One of the best ways to find stocks on the move that are grabbing investors’ attention is to screen for stocks with increasing volume.

This is because increased volume shows investor interest. As more investors buy the stock, that stock’s price should go higher.

But the individual investor, while important to the market, doesn’t really have the firepower to affect volume the way that big institutional investors do.

And very few things can move a stock more than institutional buying.

Why is that?

For one, institutions have the ability of buying tens of millions of dollars worth of a stock and even hundreds of millions of dollars. And because their purchases are often so large, it typically takes weeks, if not months, for an institutional investor to build a position.

Given this commitment, considering it will also take several weeks or months to get out, you can be sure that these institutional investors have done plenty of homework to feel good about the fundamental prospects of the company.

This does not mean you can ignore your own analysis or the stock market as a whole. But screening for stocks with rising volume (along with prices of course) can put some fantastic stocks on your radar screen.

What Kind of Volume Increase to Look For

I prefer to search for at least two weeks of increasing volume along with rising prices. And in my testing I have found that 3 weeks performs even better.

One week volume spikes, however, will not get thru as oftentimes those can be driven by one day events. Instead, it’s the successive volume increase, which shows true buying demand, that gives this set-up its value.

The volume increase also doesn’t have to be huge. We’re not talking about a several hundred percent increase. In fact, often those massive increases prove to be turning points.

What we’re looking for are noticeable increases, like 10%, 20% or 50% increases, etc. But nothing outrageous, like a 10 fold increase. Remember, the last thing an institutional investor wants to do is call too much attention to himself, while he or she is in the midst of building a position. But if you know what to look for, you can see all of this happening in plain site. And get in for the ride as they flesh out the rest of their position.

Screen Parameters

Current Price greater than Price from 1 Week Ago
Price from 1 Week Ago greater than Price from 2 Weeks Ago
Price from 2 Week Ago greater than Price from 3 Weeks Ago

Weekly Volume greater than Weekly Volume from 1 Week Ago
Weekly Volume from 1 Week Ago greater than Weekly Volume from 2 Weeks Ago
Weekly Volume from 2 Week Ago greater than Weekly Volume from 3 Weeks Ago

Zacks Rank less than or equal to 3
Price greater than or equal to $5
Average 20-day Volume greater than or equal to 100,000 shares

The most important elements to this screen are the price and volume items (especially the volume). The Zacks Rank also helps to make sure that their earnings estimates are on the rise. The price item however is a personal preference as I generally don’t buy stocks under $5. But it should also be noted that many institutions won’t either. But if you’re looking for lower priced stocks, you can of course remove this item. And lastly, the average volume item ensures there’s enough trade activity on a daily basis to get in and out of the market easily.

Stocks

Here are 5 stocks that passed this week’s screen:

• AKRX – Akorn, Inc.
• DSX – Diana Shipping Inc.
• ENDP – Endo Pharmaceuticals Holdings Inc.
• LUV – Southwest Airlines Co.
• UNH – UnitedHealth Group Inc.

All of these stocks look good fundamentally. But their successive increases in weekly volume suggest institutional buying and warrant an even closer look.

Get the rest of the stocks on this list and start screening for weekly volume increases to uncover institutional buying on your own. It’s easy to do. Click here to sign up for a free trial to the Research Wizard today.

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.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: http://www.zacks.com/performance.

Read this article on Zacks.com
Read the full analyst report on UNH
Read the full analyst report on AKRX
Read the full analyst report on ENDP
Read the full analyst report on LUV
Read the full analyst report on DSX

Earnings Preview 1/20/12

Earnings season will be in full swing this week. 422 firms are scheduled to report, and 117 of those will be members of the S&P 500. By the end of the week we should have a very good handle on just how weak or strong this earnings season will be.

The firms reporting next week read like a who’s who of American industry. They include: Abbott Labs (ABT), Apple (AAPL), Automatic Data Processing (ADP), AT&T (T), Boeing (BA), Bristol Myers (BMY), Caterpillar (CAT), CSX (CSX), Chevron (CVX), Colgate Palmolive (CL), Conoco Phillips (COP – Analyst Report) and DuPont (DD) – and that is just in the first four letters of the alphabet!

It will also be a moderate week for economic data. Things will be slow early in the week, with no major news until Wednesday, when we get the Pending Home Sales data and the Fed releases the policy statement following their meeting. Thursday will be the busiest day of the week with New Orders for Durable Goods and New Home Sales, along with the regular weekly Initial Jobless Claims data. The biggest report of the week, however, is on Friday, when we get the first look at GDP growth in the fourth quarter.

Monday

Nothing of particular significance.

Tuesday

No major economic reports, but in the evening President Obama will present his third State of the Union address.

Wednesday

Pending home sales are expected to have declined 3.0% after a 7.3% surge in November. However, given the high number of contract cancellations recently due to people unable to get mortgages, and due to appraisals coming in lower than expected, this number has been less accurate than in the past in predicting existing home sales.

The Fed is expected to keep the Fed Funds rate in the 0-0.25% range it has been locked in since December 2008. There is a chance that they will announce another round of quantitative easing, but the probability is less than 50% they will do so. The post-meeting statement will be closely examined for any clues as to the direction the Fed will be taking.

Thursday

Weekly Initial Claims for Unemployment Insurance plunged by 52,000 to 352,000. However, that shocking drop came after a surprisingly large rise the week before. My sense is that they were both flukes, but in offsetting directions. The consensus seems to agree and is looking for claims to rise to 375,000 which would be just a little bit below the average of the last two weeks. These past two weeks illustrate just how volatile week-to-week numbers can be, so the four-week average is the thing to focus on (at 379,000 last week). Keep an eye on the prior week’s revision as well as the change from the revised number.

