But small cap companies are different. There's an air of mystery about many of them. They're usually not in the news much. Few analysts tend to cover them. Most average people on the street have never heard of them. They seem scary and risky.

So why buy them?

Because the returns can be far greater on a fast growing small cap company than a stodgy, slow growing big cap.

But you have to know where to look because not all small cap stocks are created the same. Some companies aren't profitable. Some consistently miss earnings estimates. Others aren't growing as quickly as they should be.

It's easy to get sucked into a small cap nightmare.

Finding the Best Small Cap Stocks

To reduce the risk, I came up with a list of criteria for my "dream" small caps.

1. It must be a Zacks #1 Rank (Strong Buy)- which means that there is at least one analyst covering the company and the estimates are likely rising.

2. It has to be profitable. Show me the money!

3. There must be double digit earnings growth forecast for 2013. If I'm going to buy a small cap, I want to be able to cash in its explosive growth.

I then screened stocks using Zacks Research Wizard to find the best stocks that matched my criteria. I had several dozen stocks to choose from but I also wanted companies in different industries that also had good stories. Here's what I found.

3 Dream Small Cap Stocks

• Hooker Furniture
• Big 5 Sporting Goods
• Tower International

1. Hooker Furniture (HOFT)

Hooker Furniture makes wood furniture including home entertainment, home office, accent, dining and bedroom furniture in the upper-medium price points under the Hooker brand and in the moderate price point under the Envision Lifestyle Collections brand. In business sine 1924, the Virginia-based company has seen a lot of different business cycles.

The furniture industry is picking up momentum as housing picks up momentum. In April, the company reported fiscal 2013 results which saw net income rise 71% compared to fiscal 2012. The upholstery segment, for example, returned to profitability in fiscal 2013 after reporting operating losses all the way back to the second quarter of fiscal 2009. In the fiscal fourth quarter of 2013, sales in the upholstery segment rose 10.4%.

The company has $26.3 million case on hand as of Feb 3, 2013, which is down $15.7 million from a year ago due to an increase in inventories. Hooker is making sure it has its best sellers in stock as momentum increases. More impressively, the company had no long-term debt. $13.2 million was also still available on its $15 million revolving credit facility with $1.8 million reserved for standby letters of credit.

"We're encouraged by the sustained improvement in housing sales, new home construction, rising housing prices, reduced housing inventories, historically low mortgage rates and the best housing affordability in years. All of this bodes well for our industry," said Paul B. Toms Jr., chairman and CEO in April.

Zacks Rank = #1 (Strong Buy)
Expected earnings growth for fiscal 2014 = 18.8%
Forward P/E =18.1
Market Cap = $184 million

The housing plays aren't a secret anymore. Hooker shares are trading near multi-year highs.

2. Big Five Sporting Goods Corporation (BGFV)

The consumer is alive and well in America. Big 5 Sporting Goods operates 414 stores in 12 western states that sell sporting goods and accessories including athletic equipment for team sports, fitness, camping, hunting, fishing, snowboarding and in-line skating.

On Apr 30, the company reported fiscal 2013 first quarter results and blew by the Zacks Consensus by 62%. Same store sales jumped 10.5% even though they were negatively affected by the Easter holiday, which was in Q2 last year. The company shuts its stores on that day.

"We believe these results for the quarter reflect the ongoing enhancements to our merchandise and marketing programs, the continued benefit from the national increase in demand for firearms and ammunition products and more favorable weather conditions in a majority of our markets versus the prior year. Our positive sales trends have continued into the second quarter and we feel well positioned to deliver strong results as we move through the spring and into the summer season," said Steven G. Miller, Chairman, President and CEO in April.

Zacks Rank = #1 (Strong Buy)
Expected earnings growth for fiscal 2013 = 77%
Forward P/E = 16.2
Market Cap = $450 million

As an added bonus, investors get a dividend which is currently yielding 1.9%. It's unusual to see a small cap company pay a dividend, let alone one that is this hefty.

3. Tower International (TOWR)

The auto industry has staged a powerful rebound from its Great Recession lows. Tower International has been able to cash in on the turnaround as it makes body-structure stampings, frames and other chassis structures, as well as welded assemblies for cars, crossovers, pickups and SUVs in 29 locations around the world.

On May 2, the company blew away the Zacks Consensus Estimate for the first quarter by 256%. Earnings were 32 cents compared to the consensus of just 9 cents. Revenue was up just 1% however as a struggling Europe saw lower industry production. All other regions were higher in the quarter however.

