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Zacks #1 Stocks on the Move 09/27/2016

Company Name Symbol %Change
PERFORMANT F PFMT
15.39%
SYNNEX CORP SNX
9.83%
ENERGY RECOV ERII
7.35%
RICE MIDSTRE RMP
5.68%
PCM INC PCMI
5.46%

Analyst Blog

BlackRock and 4 Other Asset Managers to Bet on Right Now

Posted Tue Sep 27, 05:51 pm ET

by Zacks Equity Research

Despite the persisting global concerns, the U.S. economy is showing steady improvement. This, combined with growing demand for personalized investment products is expected to keep growth prospects for the asset management industry intact.

While asset managers are constantly facing several headwinds like stringent regulatory scrutiny, fee pressure and rising costs, demand for newer investment products at lower costs continue to support the industry. Further, with the increased use of technology, asset managers have been able to improve efficiency and operate profitably.

With nearly $5 trillion assets under management (AUM), BlackRock, Inc. BLK is a good stock to bet in the asset management space. The company’s strong global presence, along with improving AUM, expanding ETF market share and inorganic growth strategy, positions its stock well for a decent growth.

Further, this Zacks Rank #2 (Buy) stock has gained more than 22% over the last year.

In addition, analysts are optimistic about BlackRock’s prospects. This is evident from four upward earnings estimate revisions (as against no downward revisions) witnessed by the stock over the last 60 days, for both 2016 and 2017.

Also, over the trailing four quarters, the company delivered an average positive earnings surprise of 2.1%.

4 Other Asset Managers to Buy Now

Apollo Global Management, LLC APO has gained more than 6% over the last six months. The stock witnessed six upward estimate revisions over the last 60 days for both 2016 and 2017. The Zacks Consensus Estimate for the stock surged 142% to $1.67 and 10.3% to $1.92 for 2016 and 2017, respectively. It currently holds a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Another Zacks Rank #1 stock in investment management space is Virtus Investment Partners, Inc. VRTS. The stock has gained over 26% over the last six months. Further, over the past 60 days, the stock witnessed two upward estimate revisions for both 2016 and 2017. The Zacks Consensus Estimate for the stock increased 2.3% to $5.26 and 11.3% to $6.02 for 2016 and 2017, respectively.

Federated Investors, Inc. FII witnessed two upward estimate revisions for 2016 and one upward estimate revision for 2017, over the last 60 days. The Zacks Consensus Estimate for the stock rose 3.2% to $1.96 and 5% to $2.10 for 2016 and 2017, respectively. This Zacks Rank #2 stock has increased more than 5% over the last six months.

With a Zacks Rank #2, Principal Financial Group Inc. PFG stock has jumped nearly 26% over the last six months. Over the last 60 days, the stock witnessed four upward estimate revisions for 2016 and three upward revisions for 2017. The Zacks Consensus Estimate for the stock rose 2.8% to $4.38 and 2.2% to $2.10 for 2016 and 2017, respectively.

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Federal Reserve Plans to Curb Banks' Commodity Holdings

Posted Tue Sep 27, 05:41 pm ET

by Zacks Equity Research

It seems that tougher days are ahead for banks. Last week, the Federal Reserve proposed a new rule that will make physical commodity trading for banks more costly.

The Fed has invited public comments on the proposed rule that aims to tighten the existing regulations and restrict the major U.S. banks’ ownership in physical commodities assets. Notably, the comments will be accepted till Dec 22, 2016.

Per the Fed officials, 14 banks, including Morgan Stanley MS and The Goldman Sachs Group, Inc. GS, are likely to be affected by the proposed rules.

Additional Capital; Limitations on Trading Activity

Based on a broad review of banks’ physical commodity activities and comments on the Fed’s 2014 advance notice of proposed rulemaking, the regulator made several new proposals that are likely to make these activities more expensive for banks.

The Fed’s proposed regulation requires banks to hold additional capital for activities related to physical commodity trading. The Fed officials expect this will lead the banks to hold around $4 billion (in total) more capital for these activities.

Since 2003, the Fed had allowed 12 banks to foray into the physical commodities trading operations. Notably, as per the “grandfather” provision of the Gramm-Leach-Bliley Act in 1999, a firm that was not a bank holding company and converted to a financial holding company after Nov 12, 1999, is permitted to continue conducting activities related to the trading, sale, or investment in commodities that were not permitted for bank holding companies engaged in any of such activities as of Sep 30, 1997 in the U.S.

These grandfathered firms are allowed to engage in the transportation, storage, extraction, and refining of commodities. At present, only two financial holding companies qualify for these grandfather rights – Goldman and Morgan Stanley – that became bank holding companies in 2008. Hence under the proposed rules, these banks will be required to hold 300% of their physical commodity holdings.

In addition, the proposed rule plans to restrict banks’ trading activities on physical commodities. Also, the Fed intends to revoke authorization given to banks for running power plants and remove copper from precious metal category, which banks are allowed to “own and store.”

Further, the new regulation proposes public disclosure requirements for banks that are engaged in physical commodity trading.

What’s the Necessity for New Regulations?
 
The primary goal for these new proposals is to force the banks to protect themselves more against environmental hazards, which may lead to significant liabilities. The Fed is listing significant risks that banks might have to face, which in turn could destabilize the entire financial system. It cited the 2010 Deepwater Horizon oil spill in the Gulf of Mexico and the 2011 Fukushima nuclear power plant meltdown in Japan as examples.

