Given this broad based weakness, investors shouldn’t be surprised to note that ETFs of a variety of cap levels have also been under pressure as of late too. In both the small and large cap segments, only a handful of funds are in the green for the trailing one month, while in the mid cap space, just a single fund has managed to break the trend and post gains in the time frame.

The Lone Mid Cap Winner

The only fund in this segment which has managed to see gains in the past month is the Guggenheim S&P 400 Pure Value ETF (RFV). The product is little appreciated with under $60 million in assets, but it has been holding up quite well with a gain of about 1.6% in the past month, and a gain of 37.7% in the past year (read Mid Cap ETF Investing 101).

This compares extremely favorably with the two most popular choices in the mid cap world, IJH and MDY. These two both have more than $12 billion in assets under management, but they have lost about 1.6% in the past month, and ‘only’ gained about 31% in the trailing one year time frame.

Given these performance figures, it is pretty clear that RFV has been an all-star compared to its counterparts in the space. So if investors are thinking about making a play on the mid cap market, this often-overlooked Guggenheim fund could make for an excellent choice that has shown a strong history of outperformance.

For investors seeking to learn more about this diamond in the rough, we have taken a closer look at this strong mid cap in greater detail below, in order to find out what is behind this fund’s history of strong performance:

RFV in Focus

This ETF tracks S&P MidCap 400 Pure Value Index, a benchmark that holds about 100 stocks in its basket. The focus of the fund looks to be on lower risk securities that have modest PE ratios, and low Price-to-Book ratios as well.

While this might sound similar to what many other funds employ in their value-centric funds, investors should note that this ETF only has a ‘pure’ focus. This means that for all mid cap stocks, they are determined to be value, growth, or neither; there is no overlap and a company cannot be in both growth and value benchmarks (also see Forget SPY, Focus on Mid and Small Cap ETFs).

The stipulation of only being classified as one of the trio greatly limits the total number of stocks included in the ETF, especially when compared to other funds in the space. However, it does ensure that only the stocks that have the best value characteristics are included in RPV, potentially resulting in a better portfolio.

At time of writing, this resulted in a portfolio that had a PE just below 20, and a Price-to-Book ratio sneaking in below two. Dividends are a bit light too, and particularly so when considering the value focus.

In terms of sector exposure, industrials and financials both account for just about 21% of assets, while technology and health care round out the top four. Stocks are also well diversified from an individual holding perspective, as no single company makes up more than 3% of assets (see Create a Diversified Portfolio Using ETFs).

The main downsides for the ETF are in its somewhat elevated expense ratio which comes in at 40 basis points a year. This compares extremely unfavorably with some of the other big names in the space that charge about 25 basis points a year.

Furthermore, RFV, with just under $60 million in AUM, isn’t exactly the most popular ETF in the space. This leaves the fund with paltry trading volumes, and the potential for wider bid ask spreads which can increase total costs.

Yet even when taking this into account, RFV has been a compelling option that has trounced many other—and ultra popular-- names in the space. Its history of outperformance stretches back for over five years, beating out both the most popular regular mid cap ETFs and two of the most popular value mid cap funds as well in the time frame (IWS, IJJ), suggesting that a pure approach could be the way to go.

Bottom Line

RFV may be a bit pricier than what investors are used to in the mid cap market, and thus inappropriate for ultra low cost investors. The fund isn’t exactly the most popular either, so bid ask spreads may be a little wide here, adding to total costs (also see all the Top Ranked ETFs).

Still, the fund has shown a strong history of outperformance, even when taking into account its elevated cost. And with its interesting methodology—which only includes the purest of value companies—this could be a fund that is worth delving deeper into, especially if you are looking for a top choice in the competitive, but usually ignored, mid cap ETF market.

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As a result, AT&T is presently using Ethernet routers of Cisco Systems, Inc. (CSCO) and Alcatel-Lucent, S.A. instead of Tellabs. AT&T historically generated 35% of the company’s total sales and 40% of the Data product revenues. In the first quarter of 2013, Data product revenues were down 52.6% year over year.

The Optical segment, which develops these popular Optical LAN products are the major contributor to Tellabs’ overall revenue and in fiscal 2012 it accounted for 41% of the total revenue. Hence, we believe that the recent deal with Wesco will certainly improve the company’s top line going forward.

Currently, Tellabs carries a Zacks Rank #4 (Sell).

Why the Reiteration?

Las Vegas Sands, the leader in the gaming and lodging industry, is well poised to grow with the gradual economic recovery. Apart from the U.S. and Chinese markets, the company is venturing into new emerging markets for further expansion, which would help it to withstand any regional downturn.

With the rise in gaming volume as well as significant contributions from the other non-gaming components, the company continues to register higher revenue growth at its Macao properties. Currently, it generates over 80% of its revenues from this region. Moreover, we believe that Sands Cotai Central project in Cotai Strip, when complete, will represent a significant expansion of the company’s Macao presence and will drive its visitation, moving forward.

The company’s business in the Las Vegas market seems to be gaining traction after a weak quarter. With the rise in leisure demand, the visitation pattern in the resort city is improving. This Zacks Rank #2 (Buy) company is also concentrating on the renovations and promotions of its Las Vegas properties in order to augment its performance, going ahead.

Moreover, the company’s business at Marina Bay Sands in Singapore appears to be stabilizing. Mass revenues are showing signs of improvement following the company’s new marketing programs and higher traffic growth.

Despite improving revenue growth prospects, the high debt level keeps us on the sidelines.

Moreover, we are skeptical about the successful completion of the company’s European integrated resort project -- EuroVegas -- in Madrid, Spain as it is subject to various terms and conditions of the government. Moreover, the company’s recent suspension of a high-rise residential condominium tower in the Las Vegas Strip can weigh on the company’s margin side in the coming quarters.

Las Vegas Sands’ upcoming project at Cotai in Macao will be up against other U.S.-based casino operators such as Wynn Resorts Ltd. (WYNN) and MGM Resorts International (MGM) that are also constructing casinos on the Cotai Strip. These new openings may restrict the company’s market share in the region, going ahead.

Other Stocks to Consider

Another stock from the same industry with a favorable Zacks Rank is Monarch Casino & Resort Inc. (MCRI) carrying a Zacks Rank #1 (Strong Buy).

System Builder is a powerful new design tool within the Libero System-on-Chip (SoC) Design Environment version 11.0, which helps design engineers to configure and interconnect the ARM processor and its related peripherals implemented in the FPGA devices. The tool has been created to simplify the design process for Microsemi's SmartFusion2 SoC FPGAs in embedded system applications.

FPGAs are semiconductor devices that allow programming/reprogramming even after the device has been installed. This flexibility makes the devices more expensive compared to regular programmable logic devices (PLDs), so their use is relatively restricted.

System on Chips or SOCs are integrated circuits that incorporate programmable logic, temperature or power sensing and management plus communication functions into a single, low-power device.

The new tool has few IP functions available within its System Builder, which can easily be used to create specific SoCsto be used in a wide range of applications such as flight data recorders, weapons systems, defibrillators, handheld radios, communications management systems and industrial motor control. Additionally, the tool can configure a growing set of IP blocks for high-performance interfaces and serial interfaces using 5Gbps SERDES for PCIe, XAUI (10 GbE) and SGMII.

Since the introduction of SmartFusion2 in October last year, the device has been widely accepted by customers in the communications, industrial and defense markets where accurate, reliable and flawless results are vital. Therefore, the System Builder enhancement tool will shorten the time to design complex SoC FPGAs, which should increase adoption.

Demand for FPGAs are increasing since they allow increased flexibility when creating designs and enable electronic device manufacturing companies to minimize their research and development (R&D) costs. This can prove to be a long-term growth driver for Microsemi.

Microsemi’s revenues in the second quarter of fiscal 2013 were $235.3 million, down 5.0% sequentially and 5.6% year over year. However, adjusted earnings per share came in at 32 cents, beating the Zacks Consensus Estimate by 2 cents or 6.7%.

Microsemi has a Zacks Rank #3 (Hold). Other stocks that have been performing well and are worth a look include Magnachip Semiconductor (MX), Microchip Technology (MCHP) and Maxlinear Inc. (MXL), all carrying a Zacks Rank #2 (Buy).

This contract is an extension of the strong domestic relationship between the two companies which has now been made international. The contract obligates MRC Global to provide PVFs for the maintenance, repair and operations (MRO) to Celanese’s worldwide operations. In addition to this, MRC Global is also required to cater to Celanese’s traditional distribution, project services and on-site materials management.

Celanese is a global provider of acetyl products, which are the intermediate chemicals used in almost every industry like filter media, paper and packaging, construction, food and beverage, to name a few. A tie-up with such a company can prove beneficial for MRC Global in terms of revenue generation as well as global reach.

MRC Global announced that it intends to release its second-quarter 2013 results on Aug 1, 2013, after the close of market. The Zacks Consensus Estimate stands at 41 cents, indicating a year-over-year increase of 4.36%.

MRC Global is a provider of pipe, valve and fittings, primarily to the energy markets. However, it now plans to strengthen its presence in the chemicals industry worldwide. MRC Global serves more than 18,000 customers, with the help of roughly 400 locations across North America, Europe, Asia and Australasia.

MRC currently carries a Zacks Rank #5 (Strong Sell). However, there are many other stocks in the pipe and tube industry that are performing better than MRC. Mueller Water Products, Inc. (MWA), carrying a Zacks Rank #1 (Strong Buy) and Valmont Industries, Inc. (VMI) carrying a Zacks Rank #2 (Buy), look attractive and are worth considering.

Currency headwinds, significant shipment declines in Philippines following a sudden tax hike and difficult year-ago comparisons hurt profits in the quarter despite decent top-line performance.

Why the Reiteration?

On Apr 22, 013, Philip Morris’ first-quarter 2013 earnings of $1.29 per share missed the Zacks Consensus Estimate by 4.4%.  Moreover, earnings increased only 3.2% year over year. However, revenues beat the Zacks revenue expectations and increased 3.2%, mainly driven by pricing which offset volume/mix headwinds.

Following the release of the first quarter results, the Zacks Consensus Estimate for fiscal 2013 went down 0.4% to $5.59 . Even for fiscal 2014, Zacks Consensus Estimate went down 0.3% to $6.22. Due to minor estimate revision, Philip Morris carries a Zacks Rank #3 (Hold).

Philip Morris has a strong brand portfolio of cigarettes, which helps it to command a leading market share in the tobacco industry. The company has maintained a market share in the range of 27%–28% from 2010-2012.

Marlboro leads the brands and has the largest market share among its close competitors. Marlboro’s market share in international cigarette market has been on the rise for several years and it rose from 9.1% in 2010 to 9.4% in 2012.

However, strict anti-smoking regulations by governments across the world, higher manufacturing costs and increased marketing costs are matters of concern.

Governments around the world are imposing restrictions on tobacco companies to reduce smoking in their respective countries, which is affecting cigarette consumption across the world. Governmental actions that outlaw the use of tobacco products, along with the diminishing social acceptance of smoking, will adversely impact the company’s volume in many markets, going ahead.

They are also imposing higher taxes, thus forcing companies to increase prices. Philip Morris has witnessed an increase in the overall average specific tax and excise tax ratio from 30.2% in Jan 2011 to 35.1% in Dec 2012.

Other Stocks to Consider

Philip Morris is not much ahead in the e-cigarette industry, while its competitors, Reynolds American Inc.’s (RAI), Altria Group Inc. (MO) and Lorrilard Inc. (LO) have gone a long way in the industry of alternative tobacco products. In fact, they are innovating new varieties of e-cigarettes, which are presently gaining huge popularity among tobacco consumers in the U.S.

The deal involves a cash transaction of $75 million and an estimated $225 million to $275 million market value of net working capital. The sale price also comprises an earn-out agreement of up to $40 million, which will be paid over a span of three years.

The deal is expected to be completed by the third quarter of 2013, but will be subject to the approvals from the regulators.

Tesoro management reveals that the primary reason behind the sale of the asset is that the Hawaii operations were not in line with the company’s business focus.

San Antonio, Texas-based Tesoro operates in two segments: Refining and Retail. Tesoro is paying greater attention for improving business processes, reducing operating costs, enhancing the integration of the refining portfolio and investing in organic growth. Tesoro is involved with a number of high-return projects that are expected to be cost effective.  

However, in an effort to reduce pollution, the Environmental Protection Agency (EPA) has recently outlined a proposal that would require refiners to reduce sulfur content in gasoline by 67% starting 2017. To comply with the new norm, Tesoro will have to increase its capital expenditure, which will adversely impact earnings and cash flows.

Tesoro currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months.   

Meanwhile, one can look at Ferrellgas Partners LP (FGP), InterOil Corporation (IOC) and EQT Midstream Partners LP (EQM) as good buying options. These energy stocks – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with the potential to rise significantly from the current levels.

The main financing supplements around $2 billion raised through a Sukuk issuance in Apr 2013, bringing the total Sadara project financing to roughly $12.5 billion. The funds raised will be used for the construction and start-up of a world scale chemical complex in Jubail Industrial City II, Kingdom of Saudi Arabia.

The complex will have 26 manufacturing units and will include flexible cracking capabilities. Sadara is expected to produce more than 3 million metric tons of high-value performance plastics and specialty chemical products. Sadara’s first production is expected to commence in the second half of 2015, with full production starting in mid-2016. Financial close of the project financing is expected to occur in the third quarter of 2013.

Dow has formed the joint venture to ensure long-term profitable growth in its downstream, innovation-driven businesses and also in the fast-growing regions such as Asia Pacific, the Middle East and Africa, and Eastern Europe. The joint venture is expected to generate EBITDA margins of 35%-40% and reap average equity earnings of $500 million annually during the first ten years after its start-up. This will also enable Dow to be at a competitive cost position.

Dow currently holds a Zacks Rank #3 (Hold).

Other companies in the chemical industry having favorable Zacks Rank are Shin-Etsu Chemical Co., Ltd. (SHECY), Celanese Corporation (CE) and Methanex Corporation (MEOH). Shin-Etsu Chemical and Methanex retain a Zacks Rank #1 (Strong Buy), whereas Celanese is a Zacks Rank #2 (Buy) stock.

The association of the two companies is aimed at performing a protein biomarker discovery research. The objective is to develop and introduce diagnostic tests into the market so that they can be of help in treating dialysis patients.

To aid the research on renal disease, the collaboration will use the proprietary biorepository of DaVita that collects, processes, stores and distributes biospecimens.