It also completed an early debt tender and re-financing which is projected to improve ongoing free cash flow by about 75 cents per share annually.

Tower raised full year guidance by 40 cents. As a result, 3 estimates have moved higher.

Zacks Rank = #1 (Strong Buy)
Expected earnings growth for 2013: 52%
Forward P/E = 12.2
Market Cap = $399 million

Want More of Our Best Recommendations?

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Learn More>>

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.

 
BIG 5 SPORTING (BGFV): Free Stock Analysis Report
 
HOOKER FURNITUR (HOFT): Free Stock Analysis Report
 
TOWER INTL INC (TOWR): Free Stock Analysis Report
 
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Zacks Investment Research ]]> Wed, 22 May 2013 09:17:01 GMT This is a feeling I rarely, if ever, get on the field or at the tee box, but when it comes to investing, hitting home runs is a constant goal. I often hear of investors that have hit home runs that turn into ground rule doubles, and sometimes worse than that. But there are also times when a home run can turn into a grand slam!

How can you protect the big gains you have made in stocks like BBY, NFLX or TSLA? Which one is most likely to turn into a grand slam?

Wait For Your Pitch

Before you have your big return, you have to be able to locate the stocks that are in the sweet spot for a potential double. Too often I have seen investors swing at stocks that are restructuring and end up fouling the ball off their foot. Even worse are the times when investors look to catch a falling knife and ground into a double or triple play.

Experience has shown that the stocks with the best chance to become home runs are the smaller companies. A company having a market capitalization less than $7 billion gives you the best chance to see the value of your initial investment double.

Avoiding the stocks that are falling knives gives you added insurance against the risk of that stock continuing to move lower. The same can be said of restructuring stories that rarely give home run returns.

More . . .

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Home Run Stocks from Zacks

Only a few companies have great potential to increase their earnings and stock prices far beyond the normal 1 to 3-month Zacks Rank profit zone. These under-the-radar small and mid caps are primed to rack up positive earnings surprises quarter after quarter.

We'll ride them for 6, even 18 months to realize their exceptional upsides. Our home run strategy is already riding more than a dozen double-digit-plus gains, including one company that shot up +135% in just 3 months.

See these special stocks now >>

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Run It Out

It's inevitable that some stocks will just be grounders to short. Learning why your stock didn't get out of the infield is an important lesson to learn. Sometimes it's a CEO scandal or a deal gone bad, but most of the time it's all due to earnings. Give the stocks the chance to be homers by letting the winners win, and don't be discouraged by the occasional soft grounder that goes back to the pitcher. Make sure the earnings picture continues to not only be good, but look for stocks that are seeing improving earnings potential.

Don't Let Them Throw It Back

A homer hit by the opposing team in Wrigley Field generally ends up with the ball being thrown back by the fans. In baseball the homer still counts, but we know that sometimes stocks that seem to be hit out of the park can fly back in even faster.

One method to capture large gains is to use stops, which will ensure that positions don't turn into "loud outs" instead of the homers they are. The use of stops need to carry its own word of caution, as often times stocks will pull back just enough to hit stops before moving even higher.

Keeping an eye on the earnings prospects of the stocks that have become home runs is one of the best ways to ensure that the ball stays in the seats. The difficulty comes into play when you manage a portfolio of 25 stocks and you focus too much on one stock and allow the others to be thrown out while leading off at first. A balance of focus across the entire market, portfolio as whole and individual stocks is necessary.

Grand Slams

There are a few times when a home run is more than just a home run. The grand slam is what we all look for, and I am not talking about a breakfast special. The problem is how can you tell when it's time to take profits or let it ride to potentially be a grand slam?

A key to a home run that can keep going is knowing where the company is in its life cycle. A retailer that is still experiencing growth in the number of stores, margins and sales indicates a company that is still expanding. This means it has a higher chance of continuing its run. A technology company with little or no new technology that was once out of favor might be a good candidate to sell and take profits. The younger (more expansion potential) the company is, the more likely it is to continue to grow.

Box Score

Grand Slams are rare, and to uncover them takes serious dedication to research, lots of patience and of course the willingness to strike out every once in a while. Looking for smaller companies that have great earnings potential and are relatively young in their life cycle can give you a head start to helping your portfolio not only hit more singles, doubles and triples, but also home runs.

Step Up To The Plate

You can build a portfolio of great names that have a Zacks Rank #1 and Zacks Rank #2 and watch them daily. You can monitor research reports from the big brokerages to get some deeper insights into the industries you have invested in. You can then stay even closer to your investments by listening to earnings conference calls to hear for yourself what the prospects are. You can do all of that on your own.