Apart from this, the regulators have put efforts to contain physical trading activities by banks earlier as well. These efforts stem from a 2014 Senate Committee report that probed the extent of banks’ involvement in these types of activities. The Senate report had specifically mentioned JPMorgan Chase & Co. JPM, Morgan Stanley and Goldman as the companies which amassed huge stakes in commodity market, thereby changing its dynamics (read more: Senate Probe: Banks Exploit Commodity Market).

Moreover, banks were accused of taking undue advantage in commodity markets as they operated mines, owned power plants, warehoused aluminum and shipped oil. At the same time, they also operated trading desks for these commodities. Hence, this led to conflict of interest.

Road Ahead for Banks

Banks have been scaling back their physical commodity trading activities for quite some time now. Last year, Morgan Stanley divested its oil business to Castleton Commodities International LLC, while moving away from metal trading operations. Earlier in 2014, JPMorgan sold parts of its physical commodities business to Mercuria Energy Group Limited.

Despite selling its metals warehousing unit, Metro International Trade Services LLC, in 2014 and its Colombian mining operation in 2015, Goldman continues to maintain significant exposure in the commodity trading. These also remain core part of its business.

As per Natural Gas Intelligence (a trade publication), Goldman’s commodity unit – J. Aron – traded more natural gas than both Chevron Corp. CVX and Exxon Mobil Corp. XOM combined, in second-quarter 2016. So, Goldman is expected to be hit hard by the proposed new regulations.

Therefore, given the proposed regulations, banks’ physical commodity trading activities are expected to face more challenges. Already facing a tough operating backdrop, banks’ revenue growth is estimated to be hampered further.

Nevertheless, the increased regulations on banks’ physical commodity operations will go a long way in improving insight and aiding proper oversight. This would also alleviate risks to the U.S. financial system to some extent.

Currently, both Goldman and Morgan Stanley carry Zacks Rank #3 (Hold), while JPMorgan carries a Zacks Rank #4 (Sell). If you wish to see better-ranked stocks in finance as well as other sectors, you can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Wells Fargo Woes Mount, Faces Class Action by Shareholders

Posted Tue Sep 27, 04:29 pm ET

by Zacks Equity Research

Wells Fargo & Company’s WFC legal troubles stemming from the sales scandal continue to mount. Barely a few days after the bank was hit with a $2.6B class action by former employees, the company faces a shareholder class action lawsuit. The latest lawsuit accuses the bank of misleading the investors regarding the financial condition of the company and success of its sales strategy.

On Sep 26, law firm Robbins Geller Rudman & Dowd LLP announced that a class action has been launched on behalf of all shareholders of Wells Fargo who bought the company’s stock between Feb 26, 2014 and Sep 15, 2016.

In Brief

The complaint filed in San Francisco federal court targeted ‘Cross-selling’, which has been Wells Fargo’s key strength in the recent years and was at the heart of the regulators’ claim of “widespread illegal practice” of the bank.

Apart from the bank, defendants include John Stumpf – Chairman and CEO of Wells Fargo, Chief Financial Officer John Shrewsberry and Carrie L. Tolsted, the now-retired executive who headed company’s community banking unit.

The lawsuit alleged that Wells Fargo failed to reveal that its cross-selling efforts to retail customers were not aimed to meet customers’ need and satisfaction but were rather “the product of a carefully designed system”. These efforts resulted in fraudulently opening millions of deposit and credit card accounts without customers’ knowledge in order to drive fee income for Wells Fargo and incentives for its employees as well as defendants.

Wells Fargo is also accused of failing to disclose that an ongoing internal probe had determined that for years employees were engaged in the illegal practice of opening accounts that finally resulted in over 5,000 employee terminations.

The lawsuit claimed, “Stumpf concealed the fact that the Company had made substantial findings of the unlawful activity and actual fraud in its Community Banking segment as part of its investigation, which not only exposed millions of customers to unlawful fees and potential identity theft, but put the Company in the crosshairs of federal investigations.”

As a result of false statements and omission of material information by Wells Fargo, the company traded at inflated price. Investors suffered losses as shares plunged following the bank’s $190 million settlement on Sep 8 to resolve regulators’ claims of illegally opening millions of unauthorized accounts.

According to the complaint, “Between September 8, 2016 and September 16, 2016, the Company’s stock price declined 9%, from a close of $49.90 per share on September 8, 2016 to a close of $45.43 per share on September 16, 2016, as information about defendants’ conduct and its impact on Wells Fargo’s operations reached the market, inflicting billions of dollars of harm on plaintiff and other Wells Fargo shareholders.”

While no amount has been specified, the lawsuit is seeking damages including interest.

Among other legal woes tied with the scam, recently, the company’s board has been slammed with a lawsuit alleging breach of duty to investors. Also, three customers in Utah have filed a lawsuit against the bank for fraud, breach of contract and invasion of privacy.

Bottom Line

Last week, Stumpf apologized for unethical sales practices and specifically stated that there was no “no orchestrated effort or scheme” by the bank to promote the wrongful sales practices when he testified before the U.S. Senate Banking Committee. Notably, committee members including Democrat Elizabeth Warren demanded Stumpf’s resignation.

The apology from the CEO, however, did little to calm the public and political outrage against Wells Fargo – the once largest bank of the nation that earned admiration for steering well through the onslaughts of the financial crisis.