Myriad will process the bio-repository specimens of DaVita to measure over 300 important proteins through its Myriad RBM DiscoveryMAP platform. DiscoveryMAP analyses protein biomarkers associated with inflammatory, metabolic and renal diseases. This works as a helpful means for proper diagnosis of dialysis patients.

Myriad is expected to commence processing the specimens in fiscal year 2014.

Towards improving the quality of care for dialysis patients, Myriad conducts extensive research in kidney disease and inflammatory markers. On the other hand, DaVita is responsible for providing dialysis services to patients suffering from chronic kidney failure and end stage renal disease. The prospects of biorepositories, led Myriad to join hands with DaVita in order to improve its research and development efforts towards improving patient care.

Through the use of blood-based protein biomarkers, novel diagnostic tests are capable of enhancing the quality of life for patients as well as reduction of the overall healthcare costs. For this, the tests focus on predicting vascular access failure.

An improvement in the quality of care and waning healthcare costs is expected to lead to a surge in the number of patients served by both Myriad and DaVita. Thus we expect the collaboration to augment the financials for both the companies going forward. The long term sales growth for Myriad is projected at 10.24% whereas that of DaVita is 9.24%.

Myriad currently carries a Zacks Rank #2 (Buy). Among others in the industry, Anika Therapeutics Inc. (ANIK) and Biogen Idec Inc. (BIIB) carry a favorable Zacks Rank #1 (Strong Buy) and appear impressive.

The self-storage facilities, worth $196.0 million, comprise 14,800 units and net rentable space of 1.5 million square feet.The deal will likely be complete by the third quarter of 2013.

Deal Terms

The self-storage real estate investment trust (REIT) will prepay existing loans of $100.1 million on the assets and $10.1 million related to the loan’s defeasance and prepayment costs, after the passing on of the properties. Moreover, the company will issue newly designated Series B Redeemable Preferred Units worth $33.6 million and common Operating Partnership units worth $62.3 million to the sellers.

Deal Financing

To finance the purchase of the aforementioned assets, Extra Space declared the private offering of Exchangeable Senior Notes worth $250 million, due 2033. To cover any over-allotments, the company provided an option to initial purchasers to buy up to an additional $37.5 million of shares within 30 days of the initial notes issue. 

Further, upon exchange, the notes will likely be settled in cash and shares at a rate, determinable subject to certain conditions. Notably, Extra Space plans to utilize the remaining proceeds from the offering to pay off outstanding secured lines of credit and for other corporate purposes.

In Conclusion

We view the acquisition as a strategic fit for the company. It will drive its rental revenues and help in overall company’s growth in the future. Additionally, the private offering will position Extra Space favorably to exploit investment opportunities and gain acquisitions.

Headquartered in Salt Lake City, Utah, Extra Space is engaged in property management and development activities that include the acquisition, management, development, sales and rent of self-storage facilities. The company currently has 965 self-storage properties, comprising about 640,000 units, located across 35 states, Washington, D.C. and Puerto Rico.

Currently, Extra Space carries a Zacks Rank #2 (Buy). Other REITs that are doing well include DCT Industrial Trust Inc. (DCT), Diamondrock Hospitality Co. (DRH) and Douglas Emmett Inc (DEI), all of which have the same Zacks rank as Extra Space.

This is the first solution to be launched by Avnet Practice+ for Analytics, which aids the go-to-market capabilities of HP partners. 

The new Big Data and Analytics solution is composed of a parallel database that can handle massive data volumes within an analytics framework capable of handling real-time data analysis. This solution is specially designed to help the partners to speed up their projects so that they can generate a return on investment within a few weeks.

The new solution, along with Avnet’s Practice+ for Analytics, will equip HP’s partners with a profitable solution to deliver business results and also increase the returns from their IT investments.

Apart from the solution devised to help Hewlett-Packard, Avnet recently entered into a deal with Macronix International Co. Ltd. As per the contract, Avnet Memec, the European arm of Avnet Inc., will act as a distributor for Macronix’ products across the Pan-European regions. Financial terms of the deal were not disclosed.

In addition to securing deals and enhancing channel relations, the company has been prudently growing through acquisitions.  They not only boost the company’s product portfolio but also strengthen the revenue streams.

Recently, Avnet acquired Hong Kong-based value-added distributor, RTI Holdings Ltd. and strengthened its Electronics Marketing segment. With RTI Holdings, Avnet will be able to extend its geographical reach in Asia (mainly in China). Nevertheless, its archrival Arrow Electronics (ARW), Ingram Micro Inc. (IM) and Richardson Electronics Ltd. (RELL) offer steady competition as they are also making acquisitions to strengthen their market position.

However, we look forward to management’s decision to optimize costs and investments to tap the changing demand.

Currently, Avnet has a Zacks Rank #3 (Hold).

The partnership will shell out $35.3 million in cash for this acquisition. The agreement will be concluded in the third quarter 2013 and is subject to customary closing conditions as well as purchase price adjustments.

The Bakken play is placed in the Williston Basin located in the states of North Dakota and Montana. The asset purchase will have an effective date of Mar 1, 2013. With this strategic deal, the partnership will gain entrance into the resource-rich Bakken play.

Per the agreement, Natural Resource will purchase roughly 13,500 acres of productive area which translates to an estimated 11% working interest in the play. This consists of around 120 producing wells and also interests from a supplementary 22 wells, currently in various phases of development.

The partnership intends to make additional investment of $8.1 million for the development of these wells in 2013, a part of which will be paid during the close of the agreement. Natural Resource expects the deal to be immediately accretive to its unit holders.

The latest acquisition by Natural Resource Partners will diversify the partnership’s revenue stream and lend constancy to growth. Of late, the partnership has been venturing into unconventional resource plays to broaden its resource portfolio. In early 2013, it procured a 48.51% interest in OCI Wyoming L.P.’s Trona ore mining and soda ash units which will prove profitable for the partnership given the rising demand in Asia.

Royalties from oil and gas properties steadily increased to 3% in 2012 from 2% in 2005.  The current interest purchase in the Bakken play will further support Natural Resource to achieve its revenue target range of $330 million to $375 million in 2013.The partnership also stands to benefit significantly from the shale gas boom in the U.S. market.

However, transportation cost pressure might act as a deterrent to the partnership’s opportunities. Currently, Natural Resource retains a Zacks Rank #3 (Hold).

Other industry players presently positioned well are Zacks Ranked #2 (Buy) Alliance Holdings GP, LP (AHGP) and Alliance Resource Partners LP (ARLP).

Headquartered in Houston, Texas, Natural Resource along with its subsidiaries engages in the ownership, management, and leasing of mineral properties in the United States.

Accretive Asset Management produces investment products that aid financial Advisors to provide better service to their clients. It developed the BulletShares method in 2009 to merge the benefits of individual bonds and bond funds. As of May 29, 2013, Accretive had licensed BulletShares Indices to 14 ETFs with assets worth nearly $2.5 billion under license.

NASDAQ now intends to tap this credibility of Accretive and utilize its expertise, powerful brand name and marketing knowledge to expand the NASDAQ BulletShares Index. The NASDAQ BulletShares Index indicates how an investment is performing in a diversified, held-to-maturity portfolio of fixed income securities with a common maturity period.

With maturity dates spanning from 2013 to 2022, there are 20 indexes in total, including high yield and corporate bond indexes. As per the agreement, the indexes are now co-branded under NASDAQ and BulletShares. Additional plans for new versions are in progress.

Through the expansion of BulletShares brand globally, the deal is expected to invite more investors for the indexes. We expect this to help NASDAQ to gain on top line results and thereby earnings. Once the company starts to reap the benefits, earnings is likely to exceed our present projection of $2.66 per share for full year 2013, which translates into a year-over-year improvement of 6.20%.

Towards its business expansion objective, NASDAQ included a leading Internet television network – Netflix Inc (NFLX) to its Global Index group in Jun, 2013.

NASDAQ currently carries a Zacks Rank #3 (Hold). Among others, CBOE Holdings Inc. (CBOE) and MarketAxess Holdings Inc. (MKTX) carry a favorable Zacks Rank #2 (Buy) and appear impressive.

An analyst must feel pretty confident about the numbers a company will report to stick his or her neck out like that. Moreover, when other analysts follow suit, it can be even more telling.

Stoneridge (SRI)

That's exactly what happened with Stoneridge. On May 3rd, 2013, their earnings estimates were being ratcheted up by analysts, sending it from a Zacks Rank #3 (Hold) to a Zacks Rank #2 (Buy) within days before their report.

On May 9th, their foreshadowing was right as SRI posted a 50.00% positive ESP surprise. Shortly thereafter, their earnings estimates increased even more in quick succession, as their Zacks Rank was upgraded once again to a Zacks Rank #1 (Strong Buy).

Prices, trying to keep up, surged as a result, gaining 52.95% in 7 short weeks. All while the S&P produced a lackluster 0.76% during that same time frame.

The Zacks Rank #1s (Strong Buys) and Zacks Rank #2s (Buys) have proven to outperform the market over the next 1-3 months time and time again. And the outperformance shown above is a great illustration of exactly what that means and how quickly Zacks Rank market-beating gains can add up.

Getting into a stock in front of an earnings report can be scary sometimes. But when you see a stock receiving upward earnings estimate revisions leading into a report, and accompanied by a positive Zacks Rank, the odds of success tilt more and more in your favor.

For those who still prefer to wait until after a company reports earnings to get into a new position, not to worry. Following a positive surprise, the best reports will give analysts plenty of reason to increase estimates, especially if a company raises their outlook.

And oftentimes, the move that follows a positive surprise and raised guidance (which means upward revisions and a top Zacks Rank) can be even more profitable than the surprise move itself.

Click here to find more Zacks Rank #1 (Strong Buy) and Zacks Rank #2 (Buy) stocks

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

This sent the stock to a Zacks Rank #1 (Strong Buy).

OmniVision Technologies, Inc. makes advanced digital imaging technologies for consumer and commercial applications including mobile phones, tablets, notebooks and webcams, entertainment devices, security and surveillance systems, digital still and video cameras, automotive and medical imaging systems.

The company is well-positioned to benefit from growing global demand for smartphones, particularly in the emerging markets. It is headquartered in Santa Clara, California and has a market cap of $1.0 billion.

Fourth Quarter Results

OmniVision reported its fiscal 2013 fourth quarter results on May 30. The company delivered earnings per share of 17 cents, beating the Zacks Consensus Estimate of 9 cents. It was the company's third consecutive positive earnings surprise.

Revenues surged 54% to $336.2 million, thanks in large part to huge smartphone growth in China. Meanwhile, the company was able to leverage its fixed expenses. Total operating expenses as a percentage of revenues, for instance, declined 700 basis points to 13.9%.

Estimates Rising

Following strong fourth quarter 2013 results, management provided first quarter 2014 guidance well above consensus, prompting analysts to revise their estimates significantly higher for both 2014 and 2015. This drove the stock to a Zacks Rank #1 (Strong Buy).

The Zacks Consensus Estimate for 2014 is now $1.29, up from $1.15 before the Q4 report. The 2015 consensus has risen from $1.06 to $1.27 over the same period.

Reasonable Valuation

The valuation picture looks reasonable for OmniVision. Shares currently trade at 15x 12-month forward earnings, a slight discount to its historical median of 16x.

The stock is also trading at just 1.3x tangible book value, well below its historical median of 2.0x.

OmniVision also has a solid balance sheet. The company had nearly $6 per share in cash and investments excluding debt as of April 30, 2013.

The Bottom Line

With strong industry tailwinds, rising earnings estimates and reasonable valuation, OmniVision Technologies has attractive upside potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

 
OMNIVISION TECH (OVTI): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Tue, 18 Jun 2013 10:30:01 GMT Calavo Growers (CVGW) recently reported a big second quarter earnings miss despite strong top-line growth thanks to a significant decline in the gross profit margin.

This prompted analysts to revise their estimates lower going forward, sending the stock to a Zacks Rank #5 (Strong Sell).

With shares trading at a lofty 20x forward earnings, investors should consider waiting for earnings momentum to turn around before establishing a position here.

Calavo Growers, Inc. distributes avocados, prepared avocado products, and other perishable food products to food distributors, produce wholesalers, supermarkets, and restaurants. The company obtains avocados primarily from California, Mexico, and Chile. It was founded in 1924 and has a market cap of $401 million.

Second Quarter Results

Calavo Growers reported its fiscal 2013 second quarter results on June 5. Earnings per share came in at 19 cents, significantly below the Zacks Consensus Estimate of 39 cents. It was the company's second straight earnings miss.

Net sales rose 20% year-over-year to $166.4 million as Calavo packed and sold 40% more fresh avocado units. However, the company offered discounts in many cases, which led to a significant decline in the gross profit margin. For instance, gross profit declined from 10.6% in the second quarter last year to just 6.9% of net sales in the same quarter this year.

Estimates Fall

Following the Q2 miss, analysts revised their estimates significantly lower for both 2013 and 2014. This sent the stock to a Zacks Rank #5 (Strong Sell).

The 2013 Zacks Consensus Estimate is now $1.24, down from $1.50 just 30 days ago. The 2014 consensus is down from $1.68 to $1.51 over the same period. You can see this negative earnings momentum in the company's 'Price & Consensus' chart:

Another bearish signal for Calavo Growers is the Zacks Industry Rank. The 'Agriculture Operations' industry ranks in the bottom 5% of all industries at 253 of out 265.

Premium Valuation

Despite the negative earnings momentum, shares of Calavo Growers still trade at a premium valuation. The 12-month forward P/E ratio is 20, above its 10-year median of 16 and well above the industry median of 10. Its price to tangible book ratio of 4.7 is also well above its peers and its historical median.

The Bottom Line

Given declining earnings estimates and premium valuation, investors should consider waiting for the earnings momentum of this avocado company to turn around before establishing a position.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

 
CALAVO GROWERS (CVGW): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research ]]> Tue, 18 Jun 2013 08:31:01 GMT Overview

The increasing demand for utility services, particularly for electricity, is leading to the installation of large generation units. The power generators, in the wake of more stringent environmental regulations and restrictions, are gradually shifting their focus to renewable sources and natural gas to produce power. This is a welcome sign for the industry and a positive step towards reducing the emission of greenhouse gases.

The utility operators are implementing new technologies in generation and distribution of power. The introduction of smart meters will benefit customers while the smart-grid technology is likely to increase efficiency. However, implementation of these new technologies, over vast service territories, is a long, drawn-out process.

Utilities are by their very nature monopolistic businesses. As a result, the sector is highly regulated as the essential supplies cater to basic human needs, and governments try to ensure the prices of these supplies -- water, electricity, etc. -- stay within reasonable limits. The utilities, on the other hand, try to increase prices through the filing of rate cases. The investments and costs incurred for the modernization and maintenance of reliable services are recovered through these rate cases.

