First Profit

By Kevin Matras
October 13, 2009

As third quarter earnings season gets underway, I’ve been running a screen with an interesting concept: to find companies that have just recently shown their first quarterly profit within the last year. Since earnings season has just begun, the last quarter for most of these companies will have ended 6/2009. Although, there will be some that have already reported for 9/09.
Nonetheless, the idea is to find companies that have just recently produced their first profit after having not shown a profit for at least the previous 4 quarters. Some of these companies will be relatively new, and this recent profit may be the only profit in its history – so far. For others, they may have a long history of profitability, but have seen a contraction over the last year as the recession raged on. However, they have finally returned to profitability.

I like this concept because if the trend has been one of improvement, there’s a good chance that the trend will continue. This is true whether you’ve been profitable or are just getting profitable. But some (like myself for example) dislike buying companies that cannot show a profit. There are many others who won’t even consider a stock unless it’s making money.

Losing less than the previous quarter is indeed an improvement. In that respect, by definition, it is growth, i.e., they’re growing less unprofitable. It’s even better if the losses are less and less in each sequential quarter. But there’s something entirely different about growth AND profitability. And those are the stocks that will likely see the best new demand from new investors; people who are now, all of a sudden, willing to take notice of and pay attention to the stock.

And that’s what we’re screening for today:
* EPS for the previous 4 Quarters less than or equal to 0
(This means in each of the previous 4 quarters (except the most recently-reported quarter) the company has reported earnings of less than or equal to zero, i.e., no profit.)
* EPS for the recently reported quarter > 0
(This time, the company reported earnings greater than zero, meaning they finally showed a profit.)
* Current Price >= 5
(I prefer to only look at companies over $5. But if you drop this item from the screen, it’ll currently produce three times as many stocks coming thru the screen.)

BTW – for those who have the Research Wizard and want to build this on their own – here’s what the screen looks like. You don’t have to use the calculation expression feature either. It can all be done from the main page. (See below.) The screen is pretty simple yet pretty powerful.

Here are 5 stocks that made it thru this week’s screen (for 10/13/09):
DTG – Dollar Thrifty Automotive Group, Inc. (reports 11/4/09)
GLBC – Global Crossing Ltd. (reports 10/28/09)
LM – Legg Mason, Inc. (reports 10/22/09)
LOCM – Local.com Corp. (reports 11/5/09)
IMAX – IMAX Corp. (reports 11/5/09)

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.

A Consumer Driven Recovery?

By: Bill Wilton
October 08, 2009

About 6 months ago you could not read a news story that involved “the bottom”. Is it in yet? How much further will we fall? and so on. Here we are knocking on winter’s door and to me it seems like the opposite. Where is the peak? How much higher can we go?

Now that the former is in the rear-view mirror and we in the midst of the latter this earnings season is going to be vital. What am I looking at? Some of the best performing sectors in the rally, consumer discretionary and retailers. If you have been heavy in that area, you are dancing.

Keys to the Recovery
While I am focusing on consumer-based earnings, there is more than which sector to invest in. I will be looking for organic or top line growth. This will indicate a confident consumer and real economic strength, rather than an uptick in earnings because a company found a way to cut costs.
That is not only going to be good for the company’s future, but the economy’s as well.

What Should I Do?
Now that the rally has tapered off it gives us a good opportunity to position ourselves for what is next. I, and the other Zacks Elite analysts, are taking a cautiously optimistic approach. This means staying/getting long companies that rely on spending, but ready hit the sell button at a moment’s notice.

In particular, I am looking at stocks with a Zacks Rank of #1 or #2, with rising estimates in any type of industry directly driven by the consumer. A solid value is also important, especially in an area that as performed well, yielding plenty of swollen P/E’s.

A Few that I Like
Dominos Pizza (DPZ) is a staple of pizza parties and Friday nights at home. Estimates are creeping up, with 3 revisions in the past month, as the next earnings report nears. The company is set to announce quarterly results on Oct 13.

A slice of the company will cost you just 11 times earnings and the PEG ratio is 0.9 times. Year-over-year earnings growth is currently forecasted at 7% and 12% for this year and the next, respectively.

Kirkland’s Inc. (KIRK) has a bit longer until it reports, in November, but its Zacks Consensus Estimate has spiked. The average estimate for this year is $1.11, up from 78 cents 2 months ago. This would be a year-over-year growth of 270%. Earnings next year are supposed to dip for the home decor company, but like I said, look at the earnings report for real growth before you jump in.