Or, you can look into our Zacks Home Run Investor. service that will help you find stocks with the potential to rack up impressive gains.

This long-term investment approach narrows down strong Zacks Rank stocks to the few that have exceptional potential to blast through our normal 1 to 3-month profit zones. These are companies that could continue to generate positive earnings surprises quarter after quarter.

Since 2011, our strategy has substantially outperformed the market and currently is riding 14 stocks well into the double digits. One has boomed +135% in just 3 months.

In the next few days, I am preparing to add a stock with that kind of potential upside. Check below for more details:

Learn more about Home Run Investor now >>

All the best,

Brian Bolan

Brian is our aggressive growth expert and one of the hottest hands at Zacks who specializes in double-digit stock gains. He is the editor of the Zacks Home Run Investor.

 
To read this article on Zacks.com click here.
 
Zacks Investment Research ]]> Thu, 16 May 2013 20:29:01 GMT It stands for FOrced Buyers Of Risk. What it means essentially is that due to aggressive monetary policies by central banks, investors have basically been forced out of fixed income assets like bonds and into riskier assets like stocks.

Many of these FOBORs are institutional investors like pension funds that rely on steady income streams to meet their liabilities. And simply a sub-2% yield on a 10-year Treasury note isn't going to cut it. So they shift their money into high yielding - and riskier - assets.

Considering that the yield on the 10-year Treasury note is currently less than the dividend yield on the S&P 500, this move isn't surprising. Since 1962, this spread has averaged +3.54%, as you can see in the chart below:

The More Boring the Better

FOBORs are reluctant stock investors, so most prefer the lowest beta, most stable dividend stocks out there since they are used to the safety of bonds. This move has driven stock prices in many "boring" stocks to record highs.

Retail giant Wal-Mart (WMT) is a great example of this. This low beta, stable dividend stock was stuck in a trading range for more than a decade. But suddenly last spring, the stock broke out and surged to new all-time highs:

But has this "reach for yield" created a bubble in dividend stocks?

Defensive Too Expensive?

Bubble might be too harsh of a word. But defensive stocks certainly look a little frothy here.

You can see in the chart below that the P/E ratios in the 'Consumer Staples' and 'Utilities' sectors are among the highest in the S&P index despite their low growth nature:

While low beta dividend stocks are becoming harder to find at a reasonable price, there are still some pockets of value out there.

3 Low Beta, Reasonably Priced Dividend Stocks

I ran a screen in Research Wizard that searched for the following criteria:

• Dividend yield greater than 2.5%
• Forward P/E ratio below 15
• Price to cash flow ratio below 10
• Beta less than 1
• A history of rising sales and EPS
• A history of rising dividends
• Zacks Rank of 3 (Hold) or better

Here are 3 of my favorite names from the list:

Rogers Communications (RCI)

Dividend Yield: 3.7%
Forward P/E: 14x
Price/Cash Flow: 7x
Beta: 0.8

Rogers Communications is a Canadian communications and media company engaged in the telecom and media businesses. The company operates in three segments: Wireless, Cable & Business Solutions, and Media. Rogers generates strong and stable cash flows which it has used to increase its dividend at a 12% compound annual growth rate over the last five years.

Kohl's (KSS)

Dividend Yield: 2.7%
Forward P/E: 11x
Price/Cash Flow: 6x
Beta: 0.8

Kohl's operates 1,155 department stores in 49 states. The company has delivered steady sales and earnings growth over the last decade and began paying a dividend in 2011. Kohl's also recently delivered a big first quarter earnings beat that should drive analysts' earnings estimates meaningfully higher.

Chevron (CVX)

Dividend Yield: 3.3%
Forward P/E: 10x
Price/Cash Flow: 6x
Beta: 0.8

Chevron is a global energy company primarily focused on the exploration and production of oil. Although the company is dependent on oil prices, which can be very volatile, Chevron has managed to increase its dividend at an 11% compound annual rate over the last 10 years and did not cut its dividend during the Great Recession.

The Bottom Line

Forced buyers of risk have driven valuations higher in many stable dividends stocks. But these three low beta stocks still offer strong yields at reasonable prices.

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

Want More of Our Best Recommendations?

Zacks Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential.

