SubscribeEarnings Momentum and Analyst Upgrade Screen
October 9, 2007
I have been busy. Too busy. It has been a whirlwind of book, audiobook, podcast, clients, portfolios and much more. So, I apologize for not being close to the keyboard. That said, I realized that there were many emails and many comments about two recent posts that focused on “Quant screens” and thought that one more couldn’t hurt…
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(Excerpt from The Disciplined Investor)
The MSN Money stock-screening tool makes available some great ways to unearth sometimes buried opportunities. One that has been found to be very profitable in an upward momentum bull market is a screen that searches out the information reported by seasoned analysts. The very thought that analysts are raising their assumptions can cause the sentiment surrounding a stock to quickly change. As has been seen from the bull markets that occurred during the latter part of the 90s, earning surprises both to the up and downsides have a habit of creating either prosperity or poverty. This particular screen is meant to be used as a brainstorming tool for those stocks that may be possible short to mid-term momentum plays.
When an analyst that closely studies a certain company or sector changes his or her rating or earnings estimate for that company or sector, it is a pretty good sign that there is something more going on than meets the eye. Companies such as Zacks Investment Research are in the business of following these analysts and tracking the changes that they make to their ratings and earnings estimates.
This search focuses on the companies with the highest earnings-per-share growth projected for next year, for which the analysts have increased their estimates. It also adds additional parameters and overlays to find the stocks with the greatest recent price changes and upward-moving technical trends.
The Screen: Momentum Earnings Up
You will undoubtedly find many stocks that you have probably never heard of within these results. Caveat emptor! Try not to let yourself get sucked into the temptation of following the historic returns. Be sure to keep a cool head and think about the company and its longer-term prospects.
The screen was run on the MSN Money Site with the following criteria:
Stocks from Screen (10/9/2007) : (BGP) (EQIX) (NAVI) (LYV) (BLOG) (XTXI) (OMTR) (EYE) (MDCO) (CNO) (CNTF) (CRM) (OMRI) (OCNF) (MFA) (OHB) (SLH) (OPTM) (MMR) (WRES) (ANH) (OMN) (ONXX) (INTV) (MOGN)
Disclosure: Horowitz & Company clients may hold Lng or Short positions in the stocks mentioned
Bank of America - Last Man Standing
August 27, 2007
There is a fine line between brilliance and stupidity. In the world of finance and investing, that line can sometimes be measured by risk and reward. If the decision made by an investor turns out to be profitable, then we look at the outcome as a result of either luck or well-planned execution. The risk was simply the potential for a loss or gain. Of course this is OVERsimplified, but you get the point.
Bank of America (BAC) is walking that very line right now with the infusion of $2 billion into the troubled Countrywide Financial (CFC). The latest acquisition by the company is not the first one that CEO Ken Lewis has stuck his neck out on. In fact, he seems to be making a habit of cleaning up corporate messes.
The takeover of US Trust was the result of ongoing losses by Schwab (SCH). It became painfully obvious to shareholders after it became obvious after several quarters of miscommunication and the drag on corporate earnings. Originally the “Crown Glory” of then CEO, David Pottruck, it was seen as a departure from Schwab’s core business as he looked to expand into high-net-worth clientèle segment. The inability of Pottruck to assimilate the US Trust division into Schwab’s business ultimately lead to the decision to release both Pottruck and US Trust. Bank of America’s Lewis looked at this as a great opportunity to pick up US Trust at a bargain price. So far this seems to have been a great move by Lewis.
Now, according to The Wall Street Journal, Bank of America paid $2 billion for preferred shares of Countrywide that yields 7.25% dividends and are convertible into a 16% stake in the lender. This deal booked a nice profit (paper for now) of about $400 million.
What’s more, since Lewis was positioned as CEO, Bank of America’s annual revenue has more than doubled to more than $74 billion. Its assets have more than doubled to $1.46 trillion. And profits have more than tripled, to $21.1 billion last year.
The timing of the Countrywide deal is going to become Lewis’s greatest triumph if Countrywide emerges from this crisis and eventually is able to clean up any significant outstanding financial issues. This is clearly a time that will benefit the “last man standing” in the beleaguered mortgage industry. The companies that are able to weather this storm will surely become the new leaders within the financial industry. As is said; what does not kill them, will surely make them stronger.