Fuqi International Inc (FUQI) is a Chinese Jewelry company. We will have to wait about a month for the company to report but if there is solid growth, shares selling at 14 time forward earnings will be a steal. Not to mention, with expected growth rates of 48% and 12%, the PEG ratio is just 0.5.

Be Patient
Consumers, i.e. you and I, are in the driver’s seat right now and have to power to take us to a better economy, or send us right back into a recession. So, with a level market, you can get into these sectors at a reasonable price or even wait to see how the earnings trend plays out. Either way, keep an eye on all the earnings news for guidance, not just the consumer stocks you own.

Earnings Preview for Oct 12 – 16

By: Charles Rotblut
October 09, 2009

Large-cap companies will dominate the earnings headlines this week. Dow components Bank of America (BAC), General Electric (GE), IBM (IBM), Intel (INTC) and Johnson & Johnson (JNJ) are scheduled to release third-quarter results. Joining them will be Goldman Sachs (GS) and Google (GOOG). In total, we have confirmed reports from 72 companies, 29 of which are in the S&P 500.

There will be quite a bit of economic data published, including CPI and industrial production and capacity utilization. We will also get the minutes from the September Fed meeting, which will be scrutinized for any talking points about the pace of the recovery.
* Wednesday: September retail sales, Fed minutes, August business inventories, weekly crude inventories, weekly mortgage applications
* Thursday: September Consumer Price Index (CPI), October Philadelphia Fed survey, weekly initial jobless claims, weekly natural gas inventories
* Friday: September industrial production and capacity utilization, preliminary October University of Michigan sentiment

Both Council of Economic Advisers Chair Christina Romer and Federal Reserve Vice Chairman Donald Kohn will speak at the National Association for Business Economics’ Annual Meeting in St. Louis on Tuesday. Romer has a morning presentation and Kohn will speak in the afternoon. Also on Tuesday, New York Federal Reserve Bank President William Dudley will talk to the Institute of International Bankers.

Fed Governor Daniel Tarullo will testify before a House subcommittee on Wednesday afternoon. His testimony will focus on the state of the banking industry. Dallas Federal Reserve Bank President Richard Fisher will appear at a conference in Dallas on Friday. The conference is co-sponsored by SMU’s business school.

Though Monday is Columbus Day, both the stock and futures markets will operate on normal hours. Though stocks are poised to continue the rally, a good reaction to the third-quarter results will be required to get the Dow firmly above 10,000. The key will be whether business conditions improved enough to enable companies to surpass both revenue and earnings forecasts. Keep in mind the number of reports will jump substantially next week.

Companies That Could Issue Positive Earnings Surprises
Fairchild Semiconductor International (FCS) has topped expectations for 4 consecutive quarters. Another positive surprise could be in works as 4 analysts recently raised their third-quarter profit projections. These revisions have pushed the Zacks Consensus Estimate a penny higher to 7 cents per share. The most accurate estimate is even more bullish at 9 cents per share. FCS is scheduled to report on Thursday, Oct 15, before the start of trading.

More than half of the covering analysts raised their third-quarter profit forecasts on Goldman Sachs (GS) over the past 30 days. These revisions resulted in a 63-cent upward revision in the Zacks Consensus Estimate, to $4.07 per share. The most accurate estimate is even more bullish at $4.16 per share. Last quarter, GS beat expectations by $1.41 per share. Goldman Sachs is scheduled to report on Thursday, Oct 15, after the close of trading.

The third-quarter Zacks Consensus Estimate for Google (GOOG) has risen 2 cents over the past 30 days to $4.66 per share. Positive revisions by about a quarter of the covering analysts are behind the optimism. The most accurate estimate is even more bullish at $4.72 per share. Google has topped expectations for 4 consecutive quarters. Google is scheduled to report on Thursday, Oct 15, after the close of trading.

Five analysts have raised their third-quarter profit forecasts on Intel (INTC) during the past 4 weeks. Due to the fact that more than 30 analysts cover INTC, the changes did not move the Zacks Consensus Estimate from its current level of 27 cents per share. They did, however, result in a slightly more bullish most accurate estimate of 28 cents per share. The semiconductor company has topped expectations during 3 out of the last 4 quarters. Intel is scheduled to report on Tuesday, Oct 13, after the close of trading.