Continuing Jobless Claims have been in a downtrend of late, but the road down has been bumpy. Last week they fell by 215,000 to 3.432 million. That is down 518,000, or 13.1% from a year ago. The consensus is looking for a rise to 3.550 million. Some (most?) of the longer-term decline is due to people simply exhausting their regular state benefits, which run out after 26 weeks. Those, however, don’t last forever either. Federally paid extended claims rose by 105,000 to 3.460 million last week but are down 1.192 million, or 24.5%, over the last year. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now, given the unprecedentedly high duration of unemployment figures. A better measure is the total number of people getting unemployment benefits — currently at 7.887 million. The total number of people getting benefits is now 1.762 million below year-ago levels. What is not known is how many people have left the extended claims via the road to prosperity — finding a new job — and how many have left on the road to poverty, having simply exhausted even the extended benefits. Unless the program is renewed, all extended benefits will end at the start of March. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.

New Orders for Durable Goods are expected to rise 2.0% for December, on top of a 3.8% surge in November. While those are simply fantastic numbers, they are also a bit deceptive. Most of the strength is from the extremely volatile and lumpy Transportation Equipment segment, specifically from orders for jetliners. Since they are such big-ticket items, a few orders here and there can swamp the rest of the numbers. If Transportation Equipment is excluded, orders are expected to be up 0.7% on top of a 0.3% rise in November. That’s still a pretty healthy growth rate, but nowhere near as spectacular as the headline number would suggest.

New Home Sales are expected to rise to a seasonally adjusted annual rate of 322,000, up 2.2% from the November rate. While it is nice to see new home sales picking up, it is still an extremely low rate. The 20 lowest months in the history of New Home Sales data (back to 1963) have all been in the last 20 months, and if the consensus is right, it will make it 21 out of the last 21 months. Recently, though, the housing data has been coming in a bit better than expected, particularly when it comes to single family homes. New home sales are what have powered every single previous post-war recovery. The extraordinarily low level of new home sales is one of the most important reasons that this recovery has been relatively slow. If housing does get into gear in 2012, U.S. economic growth is likely to be much higher than most people expect. The key word in that last sentence, though, is “if.”
The Index of Leading Economic Indicators is expected to rise by 0.7%, on top of a 0.5% increase last month.

Friday

We get the “Big Kahuna” of economic reports: GDP for the fourth quarter. This will be the first of three releases of the data, which is subject to significant revisions in the later releases. The pattern of accelerating economic growth is expected to continue, with growth of 3.1% growth expected. That is up from 1.8% in the third quarter, 1.3% on the second and just 0.4% in the first quarter. The composition of the growth can be just as important and interesting as the overall level. Growth that simply comes from inventory accumulation is not as bullish as growth that comes from businesses investing in new plant and equipment, for example. We will provide a complete breakdown, not just of the level of growth in the quarter, but where in the economy it came from.
The University of Michigan Consumer Sentiment index is expected to edge up to 74.2 from 74.0. It has been moving up in recent months but is still at a low level. However, since what consumers say in the survey is often very different than what they actually do, I think this is one of the most overrated economic indicators around.

Potential Positive or Negative Surprises

The best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. Similarly, a recent history of earnings disappointments, cuts in the average estimate for the quarter in the month before the report is due and a poor Zacks Rank (#4 or #5) are often red flags pointing to a potential disappointing earnings report.

In the Earnings Calendar below, $999.00 should be read as N.A.

Potential Positive Surprises:
Caterpillar (CAT) is expected to earn $1.73, up from $1.47 a year ago. Last time out, it had a positive surprise of 21.38%, and over the last four weeks analysts have raised their estimates for the quarter by 0.35%. CAT is a Zacks #1 Rank stock.

W.W. Grainger (GWW) is expected to earn $2.10, up from $1.79 a year ago. Last time out, it had a positive surprise of 7.26%, and over the last four weeks analysts have raised their estimates for the quarter by 0.16%. GWW is a Zacks #1 Rank stock.

Western Digital (WDC) is expected to earn $0.72, down from $0.96 a year ago. Last time out, it had a positive surprise of 15.79%, and over the last four weeks analysts have raised their estimates for the quarter by 2.88%. WDC is a number two Zacks #2 Rank stock.

Potential Negative Surprises:
DeVry (DV) is expected to earn $1.00, down from $1.25 a year ago. Last time out, it had a negative surprise of 13.54%, and over the last four weeks analysts have not changed their estimates for the quarter. DV is a Zacks #5 Rank stock.

Juniper Networks (JNPR) is expected to earn $0.21, down from $0.36 a year ago. Last time out, it had a negative surprise of 5.00%, and over the last four weeks analysts have slashed their estimates for the quarter by 19.14%. JNPR is a Zacks #4 Rank stock.

Given the recent run-up in the market, here’s a screen I’ve been using recently for my own stock picking.

First, it focuses in on the top Zacks Ranked Sectors and Industries. Then it focuses in on the Zacks #1 Ranks and Zacks #2 Ranks, which are Strong Buys and Buys, respectively. But then it selects the outperforming stocks with the smallest percentage price change over the last 4 weeks. Why would I do something like that?

Here’s why. You’ve probably heard the old adage that roughly half of a stock’s price movement can be attributed to the group that it’s in. And it’s true. In fact, oftentimes, even a mediocre stock in a top group will outperform a top stock in a poor group for this very reason.