Learn More>>

 
CHEVRON CORP (CVX): Free Stock Analysis Report
 
KOHLS CORP (KSS): Free Stock Analysis Report
 
ROGERS COMM CLB (RCI): Free Stock Analysis Report
 
WAL-MART STORES (WMT): Free Stock Analysis Report
 
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Zacks Investment Research ]]> Mon, 13 May 2013 06:23:01 GMT I'm not talking about any gamble, I want a calculated gamble. One that will pay off because times are getting better and that means there is likely to be more disposable cash on hand. Where do people go (and lose or) spend disposable cash? VEGAS!

Let's take a look at 3 stocks that have high Zacks Ranks and could be worth a gamble.

MGM Resorts

MGM Resorts (MGM) has been on a nice run over the last month or so. The stock has jumped from about $12 and is now looking to test the $16 range and that move may be the start of even better things to come.

A big reason for the move was the most recent earnings report. The company reported its first profit in more than 7 quarters, and did so with the Zacks Consensus Estimate calling for a loss of $0.10 per share in the quarter. By reporting $0.03 MGM delivered a 130% positive earnings surprise.

This swing into the black has inspired analysts to move earnings estimates for the casino operator significantly higher. Only six months ago, analysts were calling for a loss of $0.50 for 2013. Estimates have moved up since then, but really jolt higher from a loss of $0.27 to a loss of $0.06 following the most recent quarterly report.

Similarly the Zacks Consensus Estimate for 2014 moved from a loss of $0.024 in November 2012 to the current level of a gain of $0.10. Just one month ago, the consensus was look for a loss of $0.09 in 2014, so the prospects look that much better.

MGM is a Zacks Rank #1 (Strong Buy).

Las Vegas Sands

sticking with the idea of top ranked casino and gambling stocks I have Las Vegas Sands (LVS) up next. While MGM just kicked into profitability, LVS has been there for some time.

The big idea is that LVS just reported its first positive earnings surprise in a year. On May 1, the company reported $0.71 when the Zacks Consensus was calling for $0.66. That five cent beat translates into a 7.6% positive earnings surprise. Prior to that report, the company had a string of three straight misses.

The better than expected sent analysts back to their models looking increase revenue and earnings estimates. Positive earnings estimates revisions really aren't that new to LVS, and since November of 2012 the Zacks Consensus Estimate has been ticking higher every other month. Starting at $2.61 in November, the consensus edged higher to $2.70 at the end of April. With the recent beat, the estimate now stands at $2.79.

The Zacks Consensus Estimate for 2014 also ticked higher over the same time horizon. Starting at $3.03 in November 2012, the less populated number has since ballooned to $3.20. The implied earnings growth rate stands at 14.7%, and for a stocks the size of LVS ($48 billion) that is no small achievement.

LVS is a Zacks Rank #2 (Buy).

International Game Tech

The final gamble I am looking at is International Game Tech (IGT) this is more of a supply chain provider to the casino's but it still fits in the overall scheme of a gambler's stock pick.

IGT has seen three straight positive earnings surprises, and has beat the number in four of the last five quarters. That is a goof think, but when we see the size of the last there beats in percentage terms have been 18.8%, 16.7% and 20% respectively, we have to get excited. Those are solid beats of size by a company that is followed by 13-17 analysts depending on the quarter.

Those beats haven't turned into that much in the way of estimate revisions. Starting in November 2012, the Zacks Consensus Estimate called for $1.23 and since moved higher to $1.31. Nearly the same move for 2014 estimates which moved from $1.28 to $1.33. Despite the solid history of beating the number the analysts are not letting 2014 estimates grow.

My limited experience with Casino's tells me that a big portion of the money made comes from the slots, and as a maker of the slots, IGT will always have a place in the gamblers stock picks. The thing to look for is a consistent replacement rate on the slots, and that will be an indication that the company could be set to see higher revenues.

Gamble? Not with the Zacks Rank

Just because this stocks are related to the gaming / gambling, one should not think that they are a roll of the dice. These stocks all have high Zacks Ranks, which looks for increasing earnings estimates.

The idea of a stronger economy, more disposable cash and well performing casino stocks is good for the prospects of the overall market. If casino's are doing well, then there is confirmation of a number of other businesses doing well.

Want More of Our Best Recommendations?

Zacks' Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential.

Learn More>>

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

Brian is also the editor of Breakout GrowthTrader a trading service that focuses on small cap stocks and also carries a risk limiting strategy.

Follow Brian Bolan on twitter at @BBolan1

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INTL GAME TECH (IGT): Free Stock Analysis Report
 
LAS VEGAS SANDS (LVS): Free Stock Analysis Report
 
MGM RESORTS INT (MGM): Free Stock Analysis Report
 
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Zacks Investment Research ]]> Wed, 08 May 2013 09:05:01 GMT The bad news is that the business of investing still has its own unwritten rules that can trip you up if you're not careful. You could call them "secrets" because when you listen to a pro talk about how he or she is making money on a particular stock, they don't tell you this part.