As per a recent U.S. Energy Information Administration (EIA) report, global energy use will increase to 770 quadrillion Btu in 2035 from 505 quadrillion Btu in 2008. The majority of this usage is expected to come from countries outside the Organization for Economic Cooperation and Development (non-OECD nations). The energy market of non-OECD nations has a larger scope for improvement compared to the more mature OECD nations.

However, the addition of new power-generating units to meet the increasing demand for electricity comes the pertinent question of greenhouse gas emission. We are all aware of the pitfalls of global warming and initiatives are been taken to curb the release of greenhouse gas. The U.S. and European countries are taking serious strides in that direction.

However, the variance in the socio-economic structure of different countries and the quest for cheaper sources of electricity are making the task difficult, if not impossible. In fact, a recent study from International Energy Agency showed that the greenhouse gas emitted from China in 2012 offset the positive impact of lower emission from Europe and the U.S.

China has very recently adopted 10 measures to improve air quality and reduce emission in Beijing and in other major cities. Whether the promise will be kept time will tell.

Utility Drivers

The demand for utility services is primarily driven by the state of the economy. If the economy is doing well, it will create new jobs, resulting in demand for housing driving demand for utility services. In addition to growing demand through households, increasing demand from the business sector, particularly manufacturing, also plays a role in growth.

Weather plays a crucial role in determining the trajectory of demand for utility services. Extreme weather conditions tend to reinvigorate demand for electricity.

Population does play a significant role in demand creation. The gadgets we use every day consume considerable electricity. This issue is prevalent all over the world, but it is particularly notable in the emerging markets where huge swathes of population are entering the middle class.

The billions of cell phones, personal computers and laptops have increased the demand for electricity, which could have hardly been imagined only a decade ago. The clothes dryer, clothes iron and dish washers are a few among the numerous household appliances which consumes a considerable amount of electricity.

Ultimately, it all boils down to economic growth, as measured by Gross Domestic Product (GDP). As per the recent report of the Bureau of Economic Analysis, U.S. Department of Commerce, GDP increased 2.4% in the first quarter of 2013, compared with an increase of 0.4% in the fourth quarter of 2012. This is definitely a positive sign for the utility industry, as a portion of the increase will be directed toward household utility needs.

Zacks Rank

Within the Zacks Industry classification, Utilities are a stand-alone sector, one of 16 Zacks sectors. The rural wire-line telephone companies are also grouped within the Zacks Utility sector, but the three major industries within this sector include Electric Power, Gas Distribution and Water Supply.

The Utility sector’s defensive attributes reflect the group’s lack of correlation with the broader market/economy. Of course, the sector’s reputation as a dividend payer also adds to its perceived defensiveness.

We rank all of the more than 260 industries in the 16 Zacks sectors based on the earnings outlook for the constituent companies in each industry. This ranking is available in the Zacks Industry Rank. http://www.zacks.com/rank/industry.php

The way to look at the complete list of Zacks Industry Rank for the 260+ industries is that the outlook for the top one-third of the list (Zacks Industry Rank of #85 and lower) is positive, while the outlook for the bottom one-third (Zacks Industry Rank #170 and higher) is negative.

Scanning the industries in the Utility sector, all three are currently ranked in the top 1/3rd. Gas Distribution has a Zacks Industry Rank #45, Electric Power is at Zacks Industry Rank #83 and Water Supply at Zacks Industry Rank #76. This implies that the prospects for gas, electricity and water look bullish at present.

Electric Utilities

The EIA reports that electricity consumption in the U.S. will increase from 3,841 billion kilowatt hours in 2011 to 4,930 billion kilowatt hours in 2040, increasing at an average annual rate of 0.9%. For the fuel type in energy generation, renewables and natural gas will play an increasing role while coal and nuclear power will gradually fall out of favor.

As per EIA, the increasing demand for electricity and retirement of nearly 103 gigawatts (GW) of existing capacity will result in an addition of 340 GW of power production units from 2012 to 2040.

Natural gas-fired plants will provide 63% of the projected capacity, while 31% will come from renewables, 3% from coal and 3% from nuclear. This proves that natural gas will continue to play a vital role in energy solutions in the coming three decades.

The electric utilities expected to play an important role in meeting this increased demand for power are American Electric Power Inc. (TM), Duke Energy Corp. (AEP), Entergy Corp. (ETR), NextEra Energy Inc. (NEE), PPL Corporation (PPL) and Southern Company (SO), among others.

We expect electricity providers to continue to perform well in 2013 with the majority expected to exceed 2012 earnings numbers.  A near-normal winter to start of and expectation of above-average summer temperatures in the US will definitely boost the demand for utility services.

Natural Gas Utilities

Among the utility services, natural gas usage is increasing due to its abundance, cheap price and clean-burning nature.

However, natural gas prices are recovering from all-time lows. This might hamper the rising demand curve for natural gas in the near term. Over the long haul, we believe the demand for nat gas will pick up once more.

The EIA forecasts the use of natural gas in the U.S. to increase from 24.37 trillion cubic feet in 2011 to 29.54 trillion cubic feet in 2040, increasing at an average annual rate of 0.7%.

New fracking technology has multiplied natural gas production from rock and rock structures previously considered uncommercial.  A study from NaturalGas.org pointed out that the natural gas reserve in the U.S. increased by 39% from 2006 levels, thanks to the implementation of new exploration techniques.

The natural gas utilities are not only expected to benefit from the steady increase in domestic demand but also from exports that are expected to rise significantly. The new techniques used to drill natural gas will enable natural gas operators to export large volumes after meeting domestic demand. As per the EIA, natural gas exports will continue to increase by 17.7% per year from 2020 to 2040.

The positive dynamics are going to benefit natural gas utilities like Atmos Energy Corporation (ATO), Spectra Energy Corp. (SE), National Fuel Gas Company (NFJ), Sempra Energy (SRE), MDU Resources Group Inc. (MDU), Southwestern Energy Co. (SWN) and Questar Corp. (STR), among others. With more than 71 million domestic natural gas customers, the industry has enough room for nearly 1,200 natural gas utilities presently operating in the country.

Water Utilities

2012 was a good year for the water utilities as the overall warm weather increased the demand for water. However, the major challenge ahead of the water utility operators is the aging water and sewer infrastructure. Maintenance and development of facilities play a key role and will test the financial capabilities of the water utilities.

A report from Economic Development Research Group Inc. suggests an alarming gap between the water infrastructural requirement and actual investments planned for the coming years. The gap is expected to reach $84 billion in 2020 and widen to $144 billion in 2040. The report also revealed that without proper renewal or replacement, nearly 44% of the existing pipelines will become too poor for operation by 2020.

The utility operators have begun to invest in their ageing infrastructure, but it appears the initiatives are inadequate to bridge the gap. The government should consider taking adequate measures before things blow out of proportion.

Among the water utilities, American States Water Company (AWR), Aqua America, Inc. (WTR), Connecticut Water Service, Inc. (CTWS) and Middlesex Water Company (MSEX) registered positive earnings surprises in their latest reported quarters.

We expect the water utilities on the whole to perform better than last year, driven by higher demand.

What Keeps the Utilities Going?

The biggest positive for the utilities is that there is hardly any viable substitute for utility services. This is the most fundamental strength of the industry. Moreover, increasing demand drives this industry forward.

As per the EIA, energy usage in the U.S. industrial sector will increase from 24.0 quadrillion British thermal units (Btu) in 2011 to 28.7 quadrillion Btu in 2040. In the commercial sector, consumption will increase from 8.6 quadrillion Btu in 2011 to 10.2 quadrillion Btu in 2040. In the transportation sector, demand will hover around 27.1 quadrillion Btu from 2011 through 2040.

The utility operators in North America often resort to merger and acquisitions or enter into partnerships, which lead to cost synergies and better utilization of resources. As per a report from PricewaterhouseCoopers, utility M&A deals valued at more than $50 million added up to $2.99 billion in the first quarter of 2013.

A recent announcement from MidAmerican Energy Holdings Company, a subsidiary of Berkshire Hathaway Inc. (BRK.B), to acquire NV Energy (NVE) in a way exceeded the combined value of all merger deals announced in the first quarter of 2013. The transaction, which has been unanimously approved by the board of directors of both companies, has an enterprise value of approximately $10 billion. The deal is expected to close in the first quarter of 2014, subject to regulatory approvals and approval of shareholders of NV Energy.

We believe the synergies of merger and decline in overlapping overhead operating expenses could allow the companies to concentrate more on the development and maintenance of infrastructure.

Another inherent advantage of these utilities is their size and the requirement of huge initial capital outlay.  For this reason, we generally do not find many new entrants in the market. Also, stringent government regulations and the hard toil for new entrants to establish a loyal consumer base put existing players in an advantageous position.

Finally, utilities have been known to pay dividends consistently, thereby retaining investor confidence. This was evident during the economic crisis of 2008-2009 when these operators continued to pay out dividends without fail.

The Future of Utilities

Undoubtedly, the focus and emphasis to generate power from renewable sources have increased. But will this pose a threat to the more traditional power producers using fossil fuels? The answer is largely "no," at least for now.

Having said that, the gap between these two groups of power generators will continue to shrink as we move forward. Eventually, renewable power producers may overtake traditional electric utilities in due course.

The Middle East has the largest volume of fossil fuel reserves. Even there we are noticing a large number of solar power projects coming up in the region. An EIA report suggests that by 2040 nearly 20% of the total power produced will come from renewable sources. Solar generation capacity is expected to increase by a whopping 1000% to 46 GW in 2040 from 2011 levels.

We are all aware of the pitfalls of greenhouse gas emissions and the limited life of fossil fuel. In addition, the increasing conversion rate of solar cells makes it cheaper and cost effective in comparison to conventional sources. Renewables can thus be the final answer for the inevitable exhaustion of fossil fuel reserves.

In Conclusion

Despite the assured demand for services, the utilities have to constantly meet the high expectations of its wide customer base, adapt to a changing global economic scenario, and upgrade technologies to meet stringent environmental norms.

Utility operations globally depend on weather patterns that determine the extent of demand. Erratic weather patterns thereby impact the profitability of these operators, so much so that their operational goals remain unmet.

Moreover, hurricanes, storms, and blizzards disrupt the normal operation of the utility operators. American weather tracking body National Oceanic and Atmospheric Administration ("NOAA") has projected a very active hurricane season in the second half of 2013, and storms are expected to exceed the seasonal averages. With the havoc caused by Superstorm Sandy still fresh in our memory, we are keeping a cautious eye on Mother Nature.

The majority of new electricity in the next two decades in the U.S. will be generated from natural gas and renewable sources. Besides the abundance of natural gas, as many as 30 U.S. states and the District of Columbia have enforceable renewable portfolio standards or other renewable generation policies. We expect this count to go up, compelling producers to generate more green power to meet the renewable standards fixed by the states.

Since the utilities operate in a regulated environment, they charge a fixed rate for power supply as approved by the different commissions. We hardly find utilities posting eye-catching numbers, but these companies are generally stable due to the regulated nature of operations, and they are loyal to shareholders. Investment in the utility sector is more suited for income-oriented, long-term investors looking for a modest but stable return.
 
AMER ELEC PWR (AEP): Free Stock Analysis Report
 
ATMOS ENERGY CP (ATO): Free Stock Analysis Report
 
AMER STATES WTR (AWR): Free Stock Analysis Report
 
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis Report
 
CONN WATER SVC (CTWS): Free Stock Analysis Report
 
DUKE ENERGY CP (DUK): Free Stock Analysis Report
 
ENTERGY CORP (ETR): Free Stock Analysis Report
 
MDU RESOURCES (MDU): Free Stock Analysis Report
 
MIDDLESEX WATER (MSEX): Free Stock Analysis Report
 
NEXTERA ENERGY (NEE): Free Stock Analysis Report
 
NV ENERGY INC (NVE): Free Stock Analysis Report
 
PPL CORP (PPL): Free Stock Analysis Report
 
SPECTRA ENERGY (SE): Free Stock Analysis Report
 
SOUTHERN CO (SO): Free Stock Analysis Report
 
SEMPRA ENERGY (SRE): Free Stock Analysis Report
 
QUESTAR (STR): Free Stock Analysis Report
 
SOUTHWESTRN ENE (SWN): Free Stock Analysis Report
 
AQUA AMER INC (WTR): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Tue, 18 Jun 2013 08:31:01 GMT Overview

The increasing demand for utility services, particularly for electricity, is leading to the installation of large generation units. The power generators, in the wake of more stringent environmental regulations and restrictions, are gradually shifting their focus to renewable sources and natural gas to produce power. This is a welcome sign for the industry and a positive step towards reducing the emission of greenhouse gases.

The utility operators are implementing new technologies in generation and distribution of power. The introduction of smart meters will benefit customers while the smart-grid technology is likely to increase efficiency. However, implementation of these new technologies, over vast service territories, is a long, drawn-out process.

Utilities are by their very nature monopolistic businesses. As a result, the sector is highly regulated as the essential supplies cater to basic human needs, and governments try to ensure the prices of these supplies -- water, electricity, etc. -- stay within reasonable limits. The utilities, on the other hand, try to increase prices through the filing of rate cases. The investments and costs incurred for the modernization and maintenance of reliable services are recovered through these rate cases.

As per a recent U.S. Energy Information Administration (EIA) report, global energy use will increase to 770 quadrillion Btu in 2035 from 505 quadrillion Btu in 2008. The majority of this usage is expected to come from countries outside the Organization for Economic Cooperation and Development (non-OECD nations). The energy market of non-OECD nations has a larger scope for improvement compared to the more mature OECD nations.

However, the addition of new power-generating units to meet the increasing demand for electricity comes the pertinent question of greenhouse gas emission. We are all aware of the pitfalls of global warming and initiatives are been taken to curb the release of greenhouse gas. The U.S. and European countries are taking serious strides in that direction.

However, the variance in the socio-economic structure of different countries and the quest for cheaper sources of electricity are making the task difficult, if not impossible. In fact, a recent study from International Energy Agency showed that the greenhouse gas emitted from China in 2012 offset the positive impact of lower emission from Europe and the U.S.

China has very recently adopted 10 measures to improve air quality and reduce emission in Beijing and in other major cities. Whether the promise will be kept time will tell.

Utility Drivers

The demand for utility services is primarily driven by the state of the economy. If the economy is doing well, it will create new jobs, resulting in demand for housing driving demand for utility services. In addition to growing demand through households, increasing demand from the business sector, particularly manufacturing, also plays a role in growth.