Since the announcement of the settlement on Sep 8, shares of Wells Fargo lost around 10%. Year-to-date, the company’s shares fell more than 17%, compared with around 5% decrease in the KBW Nasdaq Bank Index.

 

Wells Fargo currently carries a Zacks Rank #4 (Sell).

Stocks Worth Considering

Banks that are worth a look include Comerica Inc. CMA, State Street Corp. STT and Enterprise Financial Services Corp. EFSC.

Comerica currently carries a Zacks Rank #2 (Buy) and has been witnessing upward estimate revisions. Over the past 60 days, the Zacks Consensus Estimate for 2016 advanced nearly 2% to $2.72 per share. Also, the stock gained over 9% year to date.

Currently carrying a Zacks Rank #2, State Street has been experiencing upward estimate revisions over the past 60 days. The Zacks Consensus Estimate for 2016 advanced more than 2% to $5.03 per share. Year to date, the shares of the company gained around 6%.

Enterprise Financial, sporting a Zacks Rank #1 (Strong Buy), has been witnessing upward estimate revisions over the last 60 days. The Zacks Consensus Estimate for 2016 advanced 6% to $2.30 per share. Year to date, the company’s share price increased over 10%.You can see the complete list of today’s Zacks #1 Rank stocks here.

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Defense Stock Roundup: AAR Corp Tops Earnings; Lockheed Ups Dividend by 10.3%

Posted Tue Sep 27, 04:14 pm ET

by Zacks Equity Research

Conflicting socio-economic and political events have hampered the global economy of late, dealing a fresh blow to the stock market last week. For instance, while oil prices rallied on hopes of a reduction in output ahead of an informal OPEC meeting in Algeria, bank shares took a beating owing to capital issues at Deutsche Bank. Consequently, majority of the benchmark indices declined in the last five trading sessions.

On the contrary, the picture was quite rosy in the aerospace and defense sector. In fact, both the S&P 500 Aerospace & Defense (Industry) index and Dow Jones U.S. Aerospace & Defense Index gained a respective 2.5% and 1.8% during the last five trading sessions.

Among last week’s highlights were AAR Corp.’s AIR better-than-expected first-quarter fiscal 2017 results and Lockheed Martin Corp.’s LMT announcement of a dividend hike. Meanwhile, a generous flow of contracts from the Pentagon’s daily funding session made the week eventful for defense primes like Lockheed Martin, Raytheon Company RTN, General Dynamics Corp. GD and Northrop Grumman Corp. NOC.

(Read Defense Stock Roundup for Sep 21, 2016 here.)

Recap of the Week’s Most Important Stories

1. AAR Corp., a leading supplier of aftermarket products and services to the global aerospace/aviation industry, reported first-quarter fiscal 2017 earnings of 29 cents per share, outpacing the Zacks Consensus Estimate by 3.6%. Quarterly earnings also jumped 26.1% year over year.

Moreover, the company’s revenues of $404.8 million surpassed the Zacks Consensus Estimate by 1.2% and improved 4.7% from the year-ago figure. Further, during the quarter, AAR Corp. paid dividend worth $2.6 million and repurchased shares worth $14.8 million. (Read more: AAR Corp Beats Q1 Earnings and Revenue Estimates)

2. Pentagon’s largest defense contractor, Lockheed Martin opened its account this week by grabbing a modification contract worth $395 million for the development of the GPS III Space Vehicles (SV) 09 and 10. Work, expected to be completed by Aug 8, 2022, will be executed at Littleton, CO. The contract was awarded by the Space and Missile Systems Center, Los Angeles Air Force Base, CA.

Notably, GPS III is the next-generation satellite version of original GPS and it promises to deliver signals three times more accurate than the current GPS spacecraft. The satellite’s launch is expected sometime in the first half of 2017, indicating a delay of two years from the original schedule. (Read more:Lockheed Martin Wins $395M Deal for GPS III SV 09 and 10)

This defense giant also came in news, when its Sikorsky Aircraft business unit nabbed a $232.1 million modification contract from the U.S. Navy for the procurement of two CH-53K system demonstration test article aircraft. Work on the contract is scheduled to be complete by Feb 2020.

CH-53K has the capacity to carry more than three times the external load carrying capacity of its predecessor, CH-53E, which makes it one of the world’s premier heavy lift helicopters. In addition to providing protection against ballistics, this copter incorporates a lightweight armor for shielding both passenger and crew. (Read more: Lockheed's Sikorsky Wins $232M Deal for CH-53K Choppers)

Meanwhile, Lockheed Martin declared a hike in its quarterly dividend. In the fourth quarter of 2016, the company will pay a dividend of $1.82 per share, indicating a 10.3% improvement from the previous payout of $1.65. This marks the 14th year in a row that the defense prime has raised the quarterly dividend rate by above 10%.

Moreover, management authorized an additional share repurchase of $2 billion, bringing the company’s total authorization to $4.3 billion for future share repurchases under its current program. These announcements indicate the company’s strong capital structure. (Read more: Lockheed Martin: Dividend Up 10.3%, Share Buyback by $2B)

3. Aerospace and defense behemoth General Dynamics’ business unit, General Dynamics Information Technology, secured a five-year contract, worth $430 million, from the U.S. Census Bureau for providing support to the 2020 Census Questionnaire Assistance (CQA) program.