Today, I offer you five of my favorites...

Secret #1: They Have to Buy

What is the business of institutional investors who manage other people's money? It is to deploy that capital. Lots of different equity portfolio managers have mandates and performance benchmarks that create certain behavior, such as being fully invested even when the market is peaking.

I am not even addressing how analysts or brokers work on the Street to facilitate this business. I'm just talking about fund managers having a bias to buy stocks, not short them. How strong a force is this bias? Trillions strong.

The combined assets of the nation's 4,500 equity-only mutual funds stood at over $7 trillion in March. It is the business of these portfolio managers, along with hundreds of others at pension funds, insurance companies, and endowments to put this capital to work in stocks.

On top of this money ear-marked for equities, there is over $2.6 trillion in money market funds, and another $3.5 trillion is sitting in various bond funds, based just on the reported data of 2,500 funds in the Investment Company Institute survey. This is all "cash on the sidelines" that could help PMs do their primary job: buying stocks. While they "have to buy," we enjoy the freedom to control our investment cash and decide what to buy and when.

--------------------------------------------------------------------------------------------------------------------

Profit from Swings that Few Investors Notice

Zacks' low-risk approach to market timing detects subtle, early signals of movements in industries, sectors, and the market as a whole. It doubles your profit potential on these swings with a simple metric, and then triples that potential yet again through a twist on a common trading move.

That is how a small 3% move on the market can become a 15-20% winner in no time at all.

See the metric and the twist >>

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Secret #2: They Don't Have to Sell

In this secret, I exaggerate (only slightly) to make the point about the pain tolerance of the aforementioned groups, whose job it is to buy stocks with other people's money. It's easy to watch stocks lose 30%, 60%, even 90% when it's not your money.

Do you know what the greatest risk is for a fund manager? It's not losing money or clients. It's underperforming their benchmark (most commonly either the S&P 500 or the Russell 2000). So if stocks are peaking and then turn down, who knows if it's the top? What if the index surges higher again?

For the most part, they can handle the 20% downturn. But they can't miss the last 10% of upside, especially if they've struggled in their stock-picking at all that year and are at risk of underperforming their peers or benchmark. When you understand at what points in the year fund managers are likely to feel "underinvested," you can take advantage of their fear and greed.

Secret #3: Sector Rotation

This one is simple: money doesn't leave the markets, it just moves around. Especially when interest rates are near zero. Especially when equities still offer the best risk/reward overall compared to other asset classes.

And this one also has quite a bit to do with the economic cycle. During the early expansion phases, it's good to be in "cyclical" sectors such as industrials, materials and energy. As the cycle starts to approach its peak, money will move back out of these areas.

But lately the moves seem hair-trigger in nature. The media loves to call it the "risk on/risk off" trade. With fast-money hedge funds taking short term positions in cyclical stocks, commodities, currencies and ETFs, risk on/off is a very accurate way of describing the "light switch" nature of this trade flow.

Just keep in mind that while the momentum players, who are using lots of leverage in their risk taking, have to move in and out fast, there still exists a longer, slower approach to economic cycle investing that you can benefit from. Knowing where we are in the cycle and which sectors are trending accordingly can put a tailwind behind your investment ideas.

Secret #4: Technology, Liquidity & Speed Rule

Speaking of hedge fund momentum players, this secret explains why they move markets and make so much money doing it. It also explains why you have to work harder & smarter to beat the pros.

I call the world of institutional traders one of "total immersion, instant access." Pro traders are swimming in rich information networks, amid oceans of research, and surrounded by analysts who can summarize it all for them instantaneously. They also have amazing technology, tools and systems to help them quickly capture a majority of high-probability trading opportunities.

Then there are the automated trading systems, the "algos." Algorithmic trading has overtaken markets in many ways. It's not that the machines rule. It's more that they have entrenched themselves by providing constant streams of liquidity that almost can't be matched by human traders.

And the technical "model" funds - essentially, computer programs that use price and volume formulas to trade - will never stop inventing new systems to capture market swings. They run stocks up and they run stocks down, without regard for fundamentals, or sanity.

But while sharks abound in Wall Street's waters, we can profit using their same tools and tactics.

Secret #5: Risk Management Isn't a Science

Speaking of super models, one of the most dangerous ever didn't walk a fashion runway, but it did earn its creators a Nobel Prize. The Black-Scholes option pricing model is "dangerous" because it ushered in the era of derivatives.