Weather plays a crucial role in determining the trajectory of demand for utility services. Extreme weather conditions tend to reinvigorate demand for electricity.

Population does play a significant role in demand creation. The gadgets we use every day consume considerable electricity. This issue is prevalent all over the world, but it is particularly notable in the emerging markets where huge swathes of population are entering the middle class.

The billions of cell phones, personal computers and laptops have increased the demand for electricity, which could have hardly been imagined only a decade ago. The clothes dryer, clothes iron and dish washers are a few among the numerous household appliances which consumes a considerable amount of electricity.

Ultimately, it all boils down to economic growth, as measured by Gross Domestic Product (GDP). As per the recent report of the Bureau of Economic Analysis, U.S. Department of Commerce, GDP increased 2.4% in the first quarter of 2013, compared with an increase of 0.4% in the fourth quarter of 2012. This is definitely a positive sign for the utility industry, as a portion of the increase will be directed toward household utility needs.

Zacks Rank

Within the Zacks Industry classification, Utilities are a stand-alone sector, one of 16 Zacks sectors. The rural wire-line telephone companies are also grouped within the Zacks Utility sector, but the three major industries within this sector include Electric Power, Gas Distribution and Water Supply.

The Utility sector’s defensive attributes reflect the group’s lack of correlation with the broader market/economy. Of course, the sector’s reputation as a dividend payer also adds to its perceived defensiveness.

We rank all of the more than 260 industries in the 16 Zacks sectors based on the earnings outlook for the constituent companies in each industry. This ranking is available in the Zacks Industry Rank. http://www.zacks.com/rank/industry.php

The way to look at the complete list of Zacks Industry Rank for the 260+ industries is that the outlook for the top one-third of the list (Zacks Industry Rank of #85 and lower) is positive, while the outlook for the bottom one-third (Zacks Industry Rank #170 and higher) is negative.

Scanning the industries in the Utility sector, all three are currently ranked in the top 1/3rd. Gas Distribution has a Zacks Industry Rank #45, Electric Power is at Zacks Industry Rank #83 and Water Supply at Zacks Industry Rank #76. This implies that the prospects for gas, electricity and water look bullish at present.

Electric Utilities

The EIA reports that electricity consumption in the U.S. will increase from 3,841 billion kilowatt hours in 2011 to 4,930 billion kilowatt hours in 2040, increasing at an average annual rate of 0.9%. For the fuel type in energy generation, renewables and natural gas will play an increasing role while coal and nuclear power will gradually fall out of favor.

As per EIA, the increasing demand for electricity and retirement of nearly 103 gigawatts (GW) of existing capacity will result in an addition of 340 GW of power production units from 2012 to 2040.

Natural gas-fired plants will provide 63% of the projected capacity, while 31% will come from renewables, 3% from coal and 3% from nuclear. This proves that natural gas will continue to play a vital role in energy solutions in the coming three decades.

The electric utilities expected to play an important role in meeting this increased demand for power are American Electric Power Inc. (TM), Duke Energy Corp. (AEP), Entergy Corp. (ETR), NextEra Energy Inc. (NEE), PPL Corporation (PPL) and Southern Company (SO), among others.

We expect electricity providers to continue to perform well in 2013 with the majority expected to exceed 2012 earnings numbers.  A near-normal winter to start of and expectation of above-average summer temperatures in the US will definitely boost the demand for utility services.

Natural Gas Utilities

Among the utility services, natural gas usage is increasing due to its abundance, cheap price and clean-burning nature.

However, natural gas prices are recovering from all-time lows. This might hamper the rising demand curve for natural gas in the near term. Over the long haul, we believe the demand for nat gas will pick up once more.

The EIA forecasts the use of natural gas in the U.S. to increase from 24.37 trillion cubic feet in 2011 to 29.54 trillion cubic feet in 2040, increasing at an average annual rate of 0.7%.

New fracking technology has multiplied natural gas production from rock and rock structures previously considered uncommercial.  A study from NaturalGas.org pointed out that the natural gas reserve in the U.S. increased by 39% from 2006 levels, thanks to the implementation of new exploration techniques.

The natural gas utilities are not only expected to benefit from the steady increase in domestic demand but also from exports that are expected to rise significantly. The new techniques used to drill natural gas will enable natural gas operators to export large volumes after meeting domestic demand. As per the EIA, natural gas exports will continue to increase by 17.7% per year from 2020 to 2040.

The positive dynamics are going to benefit natural gas utilities like Atmos Energy Corporation (ATO), Spectra Energy Corp. (SE), National Fuel Gas Company (NFJ), Sempra Energy (SRE), MDU Resources Group Inc. (MDU), Southwestern Energy Co. (SWN) and Questar Corp. (STR), among others. With more than 71 million domestic natural gas customers, the industry has enough room for nearly 1,200 natural gas utilities presently operating in the country.

Water Utilities

2012 was a good year for the water utilities as the overall warm weather increased the demand for water. However, the major challenge ahead of the water utility operators is the aging water and sewer infrastructure. Maintenance and development of facilities play a key role and will test the financial capabilities of the water utilities.

A report from Economic Development Research Group Inc. suggests an alarming gap between the water infrastructural requirement and actual investments planned for the coming years. The gap is expected to reach $84 billion in 2020 and widen to $144 billion in 2040. The report also revealed that without proper renewal or replacement, nearly 44% of the existing pipelines will become too poor for operation by 2020.

The utility operators have begun to invest in their ageing infrastructure, but it appears the initiatives are inadequate to bridge the gap. The government should consider taking adequate measures before things blow out of proportion.

Among the water utilities, American States Water Company (AWR), Aqua America, Inc. (WTR), Connecticut Water Service, Inc. (CTWS) and Middlesex Water Company (MSEX) registered positive earnings surprises in their latest reported quarters.

We expect the water utilities on the whole to perform better than last year, driven by higher demand.

What Keeps the Utilities Going?

The biggest positive for the utilities is that there is hardly any viable substitute for utility services. This is the most fundamental strength of the industry. Moreover, increasing demand drives this industry forward.

As per the EIA, energy usage in the U.S. industrial sector will increase from 24.0 quadrillion British thermal units (Btu) in 2011 to 28.7 quadrillion Btu in 2040. In the commercial sector, consumption will increase from 8.6 quadrillion Btu in 2011 to 10.2 quadrillion Btu in 2040. In the transportation sector, demand will hover around 27.1 quadrillion Btu from 2011 through 2040.

The utility operators in North America often resort to merger and acquisitions or enter into partnerships, which lead to cost synergies and better utilization of resources. As per a report from PricewaterhouseCoopers, utility M&A deals valued at more than $50 million added up to $2.99 billion in the first quarter of 2013.

A recent announcement from MidAmerican Energy Holdings Company, a subsidiary of Berkshire Hathaway Inc. (BRK.B), to acquire NV Energy (NVE) in a way exceeded the combined value of all merger deals announced in the first quarter of 2013. The transaction, which has been unanimously approved by the board of directors of both companies, has an enterprise value of approximately $10 billion. The deal is expected to close in the first quarter of 2014, subject to regulatory approvals and approval of shareholders of NV Energy.

We believe the synergies of merger and decline in overlapping overhead operating expenses could allow the companies to concentrate more on the development and maintenance of infrastructure.

Another inherent advantage of these utilities is their size and the requirement of huge initial capital outlay.  For this reason, we generally do not find many new entrants in the market. Also, stringent government regulations and the hard toil for new entrants to establish a loyal consumer base put existing players in an advantageous position.

Finally, utilities have been known to pay dividends consistently, thereby retaining investor confidence. This was evident during the economic crisis of 2008-2009 when these operators continued to pay out dividends without fail.

The Future of Utilities

Undoubtedly, the focus and emphasis to generate power from renewable sources have increased. But will this pose a threat to the more traditional power producers using fossil fuels? The answer is largely "no," at least for now.

Having said that, the gap between these two groups of power generators will continue to shrink as we move forward. Eventually, renewable power producers may overtake traditional electric utilities in due course.

The Middle East has the largest volume of fossil fuel reserves. Even there we are noticing a large number of solar power projects coming up in the region. An EIA report suggests that by 2040 nearly 20% of the total power produced will come from renewable sources. Solar generation capacity is expected to increase by a whopping 1000% to 46 GW in 2040 from 2011 levels.

We are all aware of the pitfalls of greenhouse gas emissions and the limited life of fossil fuel. In addition, the increasing conversion rate of solar cells makes it cheaper and cost effective in comparison to conventional sources. Renewables can thus be the final answer for the inevitable exhaustion of fossil fuel reserves.

In Conclusion

Despite the assured demand for services, the utilities have to constantly meet the high expectations of its wide customer base, adapt to a changing global economic scenario, and upgrade technologies to meet stringent environmental norms.

Utility operations globally depend on weather patterns that determine the extent of demand. Erratic weather patterns thereby impact the profitability of these operators, so much so that their operational goals remain unmet.

Moreover, hurricanes, storms, and blizzards disrupt the normal operation of the utility operators. American weather tracking body National Oceanic and Atmospheric Administration ("NOAA") has projected a very active hurricane season in the second half of 2013, and storms are expected to exceed the seasonal averages. With the havoc caused by Superstorm Sandy still fresh in our memory, we are keeping a cautious eye on Mother Nature.

The majority of new electricity in the next two decades in the U.S. will be generated from natural gas and renewable sources. Besides the abundance of natural gas, as many as 30 U.S. states and the District of Columbia have enforceable renewable portfolio standards or other renewable generation policies. We expect this count to go up, compelling producers to generate more green power to meet the renewable standards fixed by the states.

Since the utilities operate in a regulated environment, they charge a fixed rate for power supply as approved by the different commissions. We hardly find utilities posting eye-catching numbers, but these companies are generally stable due to the regulated nature of operations, and they are loyal to shareholders. Investment in the utility sector is more suited for income-oriented, long-term investors looking for a modest but stable return.
 
AMER ELEC PWR (AEP): Free Stock Analysis Report
 
ATMOS ENERGY CP (ATO): Free Stock Analysis Report
 
AMER STATES WTR (AWR): Free Stock Analysis Report
 
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis Report
 
CONN WATER SVC (CTWS): Free Stock Analysis Report
 
DUKE ENERGY CP (DUK): Free Stock Analysis Report
 
ENTERGY CORP (ETR): Free Stock Analysis Report
 
MDU RESOURCES (MDU): Free Stock Analysis Report
 
MIDDLESEX WATER (MSEX): Free Stock Analysis Report
 
NEXTERA ENERGY (NEE): Free Stock Analysis Report
 
NV ENERGY INC (NVE): Free Stock Analysis Report
 
PPL CORP (PPL): Free Stock Analysis Report
 
SPECTRA ENERGY (SE): Free Stock Analysis Report
 
SOUTHERN CO (SO): Free Stock Analysis Report
 
SEMPRA ENERGY (SRE): Free Stock Analysis Report
 
QUESTAR (STR): Free Stock Analysis Report
 
SOUTHWESTRN ENE (SWN): Free Stock Analysis Report
 
AQUA AMER INC (WTR): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research ]]> Tue, 18 Jun 2013 06:46:01 GMT Buying stocks making new highs.

I know some are reluctant to buy stocks making new 52 weeks highs. If you’re one of them, have you ever asked yourself why?

If a stock is making a new 52-week high, that's a good thing. Especially now.

I'm pretty sure that a person who dislikes buying stocks making new 52-weeks highs wouldn't be too upset if the stock he already owned broke out to new 52-week highs.

And why should he? Statistics have shown that stocks making new highs have a tendency of making even higher highs.

These are the stocks we all dream about. Get in and it keeps going up.

Of course the fundamentals need to be there. And you should keep a watchful eye on valuations. But if you were in a stock making new highs and cheering it on, it seems silly to be afraid of one doing the same just because you haven't bought it.

One question I like asking myself just to put things into perspective is: if I was in it, would I be excited and would I still want to be in it? If the answer is yes, then I'll look for the best opportunity to get in.

If the answer is no, that I'd want to take profits, then I'll move on.

This topic actually reminds me of a question someone asked me a while ago about a stock I was talking about that was at a new 52-week high. In fact, it was at a new 5 year high.

He said aren't you worried about buying a stocks at a 52-week high? I said of course not. So it just made a new-52 week high. That’s great news. Guess what -- last year it made a new 52-week high as well. And the year before that. And the year before that.

Can you imagine all the money you'd be leaving on the table if you were afraid of being in stocks every time they made a new high?

The screen I'm running today looks for:

• Stock trading within 10% of their 52 week high. The expression looks like this:

Current Price/52 Week high greater than or equal to .90

That means these stocks are either at a new 52 week high, or have just hit it and still trading within 10% of it, or are climbing towards their 52 week high and are within striking distance.

• Zacks Rank less than or equal to 2

Only Zacks Strong Buys and Buys.

• Price to Sales less than or equal to 1

A Price to Sales ratio of 1 means you're paying $1 for every $1 of sales a company makes. A P/S ratio of less than 1 means you're paying less than $1 for every $1 of sales a company makes. I have found that by looking at stocks with a P/S ratio of less than or equal to 1 helps me find stocks that are still considered undervalued -– even if they are making new highs.

• Current Avg. 20 Day Volume greater than Previous week's Avg. 20 Day Volume

In short, this helps me find stocks where the volume has increased in the recent week vs. the previous week. If the price is climbing on increased volume, that shows increased demand or buying coming in. And the more buying demand there is for a stock, the more it should climb.

• All of these parameters are applied to stocks greater than or equal $5 with Avg. daily volume of greater than or equal to 100,000.

Here are 5 stocks that made it thru this week’s screen:

ADUS Addus HomeCare Corp.
AMWD American Woodmark Corp.
BLMN Bloomin' Brands, Inc.
MGA Magna International Inc.
OMG OM Group Inc.

Sign up now for your 2 week free trial to the Research Wizard and get the rest of the stocks on this list and start using this screen in your own trading. Or create your own strategies and test them first before you invest. Know what to buy and when to sell. 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.

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

 
ADDUS HOMECARE (ADUS): Free Stock Analysis Report
 
AMER WOODMARK (AMWD): Free Stock Analysis Report
 
BLOOMIN BRANDS (BLMN): Free Stock Analysis Report
 
MAGNA INTL CL A (MGA): Free Stock Analysis Report
 
OM GROUP INC (OMG): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research ]]> Mon, 17 Jun 2013 05:47:01 GMT
Retail Furnishings now sits at a cozy #15 on the Zacks Industry Rank.