Under the contract, the CQA program can utilize the General Dynamics Information Technology’s Customer Experience Platform solution (CXP) to aid its contact-center systems and operations. Notably, CXP is the first FedRAMP-compliant cloud-based contact center solution, which has the reputation of having successfully managed more than 75 million census forms and 11.5 million citizen contact operations for the 2010 census (Read more:. General Dynamics' Unit Wins $430M U.S. Census Deal)

Another General Dynamics subsidiary, Electric Boat Corp. secured a modification contract worth $105.5 million, for Phase 2 of the Sea Dragon Submarines Development program. Electric Boat’s SSN584 Seadragon is a nuclear-powered skate-class attack submarine, which was launched in 1954 and was earlier used extensively by the U.S. Navy.

The contract covers test planning efforts to support ground and sea-based testing of the submarine. Given that General Dynamics is one of the two contractors in the world equipped to build nuclear-powered submarines, this contract is sure to contribute to the company’s growth trajectory. (Read more: General Dynamics' Electric Boat Wins $105M U.S. Navy Deal)

4. Another defense major, Raytheon recently won a contract, worth $254.6 million, from the U.S. Navy for the Joint Precision Approach and Landing System (“JPALS”). The JPALS is an all-weather, all-mission landing system based on real-time differential correction of the Global Positioning System (GPS) signal. Per the contract, Raytheon will design, develop, manufacture, integrate, demonstrate and test the JPALS.

The company will continue the development of eight existing engineering development models (EDMs), and deliver two additional EDMs to support the initial operational requirements for F-35B/C, and MQ-25 test and primary operational supplies aboard nuclear aircraft carriers and amphibious assault ships.Work is scheduled to be complete by Sep 2022. (Read more: Raytheon Wins $255 Million Navy Contract for JPALS)

5. Northrop Grumman was awarded a contract worth $149.7 million by the U.S. Navy to provide the required hardware, production test stations and technical support to incorporate the Large Aircraft Infrared Countermeasures (“LAIRCM”) on the combat aircraft. These airplanes will be used by the U.S. Navy, Army, Marine Corps and Special Operations Command, and will also be sold to the government of Australia.

Per the contract, the hardware to be procured includes weapon replaceable assemblies and support equipment. Notably, LAIRCM is an active countermeasure that can automatically detect a missile launch and currently Northrop is the only manufacturer of LAIRCM (Read more: Northrop Unit Wins $150M Navy Contract for LAIRCM).

Performance

The major defense stocks put up strong show last week, with all the companies gaining more than 0.6%. Rockwell Collins Inc. COL was the biggest gainer with a 3.41% rise in its price, while Raytheon lagged behind the rest.

Over the past six months too, most of the stocks in this sector have been on the rise, barring Rockwell Collins and The Boeing Co. BA. Notably, L-3 Communications Holdings, Inc. LLL witnessed the maximum increase, followed by General Dynamics.

The following table shows the price movement of the major defense players over the past five trading days and during the last six months.

CompanyLast WeekLast 6 Months
LMT2.10%12.08%
BA2.18%-0.55%
GD1.32%17.62%
RTN0.64%13.20%
NOC2.31%11.35%
COL3.41%-7.79%
TXT0.75%8.80%
LLL2.42%26.93%

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4 REITs for Steady Returns Amid Flaring Volatility

Posted Tue Sep 27, 04:09 pm ET

by Zacks Equity Research

The U.S. presidential election has historically pushed up stock market volatility and we see no respite from it this time either. In fact, standing six weeks ahead of the election, several political experts’ forecasts now seem challenged with candidates appearing neck-and-neck.

Amid all these, volatility is indeed spiking. The fear-gauge CBOE Volatility Index (VIX) flared up by 18% on Monday to settle at 14.50. In the days to come, this swing is expected to continue with debate season heating up and the race getting tighter.

If this is not enough, we also have Fed-induced uncertainties that are well adding fuel to market volatility. In fact, despite calming the nerves of stock market participants with a steady rate stance this month and pulling down rate expectations for the years ahead, the Fed has pretty much kept alive the chance of a rate hike this year, with its acknowledgement of a pickup in economic growth. It is, however, gathering “further evidence of continued progress toward its objectives” before making the call. (Read: Fed Holds Off Rate Hike for Now: Top 5 Gainers)

Apart from this, volatility in oil prices has sworn not to mellow down. On the one hand, Noureddine Bouterfa, the oil minister of Algeria, kept hopes afloat of fixing a production limit in the meeting this week. On the other hand, Saudi Arabia officials anticipate that such a pact will fail to occur. (Read: 5 Oil Stocks to Buy as Output Freeze Hopes Rise)

How to Brave the Blues?

No doubt, market volatility is unavoidable. But for an investor, weathering this instability is of prime importance. Rather than distancing oneself from the market or waiting on the sidelines, braving this market volatility would indeed be a smart move. This might appear a daunting task at first, but an apt strategy would be to resort to income investing. Then also, the chosen stocks must be consistent performers. This is because the long-term value of a company is not affected by short-term instability.

Why Bet on REITs?

Speaking on income investing, the dividend aspect of a stock is crucial. Dividends are by far the biggest enticement to invest in REIT stocks because they offer stable income with a good inflation upside shield. In fact, as of Jul 29, the dividend yield of the FTSE NAREIT All REITs Index was 3.73%, which clearly outpaced the 2.13% dividend yield offered by the S&P 500 as of that date. Over long periods too, REITs have outperformed the broader indexes with respect to dividend yields.

