected to grow by 13%. The company's return on equity (ROE) of 14% hovers above the industry average of 11%. Read the full analysis on TPX now!
Owens-Illinois, Inc. (OI) has once again beaten analyst earnings estimates, reporting another strong quarter on Oct 24. The stock price recently surpassed a key level of resistance at $44 and looks well positioned for another run higher. Read the full analysis on OI now!
Coca-Cola FEMSA's (KOF) earnings are definitely not going flat. The company posted a 41% positive surprise in its quarter ended September 30. Over the past 60 days, this year's earnings estimates have increased 26 cents to $3.22 per share. The stock is attractively valued at a price/book of 2.1, below the industry's 3.4. The ROE is 15% and the net margin is a solid 10%. Read the full analysis on KOF now!
2. 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:
TRADEKING1'S ROUND TABLE 11/07/2007
Having learned over the years to trust valuations in determining where the best stock buys in the market exist, Beris Vidovic (aka Beris) has developed into a wiser investor. Trading on momentum and buzz can be rewarding, but he duly points out: "Throughout the years, I realized that I am just a small drop in the vast market, and that valuations are there for reason. And luckily I started reasoning."
Beris' current portfolio includes names like Fronteer Development (FRG), Statoil (STO), Copel (ELP) and Daktronics (DAKT).
What specifically do you look for in a stock before purchasing it?
First thing first: valuations. In my past life I didn't care much about fundamentals and stock valuations. I was trading any stock, without paying attention to their outlook, growth potential, valuations, sector rotations or favorable industry position timing. The only thing that mattered to me is to be a part of a momentum, to trade hyped stocks, which generated a lot of buzz, endless discussions, and enormous volatility.
Well, you know what happens when you are on the wrong side of that volatility. And that happened to me so many times, just like to many others, I am sure. But that's the nature of this game: eat or be eaten.
My switch to valuations didn't happen suddenly and immediately, but over time, after realizing that you can't beat the big players and institutions (especially hedge funds nowadays) just by wanting to be a big shot. If all played the market that way, guessing, throwing the darts, buying on impulse, hype and emotion, then it wouldn't be a market - it wouldn't depend on so many factors in economy - it would be a casino gamble.
And I'm sure that many believe that it is just that. And I am sure that they are "rewarded" just like that, for such opinion. I know I was. But throughout the years, I realized that I am just a small drop in the vast market, and that valuations are there for reason. And luckily I started reasoning.
3. ZACKS EQUITY RESEARCH
Third-quarter earnings reports and accompanying guidance from several health insurers have been bullish. Within the past two weeks, Aetna (AET), AMERIGROUP (AGP), Humana (HUM) and Molina Healthcare (MOH) exceeded expectations and raised their forecasts.
Health insurers are benefiting from continued increases in enrollment and higher premiums. Enrollment has been rising due to Medicare Part D, Medicaid programs and growth in nonfarm payrolls. At the same time, companies have been able to charge higher premiums, adding to their topline growth.
This said, the ability of these firms to improve their cost structures was mixed during the third quarter. Health insurers use the medical expense ratio (MER) to measure how much of their premium revenues are spent on covering doctor visits and medical procedures. (Lower medical expense ratios are preferable from a profit standpoint.)
More. . .
Molina Healthcare achieved a 40-basis point decrease (down to 83.7%) in its MER and Humana realized a 280-basis point reduction in its MER (down to 81.3%). Meanwhile Aetna and AMERIGROUP reported a slight increases (up to 79.4% and 82.9%, respectively. The ability to contain operating expenses relative to revenues was also mixed among the group.
Nonetheless, the increase in revenues was high enough to allow the four firms to top earnings expectations and raise full- year 2007 guidance. AET, AGP and HUM also provided initial 2008 guidance that was above the consensus estimates.
AET projects profits to total $4 per share next year, a 15% increase over 2007. Nearly all of the covering analysts raised their forecasts, causing the 2008 consensus estimate to rise 15 cents to $4.03 per share.
AGP guided for 2008 earnings of between $2.45 and $2.60 per share, or about 20% growth. Revisions by all of the covering brokerage analysts pushed the consensus estimate 20 cents higher to $2.54 per share.
HUM anticipates earning between $5.30 and $5.50 next year, an approximate 13% increase. The majority of covering brokerage analysts raised their forecasts, pushing the consensus estimate 23 cents higher to $5.38 per share.
MOH did not provide guidance for 2008, but eight of the 10 covering brokerage analysts raised their forecasts following the company's recent report. The new consensus estimate calls for profits of $2.34 per share, an increase of six cents from a month ago and representing growth of just under 20%.
AGP and MOH are Zacks #1 Rank ("strong buy") stocks. AET is a Zacks #2 Rank ("buy") stock. HUM is a Zacks #3 Rank ("hold") stock, reflecting a lack of the same agreement among covering analysts as has occurred among the other three stocks.