Now, take a look at any top group. You’ll see plenty of fantastic stocks with some impressive price gains in there. But not every stock in every group moves in lockstep at the exact same time. Some will move more than others at any given time.

So by focusing on the stocks with the smallest percentage price change that have fundamentals that are just as good as those making the biggest price change, you might find yourself getting into the stocks ready to make the biggest potential catch-up move.

Here’s how to set up that screen:

Best Zacks Ranked Sectors — Best 8
We’re screening for only those stocks with the best (lowest) average Zacks Rank. With 16 sectors, the best 8 sectors give us the best 50% of sectors.

Best Zacks Ranked Industries — Best 132
Next step is to get only the best Zacks Ranked Industries coming thru. Since there are 264 X or expanded industries we look at, the best 132 will give us the best 50% of industries. But note that only the industries that also happen to be in the top sectors will get thru. If an industry is ranked as one of the best but it’s outside of the top sector rank, it will not get thru.

Zacks Rank less than or equal to 2
Now the screen gets narrowed down even more by looking at only the Zacks #1 Ranks (Strong Buy) and Zacks #2 Ranks (Buy). No Holds, Sells or Strong Sells (Zacks Rank #3, #4 and #5) allowed.

Price and Avg. Volume greater than or equal to $5 and 100,000 shares
Only stocks over $5 with at least an average of 100,0000 shares traded daily will be considered.

Relative % Price Change — 4 Weeks greater than 0
This means that we’re screening for only those stocks that have outperformed the market (S&P 500) over the last 4 weeks.

% Change in Price — 4 Weeks: Bottom 50
Then finally, we’re scanning for the bottom 50 stocks with the lowest percentage price change over the last 4 weeks. So while all of these stocks have outperformed the market, they increased in price less than their peers.

So each one of these stocks is in a top Sector and top Industry within that Sector. This alone will tip the odds of success in your favor by a great deal when you consider that the best Zacks Ranked groups outperform the worst ones by a factor of 4 to 1.

Then by selecting those stocks with the best Zacks Rank along with the best price performance over the last 4 weeks, you now have only a list winners from which to choose from.

And from that list of winners, we’re selecting the ones that have gained less than their peers on that list. Remember, these stocks aren’t ‘dogs’ or unresponsive stocks. Quite the contrary, they have all outperformed the market. It just so happens that they have increased less than the others on the list. But because they are a top rated stock in a top rated industry, we’ve singled these out as the ones that could make the biggest move to ‘catch-up’ to the others.

It’s an interesting screen that has generated a lot of great names.

Here are 5 from that list (for 1/17/12):

• BPO – Brookfield Office Properties Inc.
• FISV – Fiserv, Inc.
• HALO – Halozyme Therapeutics, Inc..
• JEC – Jacobs Engineering Group Inc.
• MKTX – MarketAxess Holdings Inc..

All great-looking stocks that appear to have lots more upside in store for them. Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software. Sign up now for your two week free trial and learn how.

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.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: http://www.zacks.com/performance.

Read this article on Zack.com
Read the full analyst report on FISV
Read the full analyst report on HALO
Read the full analyst report on JEC
Read the full analyst report on BPO
Read the full analyst report on MKTX

With earnings season having officially just begun, this is a good screen to use both before and after a company reports. Like any earnings season, we’re going to see both positive surprises and negative surprises.

This screen however focuses on more than just earnings surprises, but instead goes over the importance of both earnings surprises and sales surprises, and why as an investor you should care so much about them.

As you know, if a company reports earnings above expectations, that’s a positive surprise, and the price in general should go up.

If the company reports earnings below expectations, that’s a negative surprise, and the price in general should go down.

But a surprise is more than just a snapshot of an extra few dollars and cents a company made or lost in that one period. Instead, it’s a glimpse into what a company’s earnings could be, or should be, in the future.

And when these surprises occur, the market tries to quickly re-price that stock to reflect these changes.

Not All Surprises Are Created Equal

Some earnings surprises are due to revenue increases, and other earnings surprises are due to cost cutting measures.

Top line growth (or sales growth) usually produces the biggest price reaction over cost-cutting, because an increase in sales is generally thought of as more sustainable. Once you’ve cut costs, where’s the future growth going to come from? You can only cut costs so much. You need sales to drive long term growth.

There’s also guidance. What the company sees down the road is important.

If you’ve got a positive surprise on one hand, but then downward guidance on the other, that’ll usually produce a negative reaction. Why? Because they’ve taken away the hope generated from the surprise by saying the future outlook will likely be weaker than expected.

There’s also the idea that some surprises aren’t really surprises — either because a company has a history of continuously beating their estimates or the stock has already priced in a ‘surprise’ by running up or going down prior to the announcement; therefore, the ‘surprise’ in that direction really wasn’t a surprise at all. That’s where you’ll sometimes see an opposite reaction to an earnings surprise – a “buy the rumor sell the fact” type event.

But while predicting which companies will surprise or not can be difficult, the benefit of an earnings surprise will typically last for one to three months after a surprise is reported.

So you can get in after a company reports a surprise, or you can try and find companies that are more likely to report a surprise, and get in ahead of time.

Screening Parameters

The screen I’m running today starts off with:

Last EPS Surprise greater than or equal to 5%
(Stocks posting positive surprises have a tendency of surprising again.)

Last Sales Surprise greater than or equal to 5%
(A positive sales surprise shows top line strength. And once again, a company that has surprised in the past is more likely to surprise again in the future.)