No matter how the Countrywide story unfolds, this was a brilliant move by Lewis to strengthen the industry by allowing for additional liquidity and at the some time helping to boost investor sentiment. Either way, Bank of America will surely be one of the last ones standing. The wild card will be if they do it with, or without, Countrywide by their side. Even though Countrywide CEO Mozilo currently denies any merger talks, he will surely warm up to the idea if the sub-prime mess worsens and his company continues to suffer.
Horowitz & Company clients have Long positions in the securities mentioned as of the date of this post.
Glancing Blow or Eye of the Storm?
August 23, 2007
If the markets were to be compared to a hurricane, we could say that the front wall has passed and we are now in the eye. This is one of nature’s wonders that is both beautiful and potentially deadly.
During the period that the eye passes over, skies are blue, the air is calm and there is even a feeling of excitement that the storms is finally over and the damage is limited. But that lasts for a short time. It is usually the back end of the storm that causes the most damage. In fact, that usually has 20% more strength and has the potential to create tornadoes and eventual mass destruction.
Often times, market corrections can act in a similar fashion. Usually as an investor our first inclination is to prepare and see if we can weather out the storm and then as the volatility slows look to move back into the markets. Hopefully waiting enough time for the worst to be over. Then, sometimes, seemingly out of nowhere, the violent storm starts again. We have seen this cycle occur many times in the past. First we see indications, we prepare and then, just as the markets seem to be headed back up, we see a second break down. This is usually due to additional information being exposed or the result of investors re-evaluating risk.
As the chart below shows (contrasting 1998 to today), a similar cycle was seen during the 1998 Long Term Capital Management fiasco. As the run-up in the market began to consolidate, the news of LTCM hit the financial markets. The initial downward move was fierce. Then, anxious investors, feeling more secure by the apparent containment of the event, looked to get in on a bounce opportunity and pushed the markets up for a few weeks.
Then, the second leg of the correction ensued, dropping out another 5% or so. While the past is no indication of the future, we should look and learn from some of the similarities and differences. The current environment is one that has fear, apprehension and uncertainty tied up a liquidity crunch. All of which wreak havoc on investments.
Be careful not to get your leg caught in a non-confirming bounce. Sometimes, a patient investor is a profitable investor. The fact is that we will not know whether we are in the EYE or if we just received a glancing blow. Prudence prevails.
Update - Zumiez Hits HOT 100
August 20, 2007
On July 24th, we initially reviewed Zumiez (ZUMZ) with a post entitled Zoom Zoom Zumiez. Concurrently we started to add a first round of investments for our client portfolios. The price at the time was approaching $38.50.
Recently, CNN.com reported that Bon-Ton is tops in growth in the Stores Magazine’s list of ‘Hot 100′ firms. This list ranks stores with fastest-growing annual sales. Also included towards the top ranking is GameStop (GME), Zumiez (ZUMZ) and CitiTrends. Meanwhile, Wal-Mart (WMT) is down at number 78.
According to the article, within the top 10 also includes Zumiez (Charts) at number 4! This is a huge move over the past 12 months. Zumiez is an online and mall-based seller of clothing and accessories for active sports like snowboarding, skateboarding and surfing. All the HOT products…..
Since then, there have been several interesting announcements from the company and the sector. First, Zumiez announced same store sales that beat expectation by 40%. Coming in at a hot 9% growth rate as compared to last report was enough to push the stock higher, for a few days. Then, the retail sector reported that sales had slowed in many sectors. This had a cooling effect on many retail stocks.
The noted strength in this name during the recent market downturn has to convey increasing support and awareness for the underlying brand that Zumiez sells. The sector has a broad range of companies, some of which will do well in this current market and economic environment and others that will not. Furthermore, there are a select few that will be more protected from market risk (although not removed from it). These are the companies that sell to the younger group that will continue to buy up the “hot” items. This is where we want to invest.