To read the complete Industry Rank Analysis, click here.
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 Comstock Resources (CRK), DryShips (DRYS), Quilmes Industrial S.A. (LQU) and Lear Corporation (LEA). To see their latest posts, click here.
4. 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: Upgrades and Revisions
This strategy focuses primarily on Positive EPS Estimate Revisions and Brokerage Rating Upgrades. Over the last 20 years Zacks Investment Research has proven that earnings estimate revisions are the most powerful force driving stock prices. Studies have also shown that stocks receiving upward EPS revisions tend to receive additional upward revisions in the future. Then consider that stocks receiving these upward revisions generally have brokers upgrading their Ratings, which is also a proven mover of stock prices. There are other parameters to this strategy, but the Rating Upgrades and positive EPS Revisions are the two powerful active ingredients.
ACE Limited (ACE) announced solid third-quarter numbers in late October, which helped the insurer secure a spot on the Upgrades and Revisions profit track. Excluding items, earnings per share of $2.06 beat the consensus by more than 13%, surpassing this screen's requirement of a 10% surprise or more. Over the past five years, ACE Ltd. has enjoyed earnings per share growth of more than 27%, bettering this profit track's demanding parameter of a historical growth rate at or greater than 17%. Furthermore, earnings estimates for this year are up approximately 2.8% from one month ago. Given such performance in the present and the past, ACE Ltd. appears to have good momentum moving forward. Continue your research on ACE now!
Fairchild Semiconductor (FCS) experienced earnings per share growth of more than 22% over the past five years, fulfilling one of the main parameters for this profit track. Over the past month, analysts have boosted earnings estimates for this year by approximately 10.4%. For its third quarter, Fairchild Semiconductor reported adjusted earnings per share of 27 cents, eclipsing the consensus by as much as 35%. Sales advanced 2% to $426.8 million. Sales were at the high end of its guidance range thanks to robust computing and headset demand as well as strong turns orders. Continue your research on FCS now!
Priceline.com (PCLN) is scheduled to report its third-quarter results after the bell on Thursday. In its second quarter, the online travel-services company reported earnings per share that beat the consensus by 25% with revenue that advanced year over year. In addition to the above-mentioned earnings surprise, Priceline.com qualifies for the Upgrades and Revisions profit track with EPS growth of almost 72% over the past five years. Continue your research on PCLN now!
Textron Inc. (TXT) announced third-quarter earnings per share from continuing operations of 95 cents in mid October, marking a positive surprise of almost 22% above the consensus. Revenue advanced 15%. In addition, the company, whose brands include Bell Helicopters and Cessna aircraft, boosted its 2007 outlook. (Textron executed a two-for-one stock during the quarter.) This member of the Upgrades and Revisions profit track has sustained a strong operating performance for a while now, as evidenced by a five-year EPS growth rate of almost 21%. Earnings estimates over the past month are up 6.4% for this year. Continue your research on TXT 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 shows how to find winning stocks in the hottest sector. Click here.
5. ZacksElite.com TIMELY BUY of the WEEK
Here you'll discover a Zacks #1 Rank stock hand selected by Ben Zacks to outperform the market over the next 30 to 90 days. This week's Timely Buy is...
Synaptics Incorporated (SYNA) has developed a very nice upward trend in the last six months, moving from a low of $36 per share to current prices above the $60 level. During this period prices have been very committed to holding above their 21-day moving average and six-month trend line, having touched this area on numerous occasions. Each time prices responded positively and rebounded higher.
On Oct 25 & 26 the stock price once again butted into these dimensions of support. This time however, due to some assistance from another strong quarter, the reaction was substantial. Prices made a quantum leap forward and established a new 52-week high, trading up to $62.
What we have now is a fairly challenging trading situation from a technical perspective, because many investors may be hesitant to initiate a new position after such a big jump in price.
A lot of traders will likely be looking to identify a strong area of support and buy as close to that level as possible. In this formation two locations look promising.
The first area is at $54, which had previously acted as resistance. As you can see from the chart it took a fair amount of persistence for prices to finally hurdle this barrier and advance higher. This should provide a nice base of support if prices do head lower and retrace some of the old territory.
If prices continue to advance, however, another strategy would be to buy the high and look for a quick pop in order to give your position some immediate comfort and breathing room. When securities establish new highs they tend to generate a lot of attention. This can often times fuel optimism and participation, and push prices even higher. Look for the old high to create another support level.
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 produced the following results for investors:
And just as importantly, our #5 Ranked stocks (Strong Sells) have 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 60,000 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.
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.
To contact us by mail:
Zacks Investment Research
To unsubscribe from receiving "Profit from the Pros" e-mail newsletter, click here.