Zacks Rank equal to 1BR> (Only Strong Buys can get thru.)

Price greater than or equal to $5 and Average 20-day Volume greater than or equal to 100,000

Just these few criteria narrows down the universe from over 8,800 stocks to just over 30.

Here are 5 stocks that meet this criteria:

• CELL – Brightpoint, Inc.
• DY – Dycom Industries, Inc.
• FLT- FleetCor Technologies, Inc.
• NR – Newpark Resources, Inc.
• PVTB – PrivateBancorp, Inc.

All of these companies reported both earnings surprises and sales surprises their last time out. A great combination. And I expect more of the same this time around as well. Sign up now for your 2 week free trial to the Research Wizard and get the rest of the stocks on this list.

Click here for your 2 week free trial to the Research Wizard.

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.

Read the full analyst report on NR
Read the full analyst report on PVTB
Read the full analyst report on DY
Read the full analyst report on CELL
Read the full analyst report on FLT

Earnings Preview 1/6/12

There will only be a handful of firms reporting this week, even though it is considered the kickoff of the earnings season when Alcoa reports. A total of just 27 firms are scheduled to report, including 4 of the S&P 500. While few in number, some of the reports come from firms that are highly significant in that they will give clues to the overall direction of earnings in the fourth quarter.

The firms reporting next week include: Alcoa (AA), J.P. Morgan (JPM), Lennar (LEN) and Supervalu (SVU).

It will also be a fairly light week for economic data, particularly early in the week. We get Consumer Credit on Monday and the Fed releases its Beige Book on Wednesday. Thursday brings the Initial Jobless Claims data as well as Retail Sales. We learn about the Budget Deficit on Thursday and the Trade Deficit on Friday.

Monday

Consumer Credit, not including real estate backed loans like mortgages is expected to have risen by $7.0 billion in November, down slightly from the $7.6 billion rise in October. Since the onset of the Great Recession growth of consumer credit has been very low, but is starting to show signs of picking up again.

Tuesday

Nothing of significance as far as data is concerned. All eyes will turn towards the Granite State as New Hampshire holds the first primary of the election season.

Wednesday

The Fed releases its January Beige Book, a compilation of mostly anecdotal evidence on the state of the economy from the twelve Fed districts. It will probably indicate slow but steady expansion in the economy and very little in the way of inflation pressure.

Thursday

Weekly Initial Claims for Unemployment Insurance have been plunging. Last week they dropped by 15,000 to 372,000. That is comfortably below the key 400,000 level (that they were above two weeks ago). The consensus is looking for them to bounce back to 385,000 this week. A rebound after such a big drop is reasonable to expect as this does not tend to move in a straight line. Even that big a rebound would not be terrible news, as it would indicate that the last two weeks of declines were not a fluke. The 400,000 level is important in that it has historically been the inflection point, below which we tend to create enough jobs to bring down the unemployment rate. The week-to-week numbers can be very volatile, so the four-week average is the thing to focus on (372,250 last week). Keep an eye on the prior week’s revision as well as the change from the revised number.
Continuing Jobless Claims have been in a downtrend of late, but the road down has been bumpy. Last week they fell by 22,000 to 3.595 million. That is down 532,000, or 12.9% from a year ago. The consensus is looking for a further decline to 3.588 million. Some (most?) of the longer-term decline is due to people simply exhausting their regular state benefits which run out after 26 weeks. Those, however, don’t last forever either. Federally paid extended claims rose by 5,000 to 3.503 million last week but are down 1.033 million, or 22.8% over the last year. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now, given the unprecedentedly high duration of unemployment figures. A better measure is the total number of people getting unemployment benefits — currently at 7.223 million. The total number of people getting benefits is now 1.565 million below year-ago levels. What is not known is how many people have left the extended claims via the road to prosperity — finding a new job — and how many have left on the road to poverty, having simply exhausted even the extended benefits. Unless the program is renewed, all extended benefits will end in January. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.
Retail Sales are expected to rise by 0.4% in December, up from a 0.2% rise in November. If Auto sales are stripped out the rise is also expected to be 0.4% up from 0.2%. This data is adjusted for seasonal variations like the number of shopping days, but not for price changes. Thus if the rise is due to increased sales at gas stations it is not really good news.
The Budget Deficit for December will be announced. The deficit is highly seasonal but the data is not seasonally adjusted, so it is best to look at it relative to the year-ago level. The month-to-month change can be highly misleading. So far in fiscal 2012 (started in October) the budget deficit is down 18.9% from the first two months of fiscal 2011. Given the absolute hysteria about the budget deficit earlier in the year, one might have expected that news to have been mentioned somewhere. Last December, the Federal Government spilled $78.1 billion of red ink. I suspect the number this year will be closer to $70 billion.

Friday

The Trade Deficit is expected to rise to $44.3 billion in November from $43.5 billion in October. In general, the country has been doing a good job of increasing its exports, but imports also continue to rise. Over half of our trade deficit is due to our addiction to imported oil. The Trade deficit is what is responsible for our being in debt to the rest of the world, not the budget deficit. An increasing trade deficit directly lowers economic growth. As such I consider the trade deficit to be a much more important economic problem than the budget deficit is.
The University of Michigan Consumer Sentiment index for January is expected to rise to 71.0 from 69.9. That is up off the lows of the summer, but still very depressed by any historical standard. Personally I think this is one of the most over rated economic statistics around, since what consumers say in the survey is often very different that what they actually do. Still, better seeing it go up than down.