So, here we have handpicked four REITs that have high dividend yields. On top of this, these stocks have been holding up well. Plus, their favorable Zacks Rank #2 (Buy) implies that they are witnessing positive estimate revisions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MFA Financial, Inc. MFA operates as a real estate investment trust primarily engaged in the business of investing in mortgage-backed securities.

The company has exceeded the Zacks Consensus Estimate in three of the last four quarters and matched expectations in the other. It has an average surprise of 6.87% and dividend yield of around 10.65%.

Arbor Realty Trust Inc. ABR is a specialized real estate finance company investing in real estate-related bridge and mezzanine loans, preferred equity, mortgage-related securities and other real estate-related assets.

The company has been a consistent performer, having beaten the Zacks Consensus Estimate in three out of the trailing four quarters, with an average surprise of 32.3%. It has a dividend yield of 8.58%.

Omega Healthcare Investors Inc. OHI invests in income-producing health care facilities, principally long-term care facilities, with the objective of profitable growth and further diversification of the investment portfolio. The company is based in Hunt Valley, MD.

A steady performer, Omega Healthcare surpassed the Zacks Consensus Estimate substantially in each of the past four quarters, with an average surprise of 4.74%. The dividend yield of the company is 6.58%. The stock enjoys a current cash flow growth of 31.66%, which is well ahead of the industry average of 15.84%. Also, projected sales growth is 18.84% compared with the industry average of 5.34%, which is encouraging.

Senior Housing Properties Trust SNH is a Maryland-based real estate investment trust that invests in senior housing income producing real estate, including senior apartments and assisted living, congregate care and nursing home properties.

Senior Housing Properties exceeded the Zacks Consensus Estimate in three of the last four quarters and matched our expectations in the other. It has an average surprise of 1.61% and a dividend yield of 6.63%.

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3 Stocks to Watch After Donald Trump's Debate Performance

Posted Tue Sep 27, 04:02 pm ET

by Supriyo Bose

Last night, the first of the three presidential debates witnessed a high-octane face-off between Democrat ex-Secretary of State Hillary Rodham Clinton and Republican Donald Trump. As the discussions traded barbs and skeptical anecdotes, it displayed two starkly different personalities and their visions for the nation.   

The debate also served as a precursor to the likely changes in the framework of the government policies and offered a broader hint to the impending changes in the financial markets as a whole and the stock market in particular. Investors across the globe have already started to weigh the pros and cons from the one-on-one political rendezvous to fathom its effect on various industries. Let us also take a closer look at the broad takeaways from the debate to identify potential game-winning stocks, should Trump emerge as the victorious candidate in the Presidential election.

Focus on Defense

In order to combat the barbaric terrorist acts and radical extremist groups like the Islamic State, Trump has urged to increase the defense expenditure for a bigger Army and Marine Corps, improved missile defense systems and more ships and fighter jets. At the same time, he has pledged to end the across-the-board budget cuts known as sequester to increase funding for future defense needs.

Trump is widely viewed as not being risk averse and is likely to advocate an aggressive foreign policy that showcases military strength. Such an oblique reference was also made in the debate when Clinton highlighted the episode wherein Trump wanted the U.S. forces to fire on Iranian boats that had taunted them.

In such a scenario, high-tech defense and aerospace equipment manufacturers like AAR Corp. AIR are likely to benefit in the long run. Wood Dale, IL-based AAR Corp. provides various products and services to the aviation and defense industries worldwide. This Zacks Rank #1 (Strong Buy) stock has a VGM Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cyber Security Threats

Despite several disagreements, both Trump and Clinton were unanimous in their concerns for cyber security threats faced by the country. The U.S. federal government is arguably the largest producer, collector, consumer and disseminator of data in the world. This makes government contractors ideal targets for cyber attacks as they are entrusted with sensitive information related to national security secrets, military and critical infrastructure, and personal information of all U.S. citizens and residents.

The incessant cyber attacks and related security risks offer a great investment proposition for the global cyber security market. In addition, a broad proliferation of smartphones and other hand-held devices make cyber security threats a potent weapon for businesses. While cyber security spending by federal agencies will mostly revolve around the development of cyber weapons, cyber defense products and services, corporate firms will primarily seek to develop technologically robust products and services for the IT domain and equipment. This would include continuous upgrade of technology and skills to counter technological obsolescence.
 
Consequently, cyber security stocks like Carbonite, Inc. CARB gain immense prominence. Headquartered in Boston, MA, Carbonite is a leading provider of hybrid backup and recovery solutions for businesses. This Zacks Rank #1 stock offers a comprehensive suite of affordable services for data protection, recovery and anywhere, anytime access. Carbonite has long-term earnings growth expectation of 30%.

Stress on Fossil Fuels

During the debate, Trump made an oblique reference to the now-bankrupt solar company Solyndra and termed the federal investment in it as a failure. Earlier in his campaign, Trump had promised to repeal a host of energy and environmental regulations, save the coal industry and lift restrictions on energy sales. Specifically, he vouched to repeal the Environmental Protection Agency rules that limit carbon emissions from power plants, known as the Clean Power Plan; the EPA’s Waters of the U.S. rule, which brings more water bodies under federal protection; and an Interior Department moratorium on new coal leasing on federal lands.