Not that there's anything wrong with derivatives like options and futures. But other complex financial engineering - like the kind that spawned the sub-prime housing bubble and subsequent banking meltdown - can be very dangerous indeed.

Why? Because they are all based on some variation of the same quantitative methods used in Black-Scholes. Specifically we are talking about standard deviation and the bell curve.

And these quant tools offer Wall Street the illusion of control and safety. If you can measure the past, and its variations, you can model the future. Sounds simple enough. And it sounds so objective and scientific without appearing to offer precise predictions.

"Don't worry," the quants say. "The statistical volatility (risk) is only X."

The problem is that standard deviation was invented to measure the variation in physical phenomena like the anatomy of animals and the structure of the universe. Nature has an order, and science is all about discovering it, measuring it and classifying it so that we can make reliable predictions about the world.

Markets, meanwhile, are anything but natural physical objects that can give us reliable "standard" measurements. Markets are social beasts with unpredictable "wild randomness" as Nassim Nicolas Taleb calls it his book The Black Swan.

What does all this mean to us? While some on the Street would have us believe that markets are efficient and rational, they are actually more subject to bubbles and shocks. And that spells opportunity for traders who can exploit the emotional extremes of optimism and pessimism.

How to Apply These Secrets for Short-Term Profits

A simple way to take advantage of upward or downward movements is to let us do it for you. That's the purpose of our Zacks Market Timer, a unique buy/sell approach to profiting from quick, explosive swings in industries, sectors and the market as a whole.

While cutting losses short, this strategy maximizes gains by 2X with a simple Zacks metric and then 3X again with a twist on a common investment move. If this sounds interesting, I encourage you to check it out right now.

Get details on Zacks Market Timer >>

Good Investing,

Kevin Cook

Kevin, a Senior Stock Strategist at Zacks, is a recognized authority in global markets and renowned for predicting market swings. A former market-maker in the $4-trillion-dollar-a-day world of interbank trade, he developed the ability to track the movement of money, and trained his reflexes to take advantage of it. Today he directs the new Zacks Market Timer, providing commentary and recommendations.

 
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Zacks Investment Research ]]> Tue, 07 May 2013 21:25:01 GMT Lost amidst the earnings reports by such investor favorites as Apple and Procter & Gamble were the earnings reports of the auto retailers.

I'm not talking about the auto manufacturers like Ford and Toyota. I'm talking about the retailers who simply sell, and in many cases, repair, cars and trucks. I was surprised to learn that a handful of these companies are publicly traded and that some of the retailers have dealerships all across the country.

A bunch of them recently reported earnings and they didn't just have good quarters, they had unbelievable quarters. They had the kind of quarters most businesses only dream about.

Auto Sales Returning To "Normal"

But how is that possible more than three years into the auto recovery? It's not as as if auto sales haven't been rising the last few years. Car sales bottomed in 2009 at 10.4 million and have been steadily rising ever since. Automobile analysts expect 2013 sales of 15.1 million. That is near a "normal" auto sales market for the United States.

But a perfect combination of improving credit availability with zero down loans, pent up demand from buyers driving older cars for longer than they otherwise would have, and a housing market recovery fueling pick-up sales, has resulted in the best of times for the retailers.

Three Auto Retail Stocks With the Best Fundamentals

Even though the auto stocks have had big run-ups, it's not too late to get into the sector. Valuations are still attractive. The companies are also expected to have double digit earnings growth this year as analysts expect the growth to remain through 2013 and possibly into 2014.

It doesn't get much better than buying both solid fundamentals and big earnings growth.

However, not all of the auto retailers are created equal. These three auto retailers have the best combination of fundamentals and the Zacks Rank in the sector. All three are Zacks Rank #2 (Buy) stocks.

1. Lithia Motors Inc.
2. Asbury Automotive Group
3. Autonation Inc.

1. Lithia Motors (LAD)

Lithia Motors is the 9th largest auto retailer in the United States with 88 stores in 11 states. It has both rural and urban stores which allows it to be a good indicator of what is happening in the overall economy.

On Apr 24, it beat the Zacks Consensus Estimate by 16%. Same store sales growth was phenomenal, growing by 18.8%. New cars same store sales jumped 22% while used car same store sales rose 21.5%.

Heck, even Service, Body & Parts was strong, with same store sales up 7%.

Lithia also guided higher, the 13th consecutive quarter it has done so.