The eight companies in this sector have had 23 recent positive revisions to annual earnings estimates compared to only 4 negative.  At an average of +29%, there are solid indicators this trend is making itself at home.  A closer look at the industry reveals two retailers which are providing eye-catching solutions for more than just shoppers, but investors as well.

An important factor in this growth may be the desire of homeowners to reinvest in their living space.  Over the past several years, the slumping housing market has deterred many from spending money on interior upgrades.  A new sense of stability, and increases in property values, is bringing confidence that these home expenses can not only be enjoyed, but recaptured upon sale.

With only one exception, every company in the Zacks Industry Rank for retail furnishings has seen upward revision this week.  Standing out among them, each of the following businesses has been upgraded to #1 (Strong Buy). Upward movement in rank from a Buy to a Strong Buy signals that a stock may be on the move higher following future positive earnings estimate revisions. 

With this in mind, such indicators can provide insight to the informed investor about continued growth.  Both of these companies have been revised to a current Zacks Rank #1 (Strong Buy) this week and both hold a Zack’s Recommendation of Outperform.

We invite you inside to take a closer look at these two suppliers.  Who knows?  You may even find a rug that ties the room together.

Restoration Hardware Holdings, Inc. (RH)

RH is a Zacks Rank #1 (Strong Buy). It was raised within the last week from Zacks Rank #2 (Buy) and reports earnings on October 16, 2013.

Restoration Hardware Holdings, Inc. is a luxury brand in the home furnishings marketplace, offering product assortments across a number of categories, including furniture, lighting, textiles, bathware, decor, outdoor and garden, as well as baby and child products. The company's business is integrated across its multiple channels of distribution, consists of its stores, catalogs and websites.

RH is benefiting from the implementation of a new strategy, establishing itself in premium retail locations with even larger stores which can offer the diversity of products to meet the new wave of consumer demand.

Restoration Hardware’s most recent earnings surprise was 50%.

Fortune Brands Home & Security (FBHS)

FBHS is a Zacks Rank #1 (Strong Buy), climbing up from Zacks Rank #2 (Buy) just last week.  This company reports quarterly earnings on July 25, 2013.

Fortune Brands Home & Security, Inc provides home and security products in the United States. It manufactures custom, semi-custom, and stock cabinetry for the kitchen, bath, and other parts. The company is also engaged in manufacturing and selling fiberglass and steel entry door systems, vinyl-framed windows and patio doors. 

Notably, FBHS operates Moen brand faucets, which has seen strong growth as a do-it-yourself renovation for homeowners looking to add new value with upgraded kitchens and bathrooms.

FBHS had their most recent earnings surprise of 41.18% for Q1.
 
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Zacks Investment Research ]]> Mon, 17 Jun 2013 05:31:01 GMT

The summer of 2013 is expected to be anything but dull. Tensions among investors and market volatility are high as we weigh the effects of QE tapering amidst a world with struggling economies.

Stocks that have global discretionary exposure or unjustifiably high valuations have gotten hit the hardest over the last month or so. 

If economies do weaken and consumers slow their spending habits once again, there are a few areas that could still see strong growth.  In fact, today’s bull of the day might actually benefit from consumers staying home, surfing the web or engaging in more online content.

Think about them as a quasi-defensive growth company; sure they have competition, but they are one of the best at what they do and it seems that investors may be gearing up for the company to make another leg higher as short interest dropped dramatically as of late.

The most recent short interest data has been released by the Nasdaq for the 05/31/2013 settlement date, showed a 6,608,451 share decrease in total short interest from 10,971,242 or 37.59% since 05/15/2013.  This shift happened even as the stock price skyrocketed.

Who are they?
Akamai AKAM is more than just a “cloud” company; the company provides the leading cloud platform for helping enterprises provide secure, high-performing user experiences on any device, anywhere.   The proliferation of mobile devices from the likes of Apple AAPL, Samsung, HTC, Google GOOG and more all will add to the need for Akamai’s services.  

If you've ever shopped online, downloaded music, watched a web video or connected to work remotely, you've probably used Akamai's cloud platform. The company’s promise is to ensure the best online experience on any device, anywhere.

Akamai delivers roughly 20% of ALL web traffic globally.

Akamai helps enterprises accelerate innovation in the hyper-connected world by removing the complexities of technology and handling all the “leg work” in getting content from the company to the consumer and beyond.

Their “Intelligent Platform” reaches globally and delivers locally, providing customers with unmatched reliability, security and visibility into their online business.  This platform comprises more than 95,000 servers located across nearly 1,000 networks in 70 countries worldwide and delivers hundreds of billions of internet interactions daily.

The company also tracks and defends against “attack traffic” on the internet, helping us all get the safest bandwidth possible.   Global internet traffic is not only growing in raw content and users, but the speed at which we access that content is also rising rapidly.

Recent Results
Most Zack’s Rank #1 stocks have recently experience very positive analyst momentum and Akamai is no exception. 

After the company delivered a 24% beat last quarter (42cents versus the Zacks Consensus for 34 cents), there have been a slew of positive analyst revisions.  The Zacks Consensus for the current and next quarters as well as FY2013 and FY 2014 are all higher than they were just 2 months ago, with none moving their estimates lower.

Akamai is expected to report Q2 results on July 24th and given their Zacks Rank coupled with an earnings ESP of 8.11% in the current quarter, there is a very good chance they will beat the current Zacks Consensus for 37 cents.  ESPs are also positive for the future, which is a good sign for guidance.

AKAM has beat the Zacks Consensus earnings estimates 4 periods in a row, exceeding expectations by an average of 13.7%.

The Charts
Since gapping almost 17% above the 200 day moving average on their last earnings report, the stock added another 15%, making a new 52 week high of 48.47 over the last month.

Recently, shares have come down to their post gap price around the $42.50 level, which is just above the 50 day moving average of $42.34.

Shares are in an odd area here; I’d like to see them trading above the $43.07 area, which coincides with a key Fibonacci level.  If the stock breaks down here along with the broad market, look for strong support around $39.50 and even more at the 200 day moving average of $37.81.

The reality is that the intermediate bullish trend is intact, and a buy around these levels wouldn’t be catastrophic, but Akamai’s forward P/E of 26.5 may put it on the temporary chopping block if the broad market corrects.

Look for an initial upside target of $47.25, with another 5% breakout if shares eclipse the 52 week high.

 Akamai is my favorite pick in the cloud space at the moment; Rackspace RAX, a Zacks Rank #5 Strong Sell, doesn’t look nearly as attractive and trades at double the multiple and while Hewlett Packard HPQ (Zacks Rank #3 Hold) is trying to move into the space, they may have a long road ahead and are much less agile and “plugged in” than Akamai.

Jared A Levy is one of the most highly sought after traders in the world and a former member of three major stock exchanges. That is why you will frequently see him appear on Fox Business, CNBC and Bloomberg providing his timely insights to other investors. He has written and published two tomes, “Your Options Handbook” and “The Bloomberg Visual Guide to Options”.  You can discover more of his insights and recommendations through his two portfolio recommendation services:

Zacks Whisper Trader- Learn to buy stocks likely to have robust earnings BEFORE they report.

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Sometimes you can have a good company that finds its stock a bit ahead of itself, which is what I think we are seeing here in Barnes Group, today’s Bear of the Day.

If you are not familiar, Barnes Group B (Zacks Rank #5) is an international aerospace and industrial manufacturing and services provider, serving a wide range of end markets and customers. The products and services provided by the company are used in far-reaching applications that provide transportation, communication, manufacturing and technology to the world.

Many of their products are highly engineered, high quality (high price) products for those industries.  In a world that is seeing slowing growth on the downswing rather than on the rise, I am concerned that the 50% rise in share price and 19 times earnings multiple might be a little rich.  I have no doubt the company will continue to sell its components, but their growth looks questionable in the second quarter. 

Barnes generates roughly 20% of its sales in Europe, 18% in Asia and 62% in the Americas.

Last Earnings Report
Barnes Group reported Q1 adjusted earnings per share of 40 cents, up roughly 25% year over year in late April; the results fell 11.1% short of the Zacks Consensus Estimate for 45 cents.

Revenue in the quarter grew 18.3% year over year, primarily due to healthy performance in the Industrial segment. The impact of revenue increase was, to a large extent, negated by 10.8% and 61.2% increase in cost of sales and selling and administrative expenses, respectively. Operating income grew a mere 1.4% while operating margin fell 150 basis points.

Of bigger concern was Barnes’ anticipation of recording income tax charges to the tune of $20 million in the current quarter and the company’s cash flows are expected to be negatively impacted by $13 million related to an unfavorable tax ruling.

Earnings Trajectory
While the stock price has been moving higher, analysts’ expectations have been doing the opposite. 

Most of the analysts that cover moved estimates lower since their last earnings report, with the current quarter’s results dropping from 54 cents to the current 46 cents.  FY2013 estimates also came down 11.2% from $2.14 per share to $1.90.

Barnes is expected sales to decrease 1.42% for FY2013, but for earnings to increase 12% on cost cuts and efficiency.  Given their tax situation, margin issues and declining economic conditions, I wonder if they will be able to meet those expectations. 

Barnes has missed earnings expectations 3 of the last 4 quarters by an average of 4% and yet the shares continue to outperform. 

While Barnes is still a great company, its Zacks Rank of 5 (Strong Sell) coupled with the negativity amongst analysts makes it a little risky for my blood.  If you are looking for a unique industrial company, you might check out Graco Inc. GGG (Zacks Rank #1) or Colfax Corp. CFX (Zacks Rank #2).

Jared A Levy is one of the most highly sought after traders in the world and a former member of three major stock exchanges. That is why you will frequently see him appear on Fox Business, CNBC and Bloomberg providing his timely insights to other investors. He has written and published two tomes, “Your Options Handbook” and “The Bloomberg Visual Guide to Options”.  You can discover more of his insights and recommendations through his two portfolio recommendation services:

Zacks Whisper Trader- Learn to buy stocks likely to have robust earnings BEFORE they report.

Zacks TAZR Trader – Technical Analysis + Zacks Rank. Best of both worlds approach to find timely trades.

Follow Jared A Levy on twitter at @jaredalevy

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Alcoa (AA) typically gets credited for kicking off each earnings season, but we don’t count Alcoa’s report as the ‘official’ start. In fairness to Alcoa, investors start taking notice of the earnings season only with their release, which for Q2 will happen on July 8th.

As has been the case at the start of recent quarterly earnings cycles, expectations for Q2 earnings season remain quite low. Total earnings for companies in the S&P 500 are expected to be up only +0.6% from the same period last year. This is down from +3.9% growth expected in the quarter in early April. Total earnings were up +2.3% in Q1, but the expectation ahead of the start of the Q1 earnings season was for earnings growth to be in the negative territory.

Finance wasn’t a big driver of aggregate earnings growth for the S&P 500 in Q1, but takes back the lead role in Q2, with total earnings for the sector expected to be up +19.4% and estimates steadily going up. Earnings for the sector were up +7.7% in Q1, which came after many quarters of double-digit growth.

All industries within the Finance sector like the major banks, regional banks, brokers and insurers are expected to have positive growth. But the growth picture is particularly notable for the brokerage and investment management industry such as Goldman Sachs (GS) and Morgan Stanley (MS), with total earnings for the group expected to be up +39.6% in Q2 after the +2.6% gain in Q1.

Unlike Finance, the earnings picture for the Technology sector, the largest sector in the S&P 500, remains fairly weak. Total earnings for the sector are expected to be down -8.7% from the same period last year, which follows the -3.8% earnings decline in Q1.

Earnings estimates for the sector have been steadily coming down over recent weeks, with the current -8.7% decline down from expected decline of -3.1% in mid-April. The weakest group within the Technology sector is the PC makers, with total earnings for the Computers and Office Equipment industry expected to be down -16.1% in Q2 after the -14.1% decline in Q1. Semiconductors and electronics are other Tech industries with negative earnings growth in the quarter.  

Expectations for full-years 2013 and 2014 have come down far less than what we have seen for Q2 estimates. In fact, it is reasonable to assume that given the improving outlook for the Finance sector, aggregate estimates will start rising after a very long time in the coming weeks.

The +6.1% growth in total earnings this year, down from +6.8% in early April, reflects a material ramp up in the second half of the year that is then expected to carry into 2014. Combining the actual results for Q1 with estimates for Q2 gives us +1.5% year-over-year growth in total earnings in the first half of 2013. But total earnings are expected to be up +9.4% in the second half of the year and a further +11.5% in full-year 2014.

Trends in Estimate Revisions

The revisions trend appears to have lost some ground in the last two weeks, though the overall trend still remains in the positive-to-neutral territory. The charts below show trends in earnings estimate revisions. The key metric in all the charts is the ‘revisions ratio,’ which is the ratio of total number of upward revisions over the preceding four weeks to the total number of revisions (positive and negative) over that same period.

We have two charts each 2013 and 2014. The bar charts show the current state of the ‘revisions ratio’ (as of 6/7/13), while the line charts plot the ratio’s trajectory over the preceding 24 months.


 

The ratio doesn’t tell you the ‘magnitude’ of the revisions, only the direction. The level (the dark line) is the dividing line between positive and negative trends, with readings above 50% implying more positive than negative revisions. Our analysis shows that readings between 45% and 55% don’t offer material insights into the magnitude of revisions. It is only readings above 55% and below 45% that offer bullish and bearish signals about the magnitude of earnings revisions.

As you can see in the charts above, the revisions trend for the S&P 500 as a whole is still in neutral territory, the current level (52% for 2013) is down from two weeks back (56% at the end of May). But the trend in the Finance sector continues to be in bullish territory for both this year and next (the blue line). The sector’s revisions ratio currently (as of 6/7) stands at 69% for 2013 and 73% for 2014, modestly down from two weeks back, but nevertheless signaling good times ahead for the sector.

The trend makes perfect sense as higher interest rates may be a hindrance for other industries, but it’s beneficial for the Finance sector’s earnings. Flat net-interest margins have been a permanent feature of the sector’s, particularly banking’s, earnings picture in recent quarters. The charts also show the trend in the Technology sector, the largest in the S&P 500, to spotlight Finance’s improving outlook.

The Finance sector’s positive earnings outlook is a function of the rising trend in interest rates. But whether that trend continues or reverses course in the coming days will depend to a large extent on what the Fed does this week. The consensus view is that the Fed may not do anything material in this week’s statement, but Bernanke may shed more light on the prevailing mood within the FOMC at his post-meeting press event.