Potential Positive or Negative Surprises

The best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. Similarly, a recent history of earnings disappointments, cuts in the average estimate for the quarter in the month before the report is due and a poor Zacks Rank (#4 or #5) are often red flags pointing to a potential disappointing earnings report.

Read this article on Zacks.com
Read the full analyst report on LEN
Read the full analyst report on AA
Read the full analyst report on JPM
Read the full analyst report on SVU

This week I want to focus on Sales Growth and Profit Margins.

While everybody understands sales, margins might bring up a few question marks.

And with earnings season only about two weeks away (it officially kicks off on Jan. 9th with Alcoa), now is the perfect time to look at this.

So let’s start at the beginning: first and foremost, sales are THE most important thing to a company. Everything else stems from that. Without sales, there really wouldn’t be anything else to analyze. And Sales Growth numbers show how that company is growing.

However, just because sales are increasing doesn’t always mean that profits are increasing too. Sales at the expense of profits does not work. So paying attention to Profit Margins is the next thing we’re going to want to look at.

Margin is simply a ratio and the calculation is:

Net Income divided by Sales
So if a company’s margin is 15% for instance, that means its net income is 15 cents for every $1 dollar of sales it makes.

But if a company’s expenses are growing faster than their sales, this’ll reduce their margins.

In general, a company with increasing margins is becoming more profitable and is better managed, i.e., their costs are under control.

So this earnings season, dig deeper into the numbers. Yes, look at their sales. And of course, look at their earnings. But take a look at their profit margins as well. Are they going up or down? In other words, are they making more on each dollar of sales they make, or less? This is important stuff to know, and could make the difference between investors buying a company’s earnings announcement or selling it.

Parameters for this week’s screen:

12 Month Trailing Sales Growth (Current / 1 Quarter Ago) greater than their relevant Industry median (Looking for the top companies in their industries.)

Current Net Margin greater than or equal to 5 Yr. Avg. Net Margin (Steady to increasing Net Profits is what we’re after.)

Current Net Margin greater than of equal to Net Margin from 1 Quarter Ago (If a company’s profit margin fell last quarter, there’s a chance it might fall yet again. So we’re excluding those companies whose margins fell in the previous quarter.)

Zacks Rank equal to 1 (Strong Buy)
(Only the top Zacks Ranked stocks can get thru.)

Here are 5 stocks that passed this screen this week:

• DY – Dycom Industries, Inc.
• SBH – Sally Beauty Holdings, Inc.
• RGR – Sturm, Ruger & Company, Inc.
• UTEK – Ultratech, Inc.
• FEIC – FEI Company

Sign up now for your 2 week free trial to the Research Wizard and start adding these values to your own screening strategies. Or start following this screen’s winning picks in your own portfolio. Don’t wait. Learn how today with a free 2 week free trial to the Research Wizard.

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.
Read this article on Zacks.com
Read the full analyst report on RGR
Read the full analyst report on UTEK
Read the full analyst report on FEIC
Read the full analyst report on SBH
Read the full analyst report on DY

Earnings Preview 12/16/11

There will only be a handful of firms reporting next week as the third quarter reporting season is almost over. A total of just 34 firms are scheduled to report, including 13 of the S&P 500. Most of the firms reporting have November fiscal period-ends, which mean that they are reporting fourth quarter results.

While few in number, some of the reports come from firms that are highly significant in that they will give clues to the overall direction of earnings in the fourth quarter.

The firms reporting next week include: Bed Bath & Beyond (BBBY), Carnival Cruise Lines (CCL), ConAgra (CAG), General Mills (GIS), Micron Technology (MU), Nike (NKE) and Walgreens (WAG).

There will, however, be plenty of economic data for the market to chew on. The theme for the week will be housing. Just about all of the key housing numbers will come out next week, starting with the Homebuilders index and followed by Housing Starts and Building Permits, Existing Home Sales and New Home Sales. Non-housing data due include the final word on 3rd quarter GDP, Durable Goods Orders and Personal Income and Spending.

Monday

The National Association of Homebuilders index is expected to slip back to a dismal level of 19 in December from 20 in November. This is a “magic 50” index, so any reading below 50 indicates that homebuilders see conditions as poor. The index had been mired in the mid-to-low teens for over two years now, but has lately been trending upwards — from “atrocious” to just “awful.” In every previous recovery, residential investment has led the economy out of the swamp. This time it has been pulling us further into it, and remains one of the key reasons why the recovery is anemic.

Tuesday

We find out if the Homebuilders pessimism is well founded when the data on Housing Starts are released. In October, they ran at an annual rate of only 628,000, about a quarter of the level at the peak of the bubble. They have been extraordinarily distressed for over two years now and show little sign of improvement. In some ways, the low level of starts is a blessing in disguise, since it indicates that few housing units are being added to the glut of unsold homes. However, that is very cold comfort to the unemployed construction workers, a group harder hit than almost any other in the Great Recession. It is hard to see how we have a robust recovery until housing starts start to rebound significantly. The consensus is looking for starts to fall edge up to 631,000 in November. Given that Permits were much higher than starts last month, I would not be surprised to see things a little bit higher than that, perhaps a rise towards the 640,000 level, but that is still downright ugly.
The best leading indicator of Housing Starts is Building Permits. In October they ran at an annual rate of only 653,000. That was higher than the starts rate — which is one reason that the starts number is likely to rise in November — but it is still a very low level. In November, the consensus is looking for Permits to fall back to just a 633,000 annual rate, which seems about right to me.