Forward P/E= 13.7
Expected EPS growth in 2013= 22%
Zacks Rank #2 (Buy)

2. Asbury Automotive Group (ABG)

Asbury Automotive is among the largest auto retailers with 76 auto retail stores across the United States.

On Apr 24, it reported its fourth consecutive record quarterly results. Like Lithia, new and used car sales were strong. New car same store sales jumped 13.9% and used car same store sales rose 14.4%.

Forward P/E= 13.3
Expected EPS growth in 2013= 15.8%
Zacks Rank #2 (Buy)

3. Autonation (AN)

Autonation is the largest of the auto retailers with 262 new vehicle franchises in 15 states. It recently began a rebranding campaign to bring all of its stores under the Autonation brand. It has completed 30% of the rebranding.

New car same store sales rose 6% while used car same store sales increased 6.7%.

Forward P/E= 15.2
Expected EPS growth in 2013= 12.1%
Zacks Rank #2 (Buy)

Want More of Our Best Recommendations?

Zacks' Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential.

Learn More>>

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.

 
ASBURY AUTO GRP (ABG): Free Stock Analysis Report
 
AUTONATION INC (AN): Free Stock Analysis Report
 
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Zacks Investment Research ]]> Mon, 29 Apr 2013 21:45:01 GMT So far a solid 68% of companies have delivered positive earnings surprises, although earnings growth is a lackluster +2.5% year-over-year.

However, as Zacks Research Director Sheraz Mian has pointed out, there is one glaring weak spot this earnings season: revenue.

Don't Forget the Top Line

While a strong percentage of companies have beaten Wall Street expectations on the bottom line, only 38% of companies have delivered positive revenue surprises this quarter. And year-over-year "growth" is -1.5%.

While earnings surprises may garner most of the attention, I'm much more impressed by a company that beats on both the bottom line and the top line. That's because earnings can often be "massaged" by management to clear the quarterly hurdle set by Wall Street. But revenue is generally much less susceptible (although not immune) to manipulation.

The Triple Play

Positive revenue and earnings surprises are great, but if management guidance is weak and/or if analysts still revise their earnings estimates lower, a stock can still be punished. The true winners from earnings season are those who can deliver the coveted "Triple Play":

• A positive earnings surprise
• A positive revenue surprise, and
• Significant positive earnings estimate revisions

And as the well-documented "post-earnings announcement drift" shows, these blow out quarters are often handsomely rewarded by the market for several weeks after a company reports.

4 Triple Plays

So which companies have delivered the "Triple Play" this earnings season? I ran a screen in Research Wizard, and here are 4 of the top companies from the list:

Lumber Liquidators (LL)

EPS Surprise: +30%
Revenue Surprise: +7%
4-Week Change in 2013 Consensus: +10%

Lumber Liquidators is the largest specialty retailer of hardwood flooring in North America. It is a Zacks Rank #1 (Strong Buy) stock.

Meritage Homes (MTH)

EPS Surprise: +32%
Revenue Surprise: +6%
4-Week Change in 2013 Consensus: +17%

Meritage Homes is a U.S. homebuilder. It is a Zacks Rank #1 (Strong Buy) stock.

Everest Re Group (RE)

EPS Surprise: +36%
Revenue Surprise: +16%
4-Week Change in 2013 Consensus: +10%

Everest Re Group is a property and casualty insurer/reinsurer based in Bermuda. It is a Zacks Rank #2 (Buy) stock.

Potlatch Corporation (PCH)

EPS Surprise: +46%
Revenue Surprise: +2%
4-Week Change in 2013 Consensus: +21%

Potlatch Corporation is a Real Estate Investment Trust (REIT) with approximately 1.4 million acres of timberland in Arkansas, Idaho and Minnesota. It is a Zacks Rank #1 (Strong Buy) stock.

The Bottom Line

This earnings season has been decent, but these four companies each reported outstanding quarters and are well-positioned to run higher over the coming weeks.

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

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Zacks Investment Research ]]> Thu, 25 Apr 2013 08:18:01 GMT What was action was swift, as traders quickly sold stocks and then bought them right back ... making the clear cut winners the brokerages that generated a few more commission dollars.

The losers are even easier to find. They are going to be the small time investors. Mom and Pop. How did they lose out? Well they are more likely to use stops and while they agreed to sell the stock or ETF if it went below a certain price, they lost out. This is probably the most important lesson regarding stops since the big flash crash of May 6, 2010.

Maybe Not So Much

I know it’s hard to really say they were the same thing, and the damage of the real flash crash was so much more than the Twitter hack job. But there are lessons that can be learned here and the use of stops as a "hedge" is the number one lesson.