Fed aside, we have a bunch of housing-related data on deck this week, including Housing Starts and Existing Home Sales data. We will also have the Empire State and Philly Fed regional manufacturing surveys and the May CPI numbers this week. But everyone will be looking ahead to the Bernanke press conference on Wednesday afternoon.

(We are reissuing this article to correct a mistake. The original article, issued Friday, Jaune 14, 2013, should no longer be relied upon.)
 
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Zacks Investment Research ]]> Fri, 14 Jun 2013 08:19:01 GMT Although markets have been shaky as of late, a few sectors have managed to hold up surprisingly well. In particular, there has been great strength in the health care space, as this segment is currently leading the market from a year-to-date look.

The sector is still up about 20% so far in 2013, even when taking into account the global sell-off, suggesting that health care is now the leader of the market. Yet when investors drill further into this space, they find a true outperformer; biotechnology.

This corner of the health care world has been crushing broad indexes lately, both in terms of the health care sector and the overall market. And in this winning space, one name that stands out and could continue to lead is undoubtedly Biogen (BIIB).

Biogen in Focus

Biogen is one of the largest and most well-known names in the biotech sector, as the enormous company has a market capitalization of over $50 billion. The Massachusetts-based firm is probably best known for its MS drugs, although the company has a number of other therapies for various other diseases as well.

Like many other names in the sector, BIIB has surged to start 2013, continuing the firm’s solid run from a share price perspective. The company is actually up more than 30% YTD, and has added an impressive 125% over the past two years, suggesting that this has been a long growth story.

Biogen’s Outlook

While some might feel like the company’s recent run indicates that the best days are behind Biogen, there are plenty of reasons to still be optimistic on the company. Analysts are currently expecting full year earnings growth of 21.4%, while the company is expected to grow earnings more quickly over the next five years than the previous five, meaning that this story could still have plenty of room to run.

This is further confirmed when investors look at the earnings estimate revision picture, as this is becoming more favorable as well. While analysts are somewhat mixed about the current quarter and next quarter, there is universal agreement on the current year and next year figures.

These estimates have risen markedly in the past few weeks, with the full year consensus rising from $7.66/share to $7.93/share. Meanwhile, the next year numbers have been even more impressive with the consensus surging from $8.77/share two months ago to its current level at $10.17/share.

Clearly, analysts are extremely bullish on the company’s long term prospects and their ability to grow earnings. For this reason, BIIB has managed to obtain a coveted Zacks Rank #1 (Strong Buy), as well as a Zacks Recommendation of ‘Outperform’, suggesting that great things are still ahead for BIIB.

Bottom Line

The trend is your friend in the health care space, as this segment has surged so far in 2013, easily outpacing the broad market. This is particularly true when you drill down into the sector and focus on biotechnology, easily one of the best performing industries over the past year or so.

In this space, a real winner has been Biogen, one of the most famous names in the sector. This company has been a top performer so far this year and it is still expected to grow at a robust rate in the near term.

So if you are looking for a new investment in today’s turbulent market, BIIB could be a great pick. The stock remains well positioned to benefit from the current market focus on growth, and investors may want to consider making an allocation to this top ranked stock before it climbs higher once more.

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Yet while the sector outlook might be very promising, not all companies look to ride this wave higher. In particular, Crocs (CROX) could be one company that misses out on this consumer boom, and gives back some of its gains from earlier in the year.  

Crocs in Focus

Crocs is a Colorado-based company, best known for its unique footwear, although the company also makes a number of accessories as well. While its shoes might be ubiquitous, the firm isn’t exactly in a number of portfolios as it has a market cap of less than $1.5 billion and is well within the small cap range.

Arguably, the best days are long past for this once high flying company, as the stock was once at $35/share, roughly double its current share price. It appears as if the trend has passed Crocs by and that investors have moved on to other names in the broad consumer market that are still ‘in’.

Analysts seem to agree with this assessment too, as expected earnings growth comes in slightly negative for the full year period. This includes a roughly -20% EPS growth rate for the next quarter time frame, and a --0.3% for 2013.

Furthermore, pretty much all analysts are in agreement on this poor story, as all have lowered their estimates in the past sixty days for both the current quarter and current year figures. The overall consensus has also declined significantly as a result of these revisions, suggesting that it isn’t looking good for Crocs in either the near term or longer time periods.

Thanks to this, Crocs currently has a dreaded Zacks Rank of 5 or Strong Sell, meaning that it is likely to underperform other stocks in the next one to three month period. The stock also has an ‘Underperform’ Zacks Recommendation, meaning that the outlook isn’t any better for longer time periods, and that investors should stay far away from this company’s stock.

Better Choices?

Instead of the lowly-ranked Crocs, investors would be wise to consider any number of highly-ranked names in the consumer space. There are even plenty in the same industry of textile-apparel, so there should be no shortage of choices.

In particular, investors might want to consider the top Ranked Hanesbrands (HBI) for exposure. This stock has moved from a Zacks Rank of 2 to a Zacks Rank of 1 in the past week, and its double digit earnings growth projection for this year suggests that it might be a better way to play a surging consumer than the floundering Crocs.

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The philosophy seems so simple and easy. But is it?

If you eat three times a week at McDonald's, the strategy goes, then you should buy the stock. If you wait in line for hours to buy the latest Apple product, buy the stock. If you run a blog dedicated to all the new drinks at Starbucks, then you should buy the stock.

In other words, if you love the company's product, then buy the stock.

But if it was so easy, everyone would do it. Fundamentals still matter. You may have loved Krispy Kreme a decade ago, but the company ran into trouble when it expanded too quickly and the stock tanked.

A hot product sometimes doesn't translate into a hot stock price.

Who Owns It?

If you were Warren Buffett and your favorite drink was Coke, then it was easy to know what company to buy. You buy Coke's stock. But what if your favorite drink was A&W Root Beer? There is no A&W listed on the stock exchanges. So who owns it?

This is where "buy what you know" can get tricky.

It turns out, the A&W Root Beer brand is owned by Dr. Pepper Snapple Group which also owns 7UP and Hawaiian Punch, among other brands.

"Secret" Companies That Own Your Favorite Brands

Love the Loft store? The Loft, which used to be called Ann Taylor Loft, is owned by, of course, Ann Taylor. That one is easy to figure out.

But did you know that Anthropologie stores are actually owned by Urban Outfitters? You also may not be aware that Athleta is owned by Gap.

Here's a quiz: who owns the following well-known brands?

1. Tommy Bahama
2. Vilebrequin
3. North Face
4. Timberland

These famous brands are owned by 3 "secret" companies you probably haven't heard of. Even better, these companies also own, in some cases, multiple famous brands.

It also just so happens that all 3 of these companies are expected to have double digit earnings growth this year. Two out of the three are also Zacks Rank Buy stocks.

It may take some extra sleuthing to uncover the companies that own these brands, but with these solid fundamentals and growth projections, it's well worth the extra effort.

If your favorite brand also has great fundamentals, why not "buy what you know"?

1. Tommy Bahama = Oxford Industries (OXM)

Oxford Industries operates 121 Tommy Bahama stores, including 15 restaurant-retail locations, Lilly Pulitzer with 21 retail stores, and the brands Ben Sherman, Oxford Golf, Arnold Brant and Billy London.

On June 11, Oxford beat the Zacks Consensus for the fiscal first quarter by 5%. It saw strength in both Tommy Bahama and Lilly Pulitzer as Tommy saw 10% same store sales growth. It opened its first two Tommy Bahama stores in Japan in the quarter, which is part of its broader strategy to expand in Asia.

Forward P/E = 20.6
Fiscal 2013 expected earnings growth: 19%
Zacks Rank #2 (Buy)

2. Vilebrequin = GIII Apparel Group (GIII)

GIII-Apparel can trace its history all the way back to 1956 in New York's Garment District. Today, the company has a portfolio of 30 licensed brands where it markets apparel, outerwear, beachwear, luggage, women's handbags, small leather goods and accessories.

But it also owns several retail brands outright including Wilson's Leather and Vilebrequin, which it just acquired. Vilebrequin, founded in 1971 in Saint-Tropez, is a luxury men's and boy's luxury swimsuit retailer with stores in prestige locations such as Beverly Hills, Paris, and Cartagena. GIII will be rolling out women's swimsuits this summer which the analysts believe will significantly add to the bottom line.

Forward P/E = 14.6
Fiscal 2013 expected earnings growth: 13.6%
Zacks Rank #2 (Buy)

3. North Face and Timberland = V. F. Corporation (VFC)

V. F. Corporation has to be one of the least known companies with famous brands out there. Yet, it is one of the largest apparel retailers in the world. In addition to North Face and Timberland, it also owns Wrangler, Vans, Lee and premium jeans maker 7 For All Mankind and athletic clothing maker lucy, to name just a few.

On June 11, the company released its 5-year revenue and EPS targets. It is projecting compounding annual growth of 10% through 2017. Its top brands are forecast to continue with their double digit revenue gains. North Face is expected to grow at 12% annually. Vans is expected to see 13% to 15% growth and Timberland is expected to do 10%.

Forward P/E = 17.4
Fiscal 2013 expected earnings growth: 12.8%
Zacks Rank #3 (Hold)

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

 
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Zacks Investment Research ]]> Thu, 13 Jun 2013 08:16:01 GMT

In fact, for the last seven years in a row, the volume of options contracts traded has steadily increased with last year setting an all-time high.

More and more people are now including options in their investments as a smart way to get ahead of the market.

And it's easy to see why.

Advantages

Most people know that options afford the investor many advantages, not the least of which is a guaranteed limited risk when buying calls and puts.

And you can also get a great deal of leverage while using only a fraction of the money you would normally have to put up to get into the actual stocks themselves.

But those are just some of the advantages of options.

Flexibility

The real advantage with options is the opportunity to make money if a stock goes up, down and, depending on your strategy, even sideways.

In fact, with some strategies you can even be wrong on the underlying stock's direction and still profit. Simply identifying a range is all you need to win.

This flexibility gives the options investor the opportunity to profit in virtually any market condition – even when you're unsure what the market will do.

Easier Than You Think

Even though the popularity of options has soared, they are still not as well known or understood as stocks.

But it's all a lot easier than you might think.

1.) Are You Bullish?

If you believe the price of a stock will go up, you can buy a call option on it and make money as it goes higher.

The option buyer gets a guaranteed limited risk, which is limited to the purchase price (or premium) plus any applicable commissions and fees.

Essentially, at expiration, your profit is the difference between where the stock price is and your option's strike price.

Example:

Let's say a stock was trading at $50.

You buy a $45 call option with a premium of $6.50, i.e., $650.

At expiration, the stock has shot up to $65.

Your $45 call would now be $20 in-the-money, making it worth $2,000.

So the option is worth $2,000.
You paid $650.
That's a gain of $1,350.
All on just a $650 investment.

Worst case scenario: if the stock at expiration closed below your option's strike price of $45, you could lose the entire $650. But even if the price went down to $0, you could never lose any more than that. Whereas with a stock, you'd be on the hook for it all.

2.) Are You Bearish?

If you believe the price of a stock will go down, you can buy a put option on it and make money as the price goes lower.

Once again, the option buyer gets a guaranteed limited risk, which is limited to the purchase price (or premium) plus any applicable commissions and fees.

At expiration, your profit is the difference between where the stock price is and your option's strike price.

Example:

Let's say a stock was trading at $60.

You buy a $65 put option with a premium of $7.00, i.e., $700.

At expiration, the stock has dropped to $40.

Your $65 put would now be $25 in-the-money, making it worth $2,500.

So the option is worth $2,500.
You paid $700.
That's a gain of $1,800.
All on just a $700 investment.

Worst case scenario: if the stock at expiration closed above your strike price of $65, you could lose what you paid for the option. But even if the stock went against you even more, you could never lose any more than that.

3.) Expecting a Big Move, But Not Sure Which Way?

A straddle is a way to make money when you're not sure which way the market will go, but you believe something big will happen in either direction.

With a straddle, you're buying both a call and a put at the same time, with the same strike price, and the same expiration date.

For example, let's say it's earnings season and you expect a big move to occur, either up or down, based on whether the company reports a positive surprise or a negative surprise. Or maybe the charts are suggesting a big breakout could be getting ready to take place in one direction or another.

With this strategy you can make money in either direction without having to worry about whether you guessed correctly or not.

Example:

Let's say a stock was trading at $100 a few days before their earnings announcement.

You buy the front month $100 strike call for $150.
And you buy the front month $100 strike put also for $150.

That's a cost of $300 (not including transactions costs) to put on the trade.

Now let's say the stock shoots up $15 as a result of a positive earnings surprise.

The call option is now worth $1,500.
The put option is worth $0.
You paid $300.
That's a profit of $1,200.
All on just a $300 investment.

The best part with this strategy is if the stock had posted a negative surprise and it dropped -$15 instead, you would have been just as profitable. The only difference is that the put would have been the profitable side and the call would have been the loser. (But so what, because you didn't care which way it went, you just expected something big to happen in one direction or the other.)

Worst case scenario: at expiration, if nothing big ever happens, you would have lost the entire $300.

4.) Expecting a Stock to Fall (or at Least Not Go Much Higher)?

Writing calls can be profitable in mildly bullish markets, sideways markets and bearish markets.

Buying a call option gives you the right but not the obligation to purchase 100 shares of a stock at a certain price within a certain period of time. The price you pay for the option, let's say $500 for example, is called the premium.

If you write an option, you're collecting that premium. Someone else is buying the right to own 100 shares of a stock at a certain price within a certain period of time. And that premium is paid to you.

If that stock goes down and the option expires worthless, the buyer of the option loses -$500, but the writer of the option makes $500.

Example:

Let's say a stock was at $70.

For whatever reason, you determined the stock would go down or at least not go much higher.

Let's also say that you wrote an $80 call for a premium of $5.00, i.e., $500. That means your account would be credited $500.

If at expiration, the stock is at or below the strike price of $80, you'd keep the entire premium of $500.

Even though the stock didn't go down like you thought, but instead went even higher -- $10 higher in this example -- as long as it stayed below your strike price of $80 by expiration, you'd still profit by the full $500 you collected.

Thought the stock was going down.
Instead it went up.
Still made money: $500.
Pretty exciting.

In fact, at expiration, the stock could literally be above the strike price of $80, plus an amount commensurate with what the writer collected for the premium, and still not lose any money. (In this case, the stock could literally be at $85 at expiration and you still wouldn't have lost anything.)

Worst case scenario: if the stock went up past the strike price plus the amount collected in premium, then you'd start losing on the trade. And for every $1 above that level, you'd lose $100.