Although such promises are challenging to fulfill, they have given a fresh lease of life to the beleaguered coal industry stocks like Hallador Energy Company HNRG. Based in Denver, CL, Hallador is engaged in the mining, production, and sale of steam coal for the electric power generation industry in the U.S. This Zacks Rank #1 stock has a VGM score of B.

Moving Forward

Scott Fidel, an analyst of Credit Suisse, perfectly summed up: "Investors often tend to fear the unknown more than anything else. In the 2016 elections, Donald Trump represents the specter of the unknown to a larger degree than any leading presidential candidate in our lifetime." Nevertheless, various presidential campaigns and debates have offered a broad overview of the policy framework of Trump and its likely effect on various industries. Until a clearer picture emerges in the future, investors could be well off if they invest in these stocks that are backed by a solid Zacks Rank and healthy fundamentals.

Confidential: Zacks' Best Investment Ideas  

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It was a week which saw oil prices retest the psychologically important $45 per barrel level, while natural gas futures briefly climbed to a 20-month high.

On the news front, domestic energy explorer Rice Energy Inc. RICE has struck a deal to buy fellow independent Vantage Energy for approximately $2.7 billion, while oilfield services major Schlumberger Ltd. SLB won a huge new contract with Venezuela's state oil company.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures added 2% to close at $44.48 per barrel, while natural gas prices edged up by a meagre 0.2% to $2.955 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Anadarko Buys GoM Assets, Encana Unveils $1B Share Sale Plan.)

Oil prices notched up a weekly gain after the U.S. Energy Department's inventory release showed that crude stockpiles recorded a surprise drop. As per the federal government’s EIA report, oil inventories decreased by a massive 6.2 million barrels for the week ending Sep 16, 2016.

A relatively strong refining activity for this time of year led to the big stockpile drawdown with the world's biggest oil consumer. Following the third consecutive unexpected weekly inventory decline, the current supplies – at 504.6 million barrels – are at their lowest level in 7 months.

Apart from the bullish government data, oil prices were also supported by the decision by Federal Reserve not to raise interest rates. As widely expected, the U.S. central bank opted to leave the current 0.25-0.50 rate unchanged. This led to dollar weakness that made the greenback-priced crude more affordable for investors holding foreign currency.

The commodity was also helped by heightened expectations that prominent oil producing countries may make headway on a production freeze deal. Statements made by various members of OPEC over the weekend suggested that an agreement could be arrived at.

Oils-Energy Sector Price Index

Oils-Energy Sector Price Index

Meanwhile, natural gas eked out a miniscule gain following another below-average build – the 20th in a row – which further narrowed the supply overhang. But to a large extent, this was offset by predictions of tepid demand with sudden change in forecasts that showed cooler weather ahead.

Recap of the Week’s Most Important Stories

1.    Upstream energy player Rice Energy Inc. recently announced its decision to acquire Vantage Energy for roughly $2.7 billion, including debt.

The acquisition – likely to conclude by the fourth quarter – will provide Rice Energy access to 231,000 net acres in the Marcellus and Ohio Utica with roughly 1,164 drilling locations. Following the deal, the company has increased its 2016 exploration and production capital budget to $735 million from $660 million.

During the second quarter, net production from the assets came in at 399 million cubic feet equivalent per day. Rice Energy added that it will drop down a part of the acquired midstream properties – which include 30 miles of dry gas gathering and compression properties – to Rice Midstream Partners LP for a consideration of $600 million.

2.    Oilfield services provider Schlumberger Ltd. has been contracted for a major drilling project in Venezuela. The said pact is for one of the world's largest drilling projects for Venezuela's national oil company Petroleos de Venezuela S.A. (or PDVSA). Reportedly, the latter is planning to drill a total of 480 new wells in the Orinoco region, targeting an extra 250,000 barrels of oil per day over the next 30 months.

Per the agreement, Schlumberger will be responsible for drilling 80 wells in an extra-heavy oil field in the Orinoco Belt as part of a $3.2 billion project. It is to be noted that Schlumberger will be the only public company among the three contractors for the major project.

This project is quite an exception to Schlumberger’s recent strategy of cutting back on its projects in Venezuela due to worsening payment delays by PDVSA. Also, since 2014, the company has shed more than $500 million in Venezuelan assets. (Read more: Schlumberger Awarded Drilling Contract in Venezuelan Project.)

3.    U.S. supermajor Exxon Mobil Corp.’s XOM $2.5 billion bid to acquire Singapore's InterOil Corp. was approved by the shareholders of the latter. The merger, which required approval by two-thirds of InterOil shareholders, saw more than 80% of the shareholders vote in favor of the proposed transaction. Exxon Mobil currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In Jul, Exxon Mobil had placed a bid for InterOil to enhance its liquefied natural gas position in Papua New Guinea. Exxon Mobil had managed to outbid French energy giant Total SA backed Oil Search’s offer of about $2.2 billion to buy part of InterOil's stake in the potentially lucrative Elk-Antelope gas field. The bidding war came to an end as Oil Search abandoned its pursuit of InterOil owing to a weaker balance sheet than its rival.