Companies That Could Issue Negative Earnings Surprises
Safeway (SWY) has missed expectations for 4 consecutive quarters. Recent earnings estimate cuts by 2 analysts suggest another disappointment could be forthcoming. The revisions pushed the Zacks Consensus Estimate down a penny to 31 cents per share. The most accurate estimate is more bearish at 28 cents per share. Safeway is scheduled to report on Thursday, Oct 15, before the start of trading.

Limiting Your Risk When Buying Options

By Kevin Matras
October 08, 2009

One of the key benefits to buying options is that you can never lose more than what you paid for them. Another great benefit is the tremendous leverage that options afford the investor. Of course, there are downsides too. Unless you’re deep in the money, options will only move by a percentage of the underlying stock’s move. And not only do you need to be right on the direction of the stock, you also have to be right on the size of the move and the timing surrounding it.

Sound complicated? It really isn’t. As with any investment, you need to do your homework. Make sure you research the underlying stock before you put any money on its options. Once you’ve decided if you’re bullish or bearish (meaning you’ll buy a call or a put), determine what your reasonable price target is and the time frame when you think it will happen. You can then decide which option to buy. But you’ll also need to decide how much you’ll invest – and risk. Too many people put way too much money into options.

Yes, they are comforted by the fact that there is tons of leverage and a limited risk (limited to what you put in). But unfortunately, way too many people find out the hard way that while they did have a limited risk (limited to what they put in), they literally ended up losing everything they invested. For example: just because you have $5,000 to invest in a stock, does not mean you should invest $5,000 in an option. Why? Because if a stock goes down, you’ll be getting out with a loss, but it likely won’t be 100%. (Maybe -5%, -10%, -20% or something like that. But it’s rare to get in and watch your stock go to zero overnight.)
But seeing an option expire worthless (going to zero) happens all the time – and it often happens much faster than you think.

So today’s article is about how much money to invest in an option so you can help limit your risk. As a rule of thumb when buying options: I’ll look at what the stock would cost me. I would also determine how much money I was willing to lose on that stock, i.e., how low would it have to go for me to lose ‘x’ amount, or, in other words, the most I was willing to lose.

So at that point, I give myself two choices:
1. If I was only willing to lose 15% on a hypothetical $5,000 investment, that means I was willing to lose $750. So I could come up with whatever option strategy I thought was best as long as I invested with no more than $750. Why only $750? Because that was the maximum amount I was willing to lose on my $5,000 investment. Too many people instead think: ‘OK, I was going to spend $5,000 on the stock, but I can buy $5,000 worth of options and make 10 times as much (or more) if it hits’. Unfortunately, with these types of options, investors usually lose ALL of the $5,000. But by strictly putting in ONLY what you were willing to lose, even if you do end up losing it all, it was smart trade because you managed your risk and you never lost more than what you were truly willing to.

2. If you decide to invest more than you’d prefer to lose, the other alternative is to have the discipline to pull the plug the moment the option(s) have lost that amount. Novice option traders will often convince themselves to ‘hang on’ a little bit longer. This is because the stock still ‘looks good’ and they want to hang in there – seemingly forgetting that a stock can stay above your support levels until the very end and you can still lose it all because you ran out of time. Or maybe they hang on too long because they get hit for more than they expected somewhere along the line, and then say: ‘well, it doesn’t make sense to sell those options now, I might as well keep them to see if anything happens’. (This is probably the most oft-repeated phrase that precedes the option investor that loses 100% of his premium.)

Don’t be that guy. If you have the discipline, strategy #2 is fine. But sometimes things can get away from you quickly – even for the more experienced options guy. The first strategy (#1) is usually the best to use until you get more comfortable in your options trading and risk management. Options are a fantastic tool and can be a tremendous addition to one’s portfolio. But be smart. Don’t put in too much. Pay attention. And stay disciplined.

Next week, I’ll walk thru my process of finding optionable trades and my options selection. In the meantime, you can learn more about different types of option strategies by downloading our free options booklet: 3 Smart Ways to Make Money with Options (Two of Which You Probably Never Heard About).

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.