Wednesday

In October, Existing Home Sales ran at a 4.97 million annual pace. In November, they are expected to edge up slightly further to a 5.04 million rate. However, the National Association of Realtors has indicated that it will be revising several years’ worth of Sales and Inventory data — both downward — so that might be a bigger story than the rate for November. Of at least equal concern is the level of inventories available for sale relative to the sales pace. In October there were 8.0 months of supply on the market, well above the normal level of about 6 months. That suggests continued moderate downward pressure on existing home prices. As sales of used homes are just the transfer of an existing asset, they do not represent that much in the way of economic activity. However, as the major store of wealth for the middle class, existing home prices are vital. Also, the more prices fall, the greater the number of people who are underwater on their mortgages and thus vulnerable to foreclosure.

Thursday

Weekly Initial Claims for Unemployment Insurance have been plunging over the last two weeks. Last week they dropped by 19,000 to 366,000. That is comfortably below the key 400,000 level (which they were above two weeks ago). The consensus is looking for them to bounce back to 380,000 this week. A rebound after such a big drop is reasonable to expect, as this does not tend to move in a straight line. Even that big a rebound would not be terrible news, as it would indicate that the last two weeks of declines were not a fluke. The 400,000 level is important in that it has historically been the inflection point below which we tend to create enough jobs to bring down the unemployment rate. The week-to-week numbers can be very volatile, so the four-week average is the thing to focus on (it was 387,750 last week). Keep an eye on the prior week’s revision as well.
Continuing Jobless Claims have been in a downtrend of late, but the road down has been bumpy. Last week they rose by 4,000 to 3.603 million. That is down 563,000, or 13.5%, from a year ago. The consensus is looking for a bounce to 3.650 million. Some (most?) of the longer-term decline is due to people simply exhausting their regular state benefits, which run out after 26 weeks. Those, however, don’t last forever either. Federally paid extended claims rose by 293,000 to 3.642 million last week but are down 1.189 million, or 25.4% over the last year. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now, given the unprecedentedly high duration of unemployment figures. A better measure is the total number of people getting unemployment benefits — currently at 7.449 million. The total number of people getting benefits is now 1.743 million below year-ago levels. What is not known is how many people have left the extended claims via the road to prosperity — finding a new job — and how many have left on the road to poverty, having simply exhausted even the extended benefits. Unless the program is renewed, all extended benefits will end in January. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.
In the last look at GDP it was estimated that the economy grew at a 2.0% pace in the third quarter, well above the 1.3% growth rate of the second quarter and the nearly non-existent growth of just 0.4% in the first quarter. The quality of the growth was also quite high as that growth included a 1.55% drag from the change in inventories. The overall growth rate is not expected to change; however, the quality of the growth and the sources of growth might shift. Put this in the category of old — but important — news. Most of the focus is now on fourth quarter growth, and it looks like it should be substantially higher than in the third quarter.
The University of Michigan Consumer Sentement index for December is expected to rise to 69.0 from 67.7. That is up off the lows of the summer, but still very depressed by any historical standard. Personally, I think this is one of the most overrated economic statistics around, since what consumers say in the survey is often very different that what they actually do. Still, better seeing it go up than down.
The index of Leading Economic indicators is expected to increase by 0.3% after rising 0.0% for October. While this is the leading index, most of its components are already known by the time it is released, so this number does not normally have a major market impact. Indeed, the stock market itself is one of the key leading indicators.

Friday

New Orders for Durable Goods are expected to rise 2.0% in November after falling 0.5% in October. Previous months are often revised significantly for this data, and those revisions can be just as important as the current month’s data. The weakness last month came from the highly volatile transportation equipment segment. Since they are so high-priced, a few orders for jetliners can really push around the total number, but the orders tend to be lumpy. Excluding transportation equipment, new orders are expected to be up 0.3% after being up 1.1% in October due to some large orders at Boeing ([url=http://www.zacks.com/stock/quote/ba]BA[/url]). Given the tone of the other data, I will take the “over” on both headline and ex-transportation.
Personal Income is expected to rise 0.2% In November, after it rose 0.4% last month. Just as important as the total amount of personal income is the source of that income. Recently, growth in income from wages and salaries has been very weak; with most of the growth we have seen coming from with rental income and higher dividends. That suggests that most of the meager total income growth is going to the top of the income distribution. Personal Spending is expected to rise 0.3% after rising just 0.1% in October. Of course, if spending rises by more than income, the savings rate will fall. In October, the savings rate rose, but to just 3.5% from a very low 3.3% in September. Over the long term, the economy needs a higher savings rate. Short-term, though, a falling savings rate tends to boost the economy.
New Home Sales are expected to rise to a 314,000 rate from a very weak 307,000 in October. That is simply a pathetic level, even if it is slightly off the record low set in January. The records go back to the Kennedy administration. If we do come in at 314,000, that is still lower than any month prior to 2010. Unlike used home sales, each new home sold represents a lot of economic activity. Thus this is a very important report. Normally, new home sales are what lead the economy out of recessions, but they have been a huge drag this time around.

It’s that time again. Every few months, I like running this screen to find the new top rated sectors. It’s especially timely now as recent ups and downs have produced a new list of top groups.

And since roughly half of a stock’s price move can be directly attributed to the group that it’s in, it’s important to stay on top of this.

By definition, a strong Sector or strong Industry will have more of its companies moving higher than a weak Sector or weak Industry.

If the majority of stocks are going down in an industry, it can’t be a strong industry. If more stocks are going up, it is a strong industry.