With the deal receiving the approval of InterOil shareholders, the merger is left with only its final hurdle – the transaction needs to be okayed by the Supreme Court of Yukon, where InterOil is established. After this approval, Exxon Mobil, which now has a 33% share of the Papua New Guinea liquid natural gas project, will receive an additional 36.5% stake as part of the merger. (Read more: Exxon Mobil Merger Deal on Track, InterOil Shareholders Vote.)

4.    Major North American energy infrastructure company TransCanada Corp. TRP announced that it has offered $848 million to buy Columbia Pipeline Partners L.P., the master limited partnership affiliate of its newly acquired Columbia Pipeline Group Inc. unit.

The Canadian oil company also announced its intention to take control of the other 53.8 million outstanding units in Columbia Pipeline Partners for $15.75 per common unit. The offer signifies a premium of about 3% over the limited partnership closing price of $15.30 on Sep 23, 2016.

In Jul, TransCanada purchased the Columbia Pipeline Group Inc. unit for $13 billion, which included debt of $2.8 billion. The Canadian pipeline operator has been reviewing its strategic options for its master limited partnership holdings ever since.

5.    Brazil's troubled state-run energy giant Petrobras PBR declared a steep cut its capital spending budget for the period 2017–21. The company also announced its intention to accelerate disposal of assets over the same duration.

The largest integrated energy firm in Brazil reduced its five-year capital budget for the 2017–21 period by nearly 25% or $24.3 billion to $74.1 billion. Of the total, 82.5% will be allocated toward E&P activities. The company had projected capital budget of $98.4 billion at the beginning of this year. Notably, the previous estimation was also lower than $130.3 billion declared in 2015.

For the 2015–16 period, Petrobras reaffirmed plans of asset sales worth as much as $15.1 billion. The company intends to raise an additional $19.5 billion through divestments and partnerships between 2017 and 2018. Petrobras also foresees sale of assets worth $40 billion over the next 10 years. Through these divestments, the company intends to reduce debt and exit from peripheral businesses such as biofuels, fertilizers and petrochemicals to focus on the most profitable deep water projects. (Read more: Petrobras Revises 5-Year Plan, Cuts Spending by 25%.)

Price Performance

The following table shows the price movement of some the major oil and gas players over the past week and during the last 6 months.

Company

Last Week

Last 6 Months

XOM

-1.00%

-1.38%

CVX

+0.92%

+4.33%

COP

+2.09%

+0.86%

OXY

-1.98%

+1.90%

SLB

-0.46%

+3.82%

RIG

-1.51%

+2.26%

VLO

+0.73%

-16.78%

TSO

+3.77%

-9.07%

Over the course of last week, ‘The Energy Select Sector SPDR’ was up 0.40% thanks to a third consecutive weekly drop in domestic supplies and a weaker dollar. Consequently, investors witnessed buying in most market heavyweights. The best performer was downstream operator Tesoro Corp. TSO that added 3.77% to its stock price.

Longer-term, over the last 6 months, the sector tracker has gained 9.48%. U.S. energy major Chevron Corp. CVX has been one of the beneficiaries during this period, experiencing a 4.33% price increase.

What’s Next in the Energy World?

As usual, market participants will be closely tracking the regular weekly releases i.e. the U.S. government data on oil and natural gas. Energy traders will also be focusing on the Baker Hughes data on rig count as well as Wednesday’s OPEC meeting in Algeria.

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Kohl's (KSS) Targets Holiday Season Rush to Drive Profits

Posted Tue Sep 27, 11:31 am ET

by Zacks Equity Research

Amid the prevailing tough retail environment and online shopping hype retailers are trying all means to remain afloat and lure in customers. Kohl’s Stores Inc. KSS is no exception to the trend. However, the upcoming holiday season offers an opportunity for the retailer to improve its comps by increasing footfall at its stores. Hence, it is geared to expand its store base and reach out to the maximum number of customers.

As per media reports, Kohl’s has announced that it will launch six, smaller-format stores in fall 2016. Two of these stores are to be located in Wisconsin. The other four stores are located in South Dakota, Minnesota, Illinois and Indiana. These six new stores will be smaller than normal-sized Kohl's facility and become operational on Sep 30.

The smaller format store is a new concept at Kohl’s. The 35,000 square feet stores enables the retailer to save on real estate costs and also helps it to penetrate markets that would have been previously too small for opening stores.

Apart from opening more stores, the retailer is also gearing for the upcoming holiday season with more workforce to handle the increased traffic. Last week, the company announced that it would hire over 69,000 workers for the fast-approaching 2016 holiday season, the number remaining same as the previous year.

The additional workers will be stationed at more than 1,100 store locations in 49 states, as well as its distribution and e-commerce fulfillment centers and at Kohl’s credit operations. Per the company, most of these positions are anticipated to be filled by mid-November.

The company has also stocked its stores with the most wanted toys and iconic national brands across the most popular toy categories for the upcoming holiday season. Customers can either go to Kohl’s stores or shop for its collection of holiday toys at Kohls.com.

We keep our fingers crossed in the hope that these initiatives may help Kohl’s to better compete with discount retailers and online retailers like Amazon.com, Inc. AMZN in the holiday season.

Zacks Rank

Kohl’s carries a Zacks Rank #3 (Hold). Better ranked retail stocks include J.C. Penny Company, Inc. JCP and Macy’s, Inc. M.

J.C. Penny carries a Zacks Rank #2 (Buy) and has a long term earnings growth expectation of 16%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Macy’s Inc. also carries a Zacks Rank #2 and has a long term growth rate of 12% over the past five years.