Weekly Price and Volume

By Kevin Matras
October 06, 2009

With the market and plenty of stocks hitting a rough patch over the last two weeks (although the market is doing a good job of trying to redeem itself so far this week), I’ve noticed that the pullback came on a noticeable increase in volume. I mention this because price typically follows volume. And if your stocks are falling on an increase in volume, that suggests selling, and maybe a set up for a larger correction.

Moreover, if the subsequent up days are made on lower volume than the down days, that’s additional foreshadowing that stocks might need to take a breather and find new ‘lower’ ground. And that’s why I want to focus on stocks with increasing Price and Volume in this week’s screen.

Once again, price should follow volume. If a stock is rising on increasing volume, it can be a sign that new buyers are coming in and some short sellers may be giving up. But rising prices on decreasing volume suggests a lack of new buyers and waning underlying pressure. Just like a ball on top of a hose needs more and more water pressure to push it higher, the same is true to an extent in the markets. Once you let up on that water pressure, the ball will fall back down. And when buying demand eases up, so too will the market.

So in this week’s screen I’m searching for stocks with increasing volume over the last couple of weeks; not just a couple of days, but weeks. This helps me see true demand that seems to be building over time. There may be an occasional light day here and there, but in total, I want to see it growing week by week. And while there are plenty of stocks that fail to meet these criteria, there are lots of really great stocks that do.

The parameters to the screen I’m running this week are as follows:
* Price >= $5
* Volume (avg. 20 day) >= 100,000
* Zacks Rank less than or equal to 3
* Projected 12 month Growth Rate > 0
* Recent Week’s Price > Price from 1 Week Ago
* Price from 1 Week Ago > Price from 2 Weeks Ago
* Weekly Volume > Weekly Volume from 1 Week Ago
* Weekly Volume from 1 Week Ago > Weekly Volume from 2 Weeks Ago

For those using the Research Wizard, here’s what the Price and Volume parameters look like. (The Price components (i6) and Volume components (i7) were done using the DBWP – Historical Weekly Prices database.)

Here are 5 stocks that made it thru this week’s screen for 10/5/09:
AXS – Analyst Report AXIS Capital Holdings Ltd.
AZZ – AZZ incorporated
CHKP – Check Point Software Technologies Ltd.
EBF – Ennis, Inc.
NETC – Net Servicos de Comunicacao S.A.

Get the rest of the stocks on this list and start screening for these companies on your own. And be sure to check your own stocks to see if their price and volume are moving in the same direction. If not, you might want to take a closer look at them.

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.

Earnings Preview for Oct 5 – 9

By Charles Rotblut
October 02, 2009

Third-quarter earnings season officially starts on Wednesday afternoon with Alcoa’s (AA) report. The aluminum maker is expected to announce revenues of $4.5 billion and a loss of 11 cents per share. The results will look awful compared to last year because the commodity bubble peaked in Q308.

Joining AA will be 6 other S&P 500 members: Costco (COST), Family Dollar (FDO), Marriott (MAR), Monsanto (MON), Pepsi Bottling (PBG), PepsiCo (PEP) and Yum! Brands (YUM). We have confirmed scheduled reports from a total of 24 companies.

Economic data will largely take a backseat to the earnings news. There is comparatively little on the calendar, with the most newsworthy release being the September ISM services index. The weekly energy and mortgage applications reports could still influence trading, however.
* Monday: September ISM services survey
* Wednesday: August consumer credit, September treasury budget, weekly crude inventories, weekly mortgage applications
* Thursday: August wholesale inventories, weekly initial jobless claims, weekly natural gas inventories
* Friday: August trade balance

The Fed will hold a conference in Washington D.C. Fed Chairman Ben Bernanke will provide an update of the Fed’s balance sheet on Tuesday evening. Vice Chairman Donald L. Kohn will talk about the Fed’s response to the financial crisis on Thursday at 12:15 p.m.

Kansas City Federal Reserve Bank President Thomas Hoenig will make 2 speeches this week. On Tuesday evening, he will appear at an economic forum in Denver. On Thursday evening, he will speak at a similar forum in Oklahoma City.

A 10-year TIPS auction will be held on Monday, a 10-year Treasury note auction will be held on Wednesday and a 30-year Treasury bond auction will be held on Thursday. Overall, the Treasury Department will sell $78 billion in securities this week. Recent auctions have been oversubscribed, signaling strong demand.