What’s interesting is that I’ve done some testing over the past and found that, often times, just getting into an average stock in a strong group will outperform the best stocks in a troubled group.

This doesn’t mean you can just pick anything and you’ll make money. Far from it. But it illustrates how powerful the underlying group is to the success of your stock picking.

There are several ways you can define the best Sectors or Industries.

Today, I’m combining my two favorite ways.

1) I’m ranking the sectors based on the average Zacks Rank.

2) I’m ranking the sectors based on the percentage of stocks trading within 10% of their 52 week highs.

This is the better of two great ways to look at sectors.

Groups with the best Zacks Rank outperform those with worse Zacks Ranks.

And groups with a higher percentage of stocks trading at or near their 52 week highs show something positive is happening to the entire group for so many stocks to be trading near their highs.

First, I numerically rank the sectors with the best Zacks Rank.

Then I do the same for the sectors with the highest percentage of new highs.

Then I add the scores together from each method to get a composite.

And then lastly, I’ll re-sort the total score from lowest to highest to give me the best sectors.

This way I’m getting the best Zacks Ranked groups (those with the highest upward earnings estimate revisions) as well as the groups with the best responsiveness as evidenced by their price performance.

The new top rated Sectors based on this scoring method are:

1) Retail-Wholesale
score = 4 (1st place)

2) Aerospace
score = 8 (2nd place)

3) two way tie between Business Services and Finance (surprise, surprise)
each with a score = 9 (tied for 3rd place)

4) three way tie between Transportation, Utilities, and Medical
each with a score = 16 (tied for 4th place)

Here are 5 stocks, one from each of the top rated Sectors (for Tues., 12/13/11):

ULTA: Ulta Salon, Cosmetics & Fragrance, Inc. – Retail-Wholesale
HXL: Hexcel Corp. – Aerospace
ASGN: On Assignment, Inc. – Business Services
AEA: Advance America, Cash Advance Centers, Inc. – Finance
ACHN: Achillion Pharmaceuticals, Inc. – Medical

All of these stocks are in the top Sectors as we’ve defined them and they are all on the move. Start picking stocks in the best Sectors and Industries on your own today. It’s easy to do and with the Research Wizard. Start putting the odds of success in your favor. You can do it. Learn how today.

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.

I’m regularly asked how I go about picking winning stocks. The short answer is: I simply focus on what works.

Since there are over 10,000 stocks out there, you need a way to find the good ones. And by focusing on what works vs. guesswork (or worse), you’ll not only be able to pick winning stocks, but you’ll be able to do so consistently. And that’s really the key to success; having a repeatable way to find profitable stocks, again and again and again. I run a lot of individual strategies. But I will often go thru a checklist on all of my candidates before I get in.

Checklist

Almost every screen I run nowadays (if I’m looking for long candidates) begins with a Zacks Rank of less than or equal to 3. Zacks #1 Ranks and Zacks #2 Ranks are Strong Buys and Buys, respectively, and have consistently outperformed the market over the last 23 years. The Zacks #3 Ranks are market performs, but you’ll find plenty of great candidates in this position. And when the market is in a confirmed uptrend, this is a fine group to pick from. (Zacks #4 Ranks and Zacks #5 Ranks, i.e., Sells and Strong Sells, are excluded of course.)

I also look to see if a stock is in the top 50% of industries, based on either the average Zacks Rank or the percentage of stocks trading within 10% of their 52-week highs. Since half of a stock’s price movement can be attributed to the group that it’s in, this put the odds of success in my favor.

Earnings Estimate Revisions: While the Zacks Rank takes care of much of this, I still look at these items separately as well. And I like to see the estimates rising (or at least not falling) for Q1, Q2, F1 and F2, over the last 1, 4 and 12 weeks.

Positive EPS and Sales surprises: Since a company that has surprised in the past has a tendency to surprise again in the future, these are two good measures that a company is on the right track.

Positive Growth Rates: Nothing extreme, but I want the current year’s growth rate to be positive and I want next year’s to be even better. As a stock picker, ask yourself: Do I want my stocks to have increasing growth or decreasing growth? Since it’s my right to choose, I’d prefer my stocks to have increasing growth.

Valuations: I like my valuations in ranges that have proven to be the most optimal for producing profitable results. My favorite is the Price to Sales ratio being less than or equal to 1. Less than or equal to 2 also produces market beating results. And often I’ll compare it to its industry as well (less than or equal to the median for its respective industry). But I’ll typically avoid Price to Sales ratios above 4, as, historically, stocks above that number usually underperform or go down.

Return on Equity: I like to see the Return on Equity or ROE above the median for its industry, and preferably increasing from the previous year or 5 year average. This shows good management and efficiencies.

Additionally, as an extra measure, I’d like to see margins increasing as well. This shows more profits are being made for each dollar of sales the company makes.

I’ll also look at the charts too:

I’d like to see the weekly price and volume increasing. A rising price accompanied by rising volume is a great sign of strength. And it could show institutional buying. These are great indicators of increased demand, which usually means higher price.

Moving Averages: Ideally, I want my stocks trading above the 50-day and 200-day moving average. Being above the 10- and 20-day is a bonus. But being above the long-term and medium-term moving averages, i.e., the 50- and 200-day, is a bullish sign.

Chart pattern: Is the chart pattern bullish or bearish or both the daily and weekly chart? I will not get into a stock with a bearish chart pattern. If it’s bullish, yes. If it’s neutral, ok — assuming it’s hitting on the other items above. If it is bearish, it’s a no go.