Coming in a few days, (August 22) Zumiez is planning to release quarterly earnings. The latest run up and then almost immediate pullbacks indicates that we are seeing short-covering (as of July 17 - 15.7 million shares held short which is 27% of float) into this announcement. The company only has 17.47 million shares in float and a daily volume that is approaching 1,248,190. This is a sharp increase from the 3-month average of 660,000 shares.With 88% institutional ownership and Profit Margin (ttm) of 6.69%, along with operating Margin (ttm) of 11.33%, the earnings will certainly show us if this is a short term aberration or if this company and their management actualy understands their market segment. Up until now, they have done a stellar job honing in on the trends and creating the environment within their stores that helps to move products.
The continuing concern is the Forward P/E nearing 32.6. This is high as compared to the market and the retail sector. As we wrote in the initial review and buy recommendations, the P/E along with a hot PEG ratio has us wondering if this is a growth company ion the verge of a major breakthrough or a company that is overvalued.
This next earnings announcement will show us a much better view. With that said, during the recent market meltdown, we have been recommending and buying this name aggressively.
Analysts are looking for quarterly earnings with a range of $.08-.09 and annual of $.95-1.01. Management has surprised in the past, though the surprises are not consistent. All of this is the obvious reason that investors have not committed to shares. Until we see otherwise, we are finding good reason to build positions, especially when shares are below $40. This may be the last time investors have this option as a good earnings report will solidify the range and should push the shares above $46.
Disclosure: Clients of Horowitz & Company hold LONG positions of ZUMZ as of this post.
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Can financial bloggers collect unemployment benefits?
August 15, 2007
“I rant and therefore I am”… Andrew Horowitz
Of Mice and Anal-ists
It is awfully irritating to read and listen to the post game shows. FELLAS: we already know that the market tanked! What we need is prediction and pre-market assessments! Unfortunately, it seems that the art of forward thinking is all but dead. This struck me hard as I listened to one of my favorite podcasts yesterday and heard strategist David Goertz from HighMark Capital give his best advice for this market. He went on to give two examples of stocks to own now; Intel and EMC.
Does he think we are idiots? EMC, the stock that spun off one of the hottest IPOs that day. EMC, who would benefit from the 90% ownership of VMWare that opened at $50 from an IPO pricing of $29? Fortunately, he did go on to predict that it would be light during the day and dark at night…
Just a few weeks ago, anal-ists and rye-ters were all singing the praises of this market. They were chirping a lovely tune about the immense amount of liquidity and opportunities ahead of us. Little was said about the growing chinks in the armor that seemed as apparent as the “pink-on-cramer.”
Now, the “experts” on sites like bloggingstocks.com are busy telling us how the market may move lower and it seems that bullish commentary is hush. Thanks! These are the same amateurs that make the same mistakes time and time again only to find themselves out in the cold with no jackets during the winter months.
To be honest, I really wonder if many of the folks discussing the markets are simply out-of-work real estate moguls, now turned investment advisors. Whatever they are, I think that if THE Donald were here, he would surely say…YOUR FIRED!
The Numbers Don’t Lie…
This time around (which by the way is no different than any other time, even though they always say: “it is different this time…”) we are seeing a spike in the number of financially oriented websites along with a slew of bloggers who are benefiting no one. Their hyperbole and hysteria surrounding names like Baidu (BIDU), Apple (AAPL) and Croc’s (CROX) is enough to make anyone feel sorry for their misguided optimism. These are not bad companies; we are simply seeing bad analysis of these companies.
I recall a time that we saw an amazing increase in the number of Series 7 registrations in 1987, Real Estate Agents in 2005 and the record breaking number of CFP applications in 1994. What these have in common is the simple fact that people want in on the action. Greed and Fear, the two most talked about words these days are always at work in the financial arena.
ARMs For The Poor
Now, the record number of financial blogs, podcasts, wiki’s and television shows along with the countless number of money related sites should have been an enormous warning flag. When we allow ourselves to believe the talk of the time and buy into what we know to be counter-intuitive (right, so you believed that 100% financing and interest-only ARM loans posed no long-term problem) a light bulb should go off (actually, 50,000 volts should pass though our body) to remind us that something is not quite kosher.
In the end, these types of market corrections help to wash out the excess. That excess pertains to stock prices as well as the hot-air blogging fad. Watch and wait… I hope at least, for their sake, they will be able to collect unemployment benefits.
* Note: Discussion is somewhat limited to those “part-time” bloggers who write for THEIR own benefit. You know who you are….