After this week’s pullback, the markets will be seeking direction. The Dow was trading near the first line of support on Friday morning, though further downside is a possibility. How revenues, earnings and guidance fare relative to expectations will play a role in influencing market direction. Keep in mind that the majority of earnings reports won’t be released until the latter part of the month.

Third-Quarter Earnings
The median S&P 500 company is forecast to report a 15% drop in profits and a 6.9% drop in revenues. (On an average company basis, EPS should drop 36.2% and revenues should fall 9.4%. The average numbers look worse due to the influence of outliers, or companies projected to report very large year-over-year drops.)

Companies That Could Issue Positive Earnings Surprises
PepsiCo (PEP) has topped expectations for 2 consecutive quarters by an average margin of 3 cents per share. Though the third-quarter Zacks Consensus Estimate is unchanged at $1.03 per share, a recent revision by 1 brokerage analyst has resulted in a most accurate estimate of $1.04 per share. PepsiCo is scheduled to report on Thursday, Oct 8, before the start of trading.

Companies That Could Issue Negative Earnings Surprises
Concerns about lower demand for fertilizer prompted 3 analysts to cut their fiscal first-quarter profit projections on Mosaic (MOS) in recent weeks. The downward revisions have pushed the Zacks Consensus Estimate 4 cents lower to 33 cents per share. The most accurate estimate is more bearish at 22 cents per share. MOS has missed expectations twice in the past 4 quarters. Mosaic is scheduled to report on Monday, Oct 5, after the close of trading.

Fertilizer’s Farming Problem

By Charles Robtblut
September 30, 2009

Hostile takeover attempts have kept fertilizer companies in the news. The acquisition talk has helped to overshadow a negative trend that should have investors concerned – ongoing cuts to full-year profit forecasts. During the past 90 days, the Zacks Consensus Estimates have been revised downwards on several fertilizer companies, including Agrium (AGU), Intrepid Potash (IPI), Mosaic (MOS) and Potash of Saskatchewan (POT). The most recent cuts were related to a warning from POT. The company predicted that its full-year profits would be in the range of $3.25 to $3.75 per share, instead of the prior guidance of $4 to $5 per share. The company blamed “continued slow demand and limited restocking by fertilizer distributors” as the reasons for the revised forecast.

All Is Not Well on the Farm
The big reason why profit projections for fertilizer companies have been falling is not weaker demand for fertilizer, but rather why demand is down. After enjoying very strong profits in 2007 and 2008, many farmers are now seeing their incomes drop. Even after adjusting for a recent rebound, corn futures are down substantially from the start of the year. Wheat prices are also down. Soy prices have plunged over the past few months.

Supply is a big reason why. Though the spring planting season was delayed, favorable weather patterns resulted in bumper crops throughout the summer. At the same time, a decline in oil prices hurt demand for ethanol, which, in turn, impacted farmers.

Compounding matters is the economy. The worldwide contraction likely reduced food consumption. (Did you notice how there were not any headlines about food shortages this year?) Plus, consumers have looked for cheaper ways to feed their families. These factors have kept cattle prices weak, which contributed to weaker demand for grains.

Then there is the banking crisis. Bank closures affect rural areas worse than urban areas because of a lack of competition. In some rural communities, the only nearby bank was seized by the FDIC. Not to mention the increased difficulty of securing loans.

The net result is lower farm profitability. In late August, the Department of Agriculture forecast that farm profits would fall 38% this year. There has been relatively little since then that would cause a big, positive revision to that forecast.

Mergers Are the One Positive
The one positive for the group are the proposed deals. CF Industries (CF) announced on Monday that it bought 7% of Terra Industries’ outstanding stock over the past 2 weeks. CF wants TRA shareholders to accept a merger agreement that would represent an approximate 15% premium over TRA’s current share price. However, Agrium wants to purchase CF. AGU recently extended the deadline for its acquisition offer of CF to Oct 22. (The offer represents approximately a 4% premium over CF’s current price.) It is probable that if AGU were to buy CF, CF’s acquisition of TRA would be called off.

Compounding matters is the fact that TRA recently announced a special $7.50 per share dividend, payable in the fourth quarter. CF’s offer for TRA would be adjusted to reflect this dividend. The merger activity makes shorting these stocks risky over the very near-term, even with the falling estimates. On the other hand, much of the upside from the proposed deals appears to be priced in. Overall, the downside risks outweigh probable short-term upside, particularly if neither acquisition offer is accepted.