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Ericsson (ERIC) to Expand LiLAC Group's VSPP Services

Posted Tue Sep 27, 11:28 am ET

by Zacks Equity Research

Ericsson ERIC has entered into a partnership with leading international TV and broadband company, Liberty Global’s LBTYA operating unit Liberty Global Latin America and Caribbean (“LiLAC Group”), to help expand the Digital Video Recording (“DVR”) services of two of its operators. This two-year deal shall further reinforce Ericsson’s TV and media solutions business in Latin America.

Two of LiLAC Group’s television operators namely – Chile’s VTR and Puerto Rico’s Liberty Cablevision – are leveraging on Ericsson’s Video Storage and Processing Platform (“VSPP”) to expand their DVR services. Ericsson’s VSPP is well reputed for its ability to simplify recording and other superior functionalities. VSPP has also proved its mettle as an avant-garde technology offering that aids in seamless transformation of legacy television services into novel cloud-based services.

Both VTR and Liberty Cablevision are looking forward to simplify their Cloud DVR and video on demand (VoD) architectures. This will, in turn, eventually slash high operational costs associated with these services. Ericsson’s VSPP will assist LiLaC Group in improving its media content and quality, thus boosting customer satiation. It will also empower the TV operators to address the ever-changing customer needs and come up with future growth strategies as well. 

With the delivery of over 50 transformation programs, Ericsson's consulting and systems integration services is on a roll. The company has been winning multiple lucrative contracts which have proved to be sturdy revenue drivers. TV and media organizations are increasingly turning toward Ericsson for its expertise. The company has established itself as a dominant player in Cloud DVR deployment, with prominent clients like Belgian telecommunication firm Proximus under its belt.

Despite a robust media business, Ericsson has been grappling with a host of macroeconomic issues. These have proved to be major drags on its financial performance, of late. Especially, reduced consumer telecom spending and currency fluctuations are posing as strong headwinds.

Saturated market supply and lawsuit issues are other challenges faced by the company. Further, stiff competition from peers, prolonged weakness in key end-markets and ongoing industry consolidation among customers & major rivals are adding to this Zacks Rank #4 (Sell) company’s woes.

Stocks to Consider

Some better-stocked ranks in the space include Ubiquiti Networks, Inc. UBNT and Clearfield, Inc. CLFD. Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Networking products and solutions provider, Ubiquiti Networks has an excellent earnings surprise history, beating estimates each time, over the trailing four quarters. It has a positive average surprise of 13.2%.

Manufacturer of passive connectivity products, Clearfield has a decent earning surprise history. The stock has beat estimates thrice over the trailing four quarters, with a whopping average beat of 82.1%.

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Sterling Construction Awarded $20 Million Wastewater Project

Posted Tue Sep 27, 11:27 am ET

by Zacks Equity Research

Sterling Construction Co. Inc.’s STRL affiliate, Myers & Sons Construction has been awarded a contract worth $20 million for the design and construction of a major wastewater recycling system for the Del Puerto Water District (DPWD). Myers & Sons Construction, was selected as part of a joint venture (JV) with Steve P. Rados, Inc by the City of Modesto, CA for the project whose total worth is around $40 million.

The range of work for the JV construction management/general contractor team (CM/GC) is to design and construct 11 specific project elements. Construction is scheduled to begin in late 2016. On completion, which is estimated around Dec 2017, the project will help transport up to 35,000 acre feet per year of recycled water directly to the Delta-Mendota Canal. The water will then be distributed to DPWD customers or stored within Reclamation's Central Valley Project (CVP) system during low water demand periods.

This is a significant project win for Sterling Construction as it is a very important and innovative venture which will represent the future of water supply management programs. The project will address two critical objectives by solving water supply shortages within DPWD’s service area and enable the city of Modesto to permanently discontinue its practice of discharging treated effluent into the San Joaquin River.

STERLING CONSTR Price
 

STERLING CONSTR Price | STERLING CONSTR Quote

The company’s growing experience in the development of water infrastructure projects positions it well to participate in similar projects in the future as water shortages become more acute in the U.S.

At second-quarter end, Sterling Construction’s backlog was $810 million compared with $243 million at the end of second-quarter 2015. The company anticipates the trend to persist throughout the balance of this year and beyond.

Sterling Construction continues to see greater sequential investment in infrastructure projects at the federal, state, and local levels. Many of the projects that will be out for bid include roads, bridges, airports, and water projects in the $20 million to $80 million range, which fits in very well with its capabilities.

In line with expectations, since its earnings release in August, the company has won new contracts that position the company well to continue to add attractive and profitable opportunities to its backlog. One contract was around $21.5 million from the Colorado Department of Transportation (CDOT) to reconstruct the Crossroads Bridge on I-25 in Larimer County, CO while the other was a contract worth $21.7 million for a wastewater treatment facility project in Malibu, California.

Sterling Construction currently carries a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks in the sector include MasTec, Inc. MTZ which sports a Zacks Rank #1 (Strong Buy) and has seen its estimates for fiscal 2016 go up 12% over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

EMCOR Group Inc. EME carries a Zacks Rank #2 (Buy) and its estimates have gone up 7% over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

Another Zacks Rank #2 stock is Gibraltar Industries, Inc. ROCK, whose estimates have moved north 4% over the past 60 days

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