But if the stock looks like it's breaking out above your price level, you can simply buy that option back to limit your loss, or depending on where you are in the trade, lock in a partial gain.

5.) Think a Stock Will Go Up, But You'd Like To Buy It at a Lower Price, Yet Still Make Money Even If You Never Get In?

Writing put options is a great way to make money if the market goes up, sideways and even down (to a limited extent).

This is also a way to potentially get into a stock that you'd like to own at a much cheaper price, and get paid while you wait, even if you never get the stock.

As you know, if you buy a put option, you're buying the right to sell a stock at a certain price within a certain period of time. The buyer pays a premium for this right. He has a limited risk – which is limited to the price he paid for the option.

However, the writer is taking the other side. He has to buy the stock if it's put to him at a certain price within a certain period of time. And for this 'risk', the writer collects a premium.

Example:

Let's say a stock was at $50.

And you decided to write a $40 put option, collecting a premium of $4.00, i.e., $400. (Not to mention, looking forward to potentially getting a chance to own that stock a full $10 cheaper than where it's trading at.)

If at expiration, the stock is trading anywhere above your strike price of $40 or higher, you'd keep the entire premium of $400. You may not have gotten that stock, but you still got paid for your wait.

Thought the stock would go up, but didn't want to buy it at that price.
Wanted it to go down to buy at a lower price.
Never does.
You still made $400.

If at expiration, the stock price is at $40, the buyer of the option could exercise it and you'd now be obligated to buy that stock for $40 a share, which means you've now got that stock at the price you wanted – plus your $400 premium.

Didn't want the stock at $50.
Wished it would go down so you could get it at $40.
Finally does and you get your stock.
Plus $400.

But even if the stock fell to $36 (i.e., down to your strike price plus an amount commensurate with the premium collected -- this would be your breakeven point), you still wouldn't lose anything.

Worst case scenario: the stock would have to fall below $36 to even begin to lose on the trade. And for every $1 below that level, you'd lose $100 due to the stock you now own.

Of course, if you changed your mind, or if you thought the stock could fall below your strike price and even your breakeven point, you could buy the option back at any time, thus cutting your loss or locking in your gain and ending the trade right there, without having to even bother with the stock.

Options give the investor numerous ways to make money in the market. Up, down or sideways, decide to make success your only option.

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). Just click here.

And be sure to check out our Zacks Options Trader.

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.

 
To read this article on Zacks.com click here.
 
Zacks Investment Research ]]> Thu, 13 Jun 2013 07:16:01 GMT Tale of Gold: What Has, Is and Will Happen

Gold may have lost the battle to diamonds in becoming a girl’s best friend, but the yellow precious metal can very well qualify as historically the most desirable metal. The attributes including malleability, resistance to corrosion and tarnishing, and the glitter makes it ideal for many jewelry purposes. But there is more to Gold; and that is the opportunity that the metal provides for investors.

Gold investors buy gold bullion, official coins as a hedge against inflation or a safeguard against the collapse of paper assets such as stocks, bonds and other financial instruments. Gold ETFs (Exchange-Traded Funds) have also become very popular as an investment option.

Gold ETFs are units representing physical gold, which may be in paper or dematerialized form and are traded on the exchange like a single stock of any company. Governments, central banks and other official institutions hold significant quantities of gold as a component of exchange reserves.

Gold Mining Industry – A Brief Overview

Gold exploration and mining is a time consuming and expensive endeavor. Given its scarcity and remote location of deposits, exploration for new gold deposits is difficult. Once an economically viable deposit is identified, bringing a mine on line can take a decade or more, and it requires substantial capital investment.

Moreover, the mining industry is subject to several risks and hazards such as political conflicts, environmental hazards, industrial accidents, unexpected geological conditions, labor force disruptions, unavailability of materials and equipment, weather conditions, pit wall failures, rock bursts, cave-ins, flooding, seismic activity and water conditions. However, once the mine development project is successful, returns can be enormously high, which more than offsets the risks and the capital invested.

Industry Ranking & Outlook

Within the Zacks Industry classification, the gold industry falls under the broader Basic Materials sector (one of 16 Zacks sectors). We rank all of the more than 260 industries in the 16 Zacks sectors based on the earnings outlook for the constituent companies in each industry. This ranking is available in the Zacks Industry Rank page.

The way to align the ranking and outlook from complete list of Zacks Industry Rank for the 260+ companies is that the outlook for the top one-third of the list (Zacks Industry Rank of #87 and lower) is positive, while the outlook for the bottom one-third (Zacks Industry Rank #174 and higher) is negative. Currently, the gold mining industry is featuring in the bottom 1/3rd with a Zacks Industry Rank of #251, indicating the outlook is on the ‘Negative’ side.

Please note that the Zacks Rank for stocks, which is at the core of our Industry Outlook, has an impressive track record going back years, verified by outside auditors, to foretell stock prices, particularly over the short term (1 to 3 months). The rank along with Expected Surprise Prediction (ESP) (Read: Zacks Earnings ESP: A Better Method) helps in predicting the probability of earnings surprises.

There is a lot of buzz in recent days surrounding gold prices. Let's look at the driving factors, recent trends and the road ahead:

What affects gold prices?

Gold prices fluctuate on a daily basis and are influenced by industrial and jewelry demand, demand for gold as an investment, central bank lending, sales and purchase of gold, volume of recycled material available in the market, speculative trading; and costs and levels of global gold production by producers of gold.

There are a number of economic factors as well that influence gold prices. Over the past few years, the price of gold has shown a high inverse correlation with the U.S. dollar. In the wake of dollar weakness, investors opt for gold as a safe haven. Other factors include expectations of the future rate of inflation, interest rates; and global or regional, political or economic uncertainties.

Recent Price Trends: Alarming Drop Witnessed in April and May

In 2012, gold’s average market price of $1,669 per ounce was an all-time record high, representing a 6% annual increase. Lingering concerns about Europe’s financial problems, China’s reduced economic growth, announcement of the third round of quantitative easing (QE3) led to a surge in gold prices.

In the first quarter of 2013, gold prices ranged from $1,574 per ounce to $1693.75 per ounce, with average gold price at $1,631.8 per ounce, down 3% year over year. However, gold prices slumped drastically subsequent to the first quarter.

On Apr 12, prices dipped 9% in 1 day from $1,535.50 to $1,395 per ounce, a level last witnessed in Feb 2011. After a short-term correction, the price dipped to the lowest level in 2013 of $1,354.75 on May 20.

Year to date, gold prices have fallen 18%. This steep drop has technically put the yellow metal in a bear phase, leading to widespread concerns and questions such as -- why gold is going down, whether it will last, and whether it can still be termed as a ‘safe haven.’

Why is the sheen wearing off?

It was not a day’s event that affected the gold market, but the unfavorable factors had been building up over the past few months. The U.S economy started showing signs of a revival. As mentioned earlier, the strengthening of the US dollar has an inverse relationship with gold prices. Monetary easing in Japan led to dollar’s strength, thus proving the theory.

A decline in inflation level across the globe also reduced gold’s value as a hedge against rising prices. Furthermore, anticipation that U.S Fed’s QE3 could end soon also influenced the fall.  Rising interest rates make bonds more attractive than gold. The final straw was the news that Cyprus may sell gold from its reserves. This led investors to offload their positions in gold.

What Lies Ahead

Analysts continue to see rough days ahead for gold. They have cut down their estimates for 2013 as well as 2014, citing mounting headwinds from a strengthening dollar, improving U.S. growth, rising interest rates, subdued inflation and lack of investment buying. However, they expect prices to remain above 1,500 per ounce in 2013.

The recent plummet in prices has dealt a severe blow to investor confidence for the yellow metal. This may take many months to restore. Even though it has resulted in major losses in the paper gold market, it has otherwise triggered a gold rush for the actual physical metal, in the form of bullion, jewelry, bars and coins. Thus, gold prices will at least become stable if not move higher as retail demand for gold lends support, particularly in India and China.

Demand Dynamics

Total gold demand stood at 963 tons in first quarter 2013, down 13% as substantial net outflow from gold ETFs offset growth in consumer demand for gold and from central banks. Technology demand was down due to weak consumer demand, uncertainty in Europe and substitution to more affordable alternatives.

Jewelry demand soared to 551 tons in the quarter, helped by lower price levels. Even though India and China (62% of the global jewelry demand) were at the forefront with respective annual growth of 15% and 19%, respectively, other markets also improved, particularly the U.S.

In India, a good spring harvest and lower prices ahead of the wedding season triggered the increase. In China, festive buying for the Chinese New Year and regained confidence in China’s economy led to a record quarter.

The surprise package in the quarter was U.S with jewelry demand increasing after a hiatus of seven years, fueled by positive signs of U.S recovery and lower prices. Demand had been low due to weak consumer sentiment against a backdrop of high unemployment, falling real wages and rising gold prices. Demand for gold bars and coins stood at 378 tons, well above the five-year quarterly average, fueled by demand from India, China and the US.

Central banks remained the primary purchasers of gold, accounting for around 11% of total gold demand at 109.2 tons. Demand topped the 100 ton mark for the seventh consecutive quarter, a testament to the fact that central banks continue to favor gold’s diversification benefit as they reduce their portfolio allocations to US dollars and euros.

On the contrary, the quarter witnessed a 176.9 tons net outflow from gold ETFs. This led to overall investment demand decline of 49%. This performance brings to light the conflict in behavior of investors at the retail level and the investment level.

Retail investors (in gold bars and coins) view gold for preserving wealth and hedging against inflation over the long term. Thus, in the first quarter, demand from retail investors remained high as they saw an opportunity to add to their holdings as gold prices dipped.

On the other hand, the institutional investors have a different perception with a short term, speculative approach. The price drop in the quarter prompted these opportunistic investors to sell their ETF holdings and shift to other investment options.

Gold-backed ETFs have seen outflows of 350 tons out of a total of 2,700 tons held in 2013 till April end. Further price pressure could lead to continued outflow in the near term. On the contrary, bar and coin demand has leaped to unprecedented levels.

This phenomenon is not constrained to Asian markets only. In the US, total number of American Eagle coins sold in April recorded the highest ever dollar value of $311 million. The UK mint reported a tripling of coin sales in April, and the Perth mint in Australia reported the highest demand levels in five years.

With buyers flocking the gold retail stores, several key markets have reportedly run out of stock, particularly in China and India. In April and May, India imported around 300 tons, nearly twice the average level.

However, to rein in the surging demand, India has increased the duty on gold imports. Nonetheless, this increase in the import duty is unlikely to impact imports, as consumer demand remains at very high levels.

The World Gold council expects 300-400 tons of gold to be imported into India during the second quarter, a 200% annual climb. China, another major consumer, is not far behind as imports from Hong Kong are also reported at high levels.

The official sector is expected to continue to be the net buyer of gold. Gold will also enjoy demand from industrial and technology companies for a wide range of products.

Supply

A combination of current mine production, recycling and draw-down of existing gold stocks held by governments, financial institutions, industrial organizations and private individuals, constitute the annual gold supply.

In the first quarter, mine production was at 688 tons, up 4% year over year and 2% above the five-year quarterly average of 671.9 tons. Production increased in the Dominican Republic fueled by Barrick Gold Corporation’s (ABX) Pueblo Viejo mine and in China. Growth was also noted across several mines in Canada and Brazil. Goldcorp Inc.’s (GG) Penasquito mine continued to ramp up production in Mexico.

Recycling of gold contributed 366.6 tons to total supply in the first quarter, 4% lower year over year, the fourth consecutive quarter of annual decline. This was due to reduction in the available supply of gold and economic factors. Overall, gold supply increased a meager 1% to 1,051.6 tons.

Performance of Gold Companies

As we delve into the March-end quarterly numbers of the gold companies in our coverage – Barrick Gold Corporation, Harmony Gold Mining Company Limited (HMY), Newmont Mining Corporation (NEM), Kinross Gold Corporation (KGC), Agnico Eagle Mines Limited (AEM) and Goldcorp, we see earnings being hampered across the board by decline in average realized gold prices.

Shares of Newmont, Barrick Gold, Kinross, Goldcorp, Agnico Eagle and Harmony Gold hit their 52-week lows in the April-May timeframe driven by the sudden drop in gold prices, first quarter results and trimmed guidance. Furthermore, the companies are also riddled with their individual operational issues. Barrick’s stock has fallen under pressure since the April 10th announcement that the company is suspending construction at its Pascua-Lama mine in Chile, in response to a court order from a Chilean court citing environmental concerns.

The price decline added to the woes of the industry that is already grappling with rising costs, labor issues, strikes, delays and/or the cancellation of projects. This has put gold miners on the defensive, forcing them to reassessing and cutting costs. Companies like Barrick and Agnico-Eagle have trimmed down their cash cost guidance for 2013 in order to remain profitable.

If prices fall further, margins will be constrained as the price of gold closes in on the cost per ounce of the companies. Analyzing the all-in sustaining costs (total costs associated with producing gold), 2013 guidance of Barrick Gold, Newmont, Kinross, Goldcorp and Agnico Eagle ranges from $950 to a maximum of $1200 per ounce.

Even if prices continue at April/May levels, there is still a chance for these companies to earn profits. On the other hand, IAMGOLD Corp. (IAG) is running at a risk with consolidated total all-in sustaining cost guidance of $1,200 - $1,300, which is quite close to the current price.

Barrick, Harmony, Goldcorp, Newmont have decided to curtail their capital spending for the year. According to reports, Barrick Gold is contemplating to sell three of its Australian mines and its oil and gas unit -- Barrick Energy and Kabanga, its 50% owned nickel project in Tanzania to offload underperforming assets.

The key to stay afloat in these turbulent times is to identify and reduce discretionary expenses wherever possible, trim capital spending, defer new capital development programs, divest underperforming assets and cut dividends. The companies should judiciously proceed on only low-risk, high-return brownfield and the best Greenfield projects.

In the falling gold price environment, companies with major projects may require additional debt to complete them. Miners with lower costs, lower levels of debt, and with recently completed new mine development will be able to sustain themselves.

Consolidation

Companies have slowed down their deal activities since last year, but Chinese gold miners remained active on the acquisition front. To capitalize on the strong domestic demand for gold, Chinese companies are acquiring overseas gold mines. In 2012, China’s second largest producer, Zijin Mining Group, bought Australia-based Norton Gold Fields and the third largest gold producer, Shandong Gold Group, acquired majority stake in Australia’s Focus Minerals.

Australia was a preferred target considering it is the world's second-largest gold producer, after China. Hong Kong-listed Kingwell Group Limited recently made an offer to Canada-based Brazilian Gold Corporation to acquire not less than 50.95% of its share. Brazilian Gold focuses on the acquisition, exploration and development of gold properties located in northern Brazil.