Zacks Rank
IPI, MOS and POT are Zacks #5 Rank (“strong sell”) stocks. AGU and CF are Zacks #3 Rank (“hold”) stocks. They are all classified in Fertilizers, which has a Zacks Industry Rank of 206, placing the group near the bottom of the Industry Rank List. Fertilizers stock also account for a significant portion of Market Vectors Agribusiness (MOO), something to consider when evaluating this ETF.

Delta Force Options

By Kevin Matras
October 01, 2009

What a great name for a title! The delta I’m talking about though is the one that applies to options. And basically it’s a way to measure how much an option will increase or decrease in value based on the change in the underlying stock. The definition of delta as it applies to options is: The percentage an option will increase or decrease in value in relation to the price movement of the underlying stock.

For example, a delta of .60 or 60% means the option will move or change in value equal to 60% of the underlying stock’s price change, so a $1.00 rise in the stock should see a 60-cent rise in the option premium. If the stock fell by -$1.00, the option should decrease by -60 cents.

There’s a second part, though, to understand this fully. The delta will change (either increase or decrease), in general, based on how ‘in the money’ or ‘out of the money’ your option becomes. For instance, let’s say there’s a stock trading at $85 (like Amazon (AMZN) for example) and you had a $95, out-of-the-money call option, with 4 months of time on it. That option might have a delta of .41 or 41%. Let’s also say that option was priced at 6.00 or $600. Now let’s say the stock increased by $10. This means that out-of-the-money call option with a delta of 41% would’ve increased by $4.10 or $410.

Now, that option is at-the-money.
Remember, the option’s delta will increase or decrease based on how ‘in the money’ or ‘out of the money’ the option becomes. So now your option is at-the-money. Instead of your delta being 41%, it might now be 60%. If Amazon were to then increase another $10, that option would now increase by another 60% (60% of the $10 move) or $6, i.e., $600. And as the price goes up, and the more your option gets ‘in the money’, the bigger your delta will become until it gets to be 100%.

Likewise, the further ‘out of the money’ the option gets, the smaller the delta becomes. So when you’re deciding what option to buy or sell, look at the delta so you can get an idea as to how much your option will increase or decrease based on the underlying price of the stock. In a future article, I’ll go over some techniques for choosing when its best to buy out-of-the-money options and when it’s best to buy in-the-money options. This will help balance your investment dollars while maximizing your gains and your delta and minimizing your risk.

But knowing your option’s delta is one of the keys to picking the right option to get into. You can learn more about different types of option strategies by downloading our free options booklet: 3 Smart Ways to Make Money with Options (Two of Which You Probably Never Heard About).

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.

Filtered Zacks Rank2 Revisited

By Kevin Matras
September 29, 2009

The last time I talked about this strategy was back on Jun 16. Prior to that, it was featured back in October 2007, right before the bear market hit. When I talked about it then, this strategy had shown an average annual return of 72.7% per year going all the way back to 2000 (2000 thru Sept. 2007 – nearly 8 years at that time). 2008, as you might have guessed, was a tough year. But that’s part of trading. There will always be challenges along the way. However, using a proven profitable strategy can give you the confidence to stick with it, knowing that the odds of success are in your favor.

A proven profitable strategy is, of course, different than a box of magic. Nothing will ever preclude you from having another losing trade. But following sound and tested stock-picking rules can help you beat the market over and over again.

2009
When I spoke about this strategy in June, I showed that the Filtered Zacks Rank2 strategy (using a 1 week holding period) was up 55.1% this year vs. the S&P 500’s 2.1% (thru the first week of June 2009). Today, I wanted to revisit this strategy again by updating its returns thru most of September. Currently, thru the third week of September, the Filtered Zacks Rank2 strategy is up 91.3% vs. the S&P 500’s 16.7%. Pretty impressive. And even more so is the smooth ride getting there: It holds 5 stocks in its portfolio at a time, and it’s a pretty easy strategy to trade. But you will be rebalancing your portfolio weekly. So if you’re an active trader, you’ll love it. Even if you’re not, seeing the stocks that it’s picking is exciting to watch.