By sticking with this basic set of proven criteria, I know I have a high probability of success in picking winning stocks. And if it doesn’t work out, I don’t have to panic and wonder if my system works or scurry to change these up. That’s the kiss of death.

Picking winning stocks consistently comes down to a set of rules. And these are my basic building blocks. I look at plenty of others as well. But this is my basic checklist.

And here are five stocks that passed the checklist this week:

• PETM – PetSmart, Inc.
• DY – Dycom Industries, Inc.
• AEA – Advance America, Cash Advance Centers, Inc.
• TKR – The Timken Co.
• LAD – Lithia Motors, Inc.

If you consistently do what works over and over again, you too will find yourself picking winning stocks, beating the market and accomplishing your trading goals.

To apply this checklist to your own stock picking, sign up for your 2 week FREE trial to the Research Wizard today. Remember the key to successful screening is in discovering those screens that have produced profitable results in the past. And that’s exactly what you get with the powerful Screening and Backtesting ability of Research Wizard. You can do it. Learn how today. Sign up for your 2 week FREE trial to the Research Wizard.

Earnings Preview 12/2/11: There will only be a handful of firms reporting next week as the third quarter reporting season is almost over. A total of 65 firms are scheduled to report, including 5 of the S&P 500. Some of the firms reporting have November fiscal period-ends, which mean that they are reporting fourth quarter results.

The firms reporting next week include: AutoZone (AZO), Bank of Montreal (BMO), Brown Foreman (BF.B), Costco (COST), Dollar General (DG), Pall (PLL) and SAIC (SAI).

It will also be a relatively light week for economic data. We get the ISM service numbers on Monday, Consumer Credit on Wednesday, just the normal initial claims report on Thursday, and we finish up with the Trade Deficit and the University of Michigan Consumer Sentiment survey on Friday. With not that much going on here, the focus of the market will probably be on the other side of the Atlantic.

Monday: The ISM Non-Manufacturing or Services Survey is expected to rise to 53.4 in November from 52.9 in October. As a “magic 50” index, this indicates that the service side of the economy, which is far bigger than manufacturing, is expanding at a moderate pace, slightly faster than in October. On Thursday, its venerable older brother the Manufacturing survey rose to 52.7 from 50.8, a better-than-expected result. As with the manufacturing report, the sub-indexes, especially those for business activity, order backlog, new orders and employment can be as interesting as the overall index.

Tuesday: Nothing of particular significance.

Wednesday: Consumer Credit (not including real estate-related debt) is expected to have increased by $7.0 billion in October, just a slightly slower pace than the $7.4 billion rise in September. Most of the increase probably came from the non-revolving side, like auto loans, rather than revolving credit card-type debt.

Thursday: Weekly Initial Claims for Unemployment Insurance bounced back above the psychologically important 400,000 level, rising by 6,000 to 402,000. The consensus is looking for 395,000 this week. The 400,000 level is important in that it has historically been the inflection point, below which we tend to create enough jobs to bring down the unemployment rate. The week-to-week numbers can be very volatile, so the four-week average is the thing to focus on. Keep an eye on the prior week’s revision as well as the change from the revised number.
Continuing Jobless Claims have been in a downtrend of late, but the road down has been bumpy. Last week they rose by 8,250 to 3.683 million. However, that is down 587,000 from a year ago. I would expect a small decline this week. The consensus is looking for a bounce to 3.700 million. Some (most?) of the longer-term decline is due to people simply exhausting their regular state benefits, which run out after 26 weeks. Those, however, don’t last forever either. Federally paid extended claims rose by 70,000 to 3.522 million last week but are down 1.378 million over the last year. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now, given the unprecedentedly high duration of unemployment figures. A better measure is the total number of people getting unemployment benefits — currently at 7.005 million — which is up 277,000 from last week (there are some timing issues, so the change in continuing and existing claims does not match the change in the total). The total number of people getting benefits is now 1.905 million below year-ago levels. What is not known is how many people have left the extended claims via the road to prosperity — finding a new job — and how many have left on the road to poverty, having simply exhausted even the extended benefits. Unless the program is renewed, all extended benefits will end in January. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.

Friday: The Trade Deficit is expected to edge up to $44.0 billion in October from $43.1 billion in September. In my opinion, the Trade deficit is a more serious economic problem than is the budget deficit, especially over the short-to-medium term. The Trade Deficit is essentially a dollar-for-dollar reduction in GDP, so any increase in it slows economic growth. More than half our trade deficit is due to our addiction to imported oil. A rapid move to the use of abundant and cheap domestic natural gas would be the best way to get that monkey off of our backs. A weaker dollar would help with the other half. Of particular interest this time will be our exports to Europe, and if they have fallen due to the financial crisis over there.
The University of Michigan Consumer Sentiment index is expected to have risen to 65.0 from 64.1 last month. Since what consumers say in this survey (and the very similar Consumer Confidence report) is often very different than what they actually do, I think this is one of the most overrated economic reports around. Still, it is better to see it going up than down. Last week the Consumer Confidence Index was up sharply and much better than expected, so for what its worth I’ll take the over on this one.

Potential Positive or Negative Surprise: The best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. Similarly, a recent history of earnings disappointments, cuts in the average estimate for the quarter in the month before the report is due and a poor Zacks Rank (#4 or #5) are often red flags pointing to a potentially disappointing earnings report.

Given the very small number of firms reporting next week, there are few good candidates to make good predictions of potential positive or negative surprises and thus I omit this section.