To Sum Up

Demand for gold will undoubtedly continue to rise, thanks to the rising middle class in India, China, Latin America and other emerging markets. The Euro-zone debt crisis will also be an important driver for gold demand. Furthermore, demand for gold bullion and coins is currently at an unprecedented level. It may however take months for this new demand to feed into prices, but prices will eventually stabilize.

According to the World Gold Council, the bull market for the yellow metal is very much intact even if there’s a lot of uncertainty at the moment for investors. Gold is expected to return to pre-April levels as the long-term drivers of demand are firmly in place.  

The consumers who rushed to buy gold following the fall in prices might have to wait patiently for their anticipated returns to materialize. At current levels, one should invest in gold as a long-term investment, which will grow in value and add diversification to a portfolio. For quick returns, it is advisable to focus on other assets.
 
BARRICK GOLD CP (ABX): Free Stock Analysis Report
 
AGNICO EAGLE (AEM): Free Stock Analysis Report
 
GOLDCORP INC (GG): Free Stock Analysis Report
 
NEWMONT MINING (NEM): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Thu, 13 Jun 2013 07:16:01 GMT Tale of Gold: What Has, Is and Will Happen

Gold may have lost the battle to diamonds in becoming a girl’s best friend, but the yellow precious metal can very well qualify as historically the most desirable metal. The attributes including malleability, resistance to corrosion and tarnishing, and the glitter makes it ideal for many jewelry purposes. But there is more to Gold; and that is the opportunity that the metal provides for investors.

Gold investors buy gold bullion, official coins as a hedge against inflation or a safeguard against the collapse of paper assets such as stocks, bonds and other financial instruments. Gold ETFs (Exchange-Traded Funds) have also become very popular as an investment option.

Gold ETFs are units representing physical gold, which may be in paper or dematerialized form and are traded on the exchange like a single stock of any company. Governments, central banks and other official institutions hold significant quantities of gold as a component of exchange reserves.

Gold Mining Industry – A Brief Overview

Gold exploration and mining is a time consuming and expensive endeavor. Given its scarcity and remote location of deposits, exploration for new gold deposits is difficult. Once an economically viable deposit is identified, bringing a mine on line can take a decade or more, and it requires substantial capital investment.

Moreover, the mining industry is subject to several risks and hazards such as political conflicts, environmental hazards, industrial accidents, unexpected geological conditions, labor force disruptions, unavailability of materials and equipment, weather conditions, pit wall failures, rock bursts, cave-ins, flooding, seismic activity and water conditions. However, once the mine development project is successful, returns can be enormously high, which more than offsets the risks and the capital invested.

Industry Ranking & Outlook

Within the Zacks Industry classification, the gold industry falls under the broader Basic Materials sector (one of 16 Zacks sectors). We rank all of the more than 260 industries in the 16 Zacks sectors based on the earnings outlook for the constituent companies in each industry. This ranking is available in the Zacks Industry Rank page.

The way to align the ranking and outlook from complete list of Zacks Industry Rank for the 260+ companies is that the outlook for the top one-third of the list (Zacks Industry Rank of #87 and lower) is positive, while the outlook for the bottom one-third (Zacks Industry Rank #174 and higher) is negative. Currently, the gold mining industry is featuring in the bottom 1/3rd with a Zacks Industry Rank of #251, indicating the outlook is on the ‘Negative’ side.

Please note that the Zacks Rank for stocks, which is at the core of our Industry Outlook, has an impressive track record going back years, verified by outside auditors, to foretell stock prices, particularly over the short term (1 to 3 months). The rank along with Expected Surprise Prediction (ESP) (Read: Zacks Earnings ESP: A Better Method) helps in predicting the probability of earnings surprises.

There is a lot of buzz in recent days surrounding gold prices. Let's look at the driving factors, recent trends and the road ahead:

What affects gold prices?

Gold prices fluctuate on a daily basis and are influenced by industrial and jewelry demand, demand for gold as an investment, central bank lending, sales and purchase of gold, volume of recycled material available in the market, speculative trading; and costs and levels of global gold production by producers of gold.

There are a number of economic factors as well that influence gold prices. Over the past few years, the price of gold has shown a high inverse correlation with the U.S. dollar. In the wake of dollar weakness, investors opt for gold as a safe haven. Other factors include expectations of the future rate of inflation, interest rates; and global or regional, political or economic uncertainties.

Recent Price Trends: Alarming Drop Witnessed in April and May

In 2012, gold’s average market price of $1,669 per ounce was an all-time record high, representing a 6% annual increase. Lingering concerns about Europe’s financial problems, China’s reduced economic growth, announcement of the third round of quantitative easing (QE3) led to a surge in gold prices.

In the first quarter of 2013, gold prices ranged from $1,574 per ounce to $1693.75 per ounce, with average gold price at $1,631.8 per ounce, down 3% year over year. However, gold prices slumped drastically subsequent to the first quarter.

On Apr 12, prices dipped 9% in 1 day from $1,535.50 to $1,395 per ounce, a level last witnessed in Feb 2011. After a short-term correction, the price dipped to the lowest level in 2013 of $1,354.75 on May 20.

Year to date, gold prices have fallen 18%. This steep drop has technically put the yellow metal in a bear phase, leading to widespread concerns and questions such as -- why gold is going down, whether it will last, and whether it can still be termed as a ‘safe haven.’

Why is the sheen wearing off?

It was not a day’s event that affected the gold market, but the unfavorable factors had been building up over the past few months. The U.S economy started showing signs of a revival. As mentioned earlier, the strengthening of the US dollar has an inverse relationship with gold prices. Monetary easing in Japan led to dollar’s strength, thus proving the theory.

A decline in inflation level across the globe also reduced gold’s value as a hedge against rising prices. Furthermore, anticipation that U.S Fed’s QE3 could end soon also influenced the fall.  Rising interest rates make bonds more attractive than gold. The final straw was the news that Cyprus may sell gold from its reserves. This led investors to offload their positions in gold.

What Lies Ahead

Analysts continue to see rough days ahead for gold. They have cut down their estimates for 2013 as well as 2014, citing mounting headwinds from a strengthening dollar, improving U.S. growth, rising interest rates, subdued inflation and lack of investment buying. However, they expect prices to remain above 1,500 per ounce in 2013.

The recent plummet in prices has dealt a severe blow to investor confidence for the yellow metal. This may take many months to restore. Even though it has resulted in major losses in the paper gold market, it has otherwise triggered a gold rush for the actual physical metal, in the form of bullion, jewelry, bars and coins. Thus, gold prices will at least become stable if not move higher as retail demand for gold lends support, particularly in India and China.

Demand Dynamics

Total gold demand stood at 963 tons in first quarter 2013, down 13% as substantial net outflow from gold ETFs offset growth in consumer demand for gold and from central banks. Technology demand was down due to weak consumer demand, uncertainty in Europe and substitution to more affordable alternatives.

Jewelry demand soared to 551 tons in the quarter, helped by lower price levels. Even though India and China (62% of the global jewelry demand) were at the forefront with respective annual growth of 15% and 19%, respectively, other markets also improved, particularly the U.S.

In India, a good spring harvest and lower prices ahead of the wedding season triggered the increase. In China, festive buying for the Chinese New Year and regained confidence in China’s economy led to a record quarter.

The surprise package in the quarter was U.S with jewelry demand increasing after a hiatus of seven years, fueled by positive signs of U.S recovery and lower prices. Demand had been low due to weak consumer sentiment against a backdrop of high unemployment, falling real wages and rising gold prices. Demand for gold bars and coins stood at 378 tons, well above the five-year quarterly average, fueled by demand from India, China and the US.

Central banks remained the primary purchasers of gold, accounting for around 11% of total gold demand at 109.2 tons. Demand topped the 100 ton mark for the seventh consecutive quarter, a testament to the fact that central banks continue to favor gold’s diversification benefit as they reduce their portfolio allocations to US dollars and euros.

On the contrary, the quarter witnessed a 176.9 tons net outflow from gold ETFs. This led to overall investment demand decline of 49%. This performance brings to light the conflict in behavior of investors at the retail level and the investment level.

Retail investors (in gold bars and coins) view gold for preserving wealth and hedging against inflation over the long term. Thus, in the first quarter, demand from retail investors remained high as they saw an opportunity to add to their holdings as gold prices dipped.

On the other hand, the institutional investors have a different perception with a short term, speculative approach. The price drop in the quarter prompted these opportunistic investors to sell their ETF holdings and shift to other investment options.

Gold-backed ETFs have seen outflows of 350 tons out of a total of 2,700 tons held in 2013 till April end. Further price pressure could lead to continued outflow in the near term. On the contrary, bar and coin demand has leaped to unprecedented levels.

This phenomenon is not constrained to Asian markets only. In the US, total number of American Eagle coins sold in April recorded the highest ever dollar value of $311 million. The UK mint reported a tripling of coin sales in April, and the Perth mint in Australia reported the highest demand levels in five years.

With buyers flocking the gold retail stores, several key markets have reportedly run out of stock, particularly in China and India. In April and May, India imported around 300 tons, nearly twice the average level.

However, to rein in the surging demand, India has increased the duty on gold imports. Nonetheless, this increase in the import duty is unlikely to impact imports, as consumer demand remains at very high levels.

The World Gold council expects 300-400 tons of gold to be imported into India during the second quarter, a 200% annual climb. China, another major consumer, is not far behind as imports from Hong Kong are also reported at high levels.

The official sector is expected to continue to be the net buyer of gold. Gold will also enjoy demand from industrial and technology companies for a wide range of products.

Supply

A combination of current mine production, recycling and draw-down of existing gold stocks held by governments, financial institutions, industrial organizations and private individuals, constitute the annual gold supply.

In the first quarter, mine production was at 688 tons, up 4% year over year and 2% above the five-year quarterly average of 671.9 tons. Production increased in the Dominican Republic fueled by Barrick Gold Corporation’s (ABX) Pueblo Viejo mine and in China. Growth was also noted across several mines in Canada and Brazil. Goldcorp Inc.’s (GG) Penasquito mine continued to ramp up production in Mexico.

Recycling of gold contributed 366.6 tons to total supply in the first quarter, 4% lower year over year, the fourth consecutive quarter of annual decline. This was due to reduction in the available supply of gold and economic factors. Overall, gold supply increased a meager 1% to 1,051.6 tons.

Performance of Gold Companies

As we delve into the March-end quarterly numbers of the gold companies in our coverage – Barrick Gold Corporation, Harmony Gold Mining Company Limited (HMY), Newmont Mining Corporation (NEM), Kinross Gold Corporation (KGC), Agnico Eagle Mines Limited (AEM) and Goldcorp, we see earnings being hampered across the board by decline in average realized gold prices.

Shares of Newmont, Barrick Gold, Kinross, Goldcorp, Agnico Eagle and Harmony Gold hit their 52-week lows in the April-May timeframe driven by the sudden drop in gold prices, first quarter results and trimmed guidance. Furthermore, the companies are also riddled with their individual operational issues. Barrick’s stock has fallen under pressure since the April 10th announcement that the company is suspending construction at its Pascua-Lama mine in Chile, in response to a court order from a Chilean court citing environmental concerns.

The price decline added to the woes of the industry that is already grappling with rising costs, labor issues, strikes, delays and/or the cancellation of projects. This has put gold miners on the defensive, forcing them to reassessing and cutting costs. Companies like Barrick and Agnico-Eagle have trimmed down their cash cost guidance for 2013 in order to remain profitable.

If prices fall further, margins will be constrained as the price of gold closes in on the cost per ounce of the companies. Analyzing the all-in sustaining costs (total costs associated with producing gold), 2013 guidance of Barrick Gold, Newmont, Kinross, Goldcorp and Agnico Eagle ranges from $950 to a maximum of $1200 per ounce.

Even if prices continue at April/May levels, there is still a chance for these companies to earn profits. On the other hand, IAMGOLD Corp. (IAG) is running at a risk with consolidated total all-in sustaining cost guidance of $1,200 - $1,300, which is quite close to the current price.

Barrick, Harmony, Goldcorp, Newmont have decided to curtail their capital spending for the year. According to reports, Barrick Gold is contemplating to sell three of its Australian mines and its oil and gas unit -- Barrick Energy and Kabanga, its 50% owned nickel project in Tanzania to offload underperforming assets.

The key to stay afloat in these turbulent times is to identify and reduce discretionary expenses wherever possible, trim capital spending, defer new capital development programs, divest underperforming assets and cut dividends. The companies should judiciously proceed on only low-risk, high-return brownfield and the best Greenfield projects.

In the falling gold price environment, companies with major projects may require additional debt to complete them. Miners with lower costs, lower levels of debt, and with recently completed new mine development will be able to sustain themselves.

Consolidation

Companies have slowed down their deal activities since last year, but Chinese gold miners remained active on the acquisition front. To capitalize on the strong domestic demand for gold, Chinese companies are acquiring overseas gold mines. In 2012, China’s second largest producer, Zijin Mining Group, bought Australia-based Norton Gold Fields and the third largest gold producer, Shandong Gold Group, acquired majority stake in Australia’s Focus Minerals.

Australia was a preferred target considering it is the world's second-largest gold producer, after China. Hong Kong-listed Kingwell Group Limited recently made an offer to Canada-based Brazilian Gold Corporation to acquire not less than 50.95% of its share. Brazilian Gold focuses on the acquisition, exploration and development of gold properties located in northern Brazil.

To Sum Up

Demand for gold will undoubtedly continue to rise, thanks to the rising middle class in India, China, Latin America and other emerging markets. The Euro-zone debt crisis will also be an important driver for gold demand. Furthermore, demand for gold bullion and coins is currently at an unprecedented level. It may however take months for this new demand to feed into prices, but prices will eventually stabilize.

According to the World Gold Council, the bull market for the yellow metal is very much intact even if there’s a lot of uncertainty at the moment for investors. Gold is expected to return to pre-April levels as the long-term drivers of demand are firmly in place.  

The consumers who rushed to buy gold following the fall in prices might have to wait patiently for their anticipated returns to materialize. At current levels, one should invest in gold as a long-term investment, which will grow in value and add diversification to a portfolio. For quick returns, it is advisable to focus on other assets.
 
BARRICK GOLD CP (ABX): Free Stock Analysis Report
 
AGNICO EAGLE (AEM): Free Stock Analysis Report
 
GOLDCORP INC (GG): Free Stock Analysis Report
 
NEWMONT MINING (NEM): Free Stock Analysis Report
 
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