Parameters
There are three items that go into this screen:
* Zacks Rank = 1
As you know, the Zacks Rank is one of the best ranking systems out there. Since 1988 (over the last 21+ years), the Zacks #1 Rank stocks have shown an average annual return of over 26.3% a year. This screen starts off by focusing in on these.
* % Change Current Quarter Estimates over 4 Weeks > 0
This item is important because, while the Zacks Rank already looks at the Current Year’s Estimate Revisions and Next Year’s Estimate Revisions, this added component looks at the more immediate future, which is the Current Quarter. And by saying greater than zero, we’re excluding any company with a negative revision.
* % Change in the Average Broker Rating over 1 Week = Top # 5
This means I’m looking for the 5 stocks with the biggest or best change in their average broker rating. In other words, brokers have been upgrading the stocks. While I don’t really follow broker recommendations, per se’, since I believe they’re skewed to the upside, I do like to see the change in the rating. Are these guys getting more bullish or less bullish? This is good to know. So I want to make sure the average broker rating has gotten better, or at least not gotten worse, over the last week.

Combined, these three items produce some very powerful results.
(This strategy comes loaded with the Research Wizard and is called: bt_sow_filtered zacks rank2. It can be found in the SoW (Screen of the Week) folder.)

Here are three of the stocks that qualified the Filtered Zacks Rank2 strategy for 9/28/09:
BLK – BlackRock, Inc.
MSTR – MicroStrategy, Inc.
STX – Seagate Technology

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.

Earnings Preview for Sep 28- Oct 2

By Charles Rotblut
September 25, 2009

Five S&P 500 companies are confirmed to report: Constellation Brands (STZ), Darden Restaurants (DRI), Jabil Circuit (JBL), Nike (NKE) and Walgreen (WAG). A total of 27 companies are on the calendar.

We are still a week away from the “official” start of third-quarter earnings season. Alcoa (AA) will release its results on Oct 7. The majority of companies will not start reporting until the latter half of October, however.

The economic calendar is most active towards the second half of the week with the release of the ISM manufacturing survey and the monthly employment surveys.

* Tuesday: September Conference Board consumer confidence survey, July Case-Schiller home price index
* Wednesday: September Chicago PMI, September ADP employment survey, final Q2 GDP, weekly crude inventories, weekly mortgage applications
* Thursday: September ISM manufacturing survey, August personal income and spending, August pending home sales, September auto sales, September Monster employment index, September Challenger employment survey, August construction spending, weekly initial jobless claims, weekly natural gas inventories
* Friday: September unemployment and nonfarm payrolls, August factory orders

Fed Chairman Ben Bernanke will appear before the Congressional Black Caucus Foundation on Tuesday morning. Also on Tuesday, Fed General Counsel Scott Alvarez will testify before the House financial services committee, Fed Governor Kevin Warsh will participate in a panel discussion about economic policy at the Chicago Fed Bank and Philadelphia Fed Bank President Charles Plosser will speak about the economy at the Lehigh Valley Economic Outlook.

On Wednesday, Vice Chairman Donald Kohn will discuss the Fed’s exit strategy at the Cato Institute. Cleveland Fed President Sandra Pianalto will speak in New York on Thursday evening.

Monday is Yom Kippur, the holiest day on the Jewish calendar. Therefore, volume should be lighter than usual.

Given the calendar, I expect most of the market’s action to occur during the latter part of the week. Though the Dow failed to get much above 9,900, I continue to think there is enough short-term bullish sentiment to get the average above the 10,000 mark. This said, investors should realize that getting above 10K amounts to a group hug for the markets rather than signaling any significant change.

Companies That Could Issue Positive Earnings Surprises
Earlier this month, Xyratex (XRTX) preannounced fiscal third-quarter revenues of approximately $247 million. CEO Steve Barber credited a rebound in the economy and the storage market for helping sales. All 3 brokerage analysts raised their profit projections in response, pushing the Zacks Consensus Estimate 13 cents higher to a profit of 10 cents per share. XRTX topped expectations last quarter by 8 cents, ending a streak of 3 consecutive disappointments. Xyratex is scheduled to report on Wednesday, Sep 30, at the close of trading.

Companies That Could Issue Negative Earnings Surprises
Walgreen (WAG) has missed expectations for 3 consecutive quarters. Ahead of the company’s fiscal fourth-quarter report, nearly a third of the covering brokerage analysts have cut their profit projections. The revisions have resulted in the Zacks Consensus Estimate falling by a penny to 39 cents per share. The most accurate estimate is more bearish at 37 cents per share. Walgreen is scheduled to report on Sep 29, before the start of trading.