If you want to hedge a long position you hold, you need to use options. They are complicated, but a broker can walk you through a solid strategy on how to protect yourself without being exposed to the flash crash that will come again in the future.

In the big event, holders of Apple (AAPL) got smoked if they put a stock in far out of the market. This time, the damage didn't take as big a bite out of the big red fruit. The four point drop in AAPL the other day doesn't compare to the 50 point drop of the flash crash, but it’s a drop nonetheless.

Twitter Is The New Tape

If there was any doubt about it in the past, we can put the idea of traders not being on Twitter to rest. The source of the rumor was Twitter and the traders acted after the tweet came out. In a shoot first, ask questions later world the traders went for the kill and some got killed.

Twitter is becoming the source that investors look to first for the dissemination of news. Breaking news is like heroin for traders and the source that is the fastest is the best. For most, that means a twitter account with multiple lists of news providers and other resources.

Conference Call Questions Via Twitter

The adoption of Twitter is nearly complete. Late last night I learned that Zillow (Z) would be taking questions for management on the earnings conference call via Twitter. Talk about being ahead of the curve and leading the market! A move like this is bound to only bring more attention to the real estate information resource.

It seems like it will only be a matter of time before all companies are using Twitter to take questions.

The take away from this idea is that Twitter is not going away. It is only going to expand from here. Expect Wall Street to continue to rely on it.

In God We Trust, All Others Not So Much

The final and most import lesson from this investment idea is that Twitter can be hacked. Lies can be told. Misinformation can abound.

You knew that already, but the idea is that you have to be responsible for yourself and do your own homework. Sure you can follow the Penny Stock King and make the big money he or she promises, but you can also lose the big money just the same.

Verification on Twitter may tell you that the account of @BillClinton is really the former president... but he just joined last night and all the other Bill Clinton's on there were fake. I mean all but the one account that Stephen Colbert created for the former President.

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Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

Brian is also the editor of Breakout GrowthTrader a trading service that focuses on small cap stocks and also carries a risk limiting strategy.

Follow Brian Bolan on twitter at @BBolan1

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Zacks Investment Research ]]> Wed, 24 Apr 2013 08:25:01 GMT Every year the tournament has its upsets with a #14 seed beating a #3 seed, and this year was no different. The problem with filling out the bracket is: How do you know who is going to be the Cinderella team?

This year, Florida Gulf Coast became only the seventh #15 seed to beat a #2 seed in tournament history. It was also the first #15 seed to make it to the Sweet Sixteen.

Be honest. You didn't pick Florida Gulf Coast to win its first game in your bracket, did you? There's always one team that no one really foresaw getting it together just in time for the Big Dance. Trying to guess who it will be is part of the fun of watching.

Stock picking can be a lot like filling out the NCAA bracket. There are plenty of #1 seeds and everyone knows who they are. Those big guns are companies like Apple and Caterpillar. If you invest in one of them, odds are on your side.

This year, Wichita State, a #9 seed, stunned the tournament by being the first #9 seed to make it to the Final Four. But how do you find the Cinderella stocks that are the #9 seed but play like the #1s? These are stocks that are flying under the radar. They may be turning around their business but investors aren't paying attention yet.

These stocks, like the #9 seeds, may look similar on paper but some will have the special magic to break out of the pack.

More . . .

--------------------------------------------------------------------------------------------------------------------

Revealing A Turnaround Stock That's Now A "Strong Buy"

Suddenly, this stock jumped from a Zacks Rank #3 (Hold) to a Zacks Rank #1 Strong Buy. But even more remarkable is that its rank is rising ahead of the earnings report. Now analysts are bullish about the company and raising estimates before it reports earnings.

Today you can be among the first to get in while the stock is still cheap - a great value - before other investors clamber aboard.

Get details now >>

--------------------------------------------------------------------------------------------------------------------

3 Ways to Find Stocks That Are About to Be Cinderellas

#1: Look for Winners

To be a Cinderella story in the NCAA tournament you have to win. (Obviously!)

For companies, though, the winning begins when its earnings history starts to turn around. Many times, the analysts are slow to recognize that there is a change in the trajectory of the company, so the company starts easily surprising on the estimate every quarter.

Winning, then, is a company putting up big earnings surprises or a streak of them. When this happens, the analysts will usually start raising their own estimates in expectation of better things still to come. This good news leads to rising estimates and, hopefully, earnings growth.

Choose stocks that have rising estimates.

#2: Buy Growth Stocks

Companies that are turning it around can be found in any sector. They can be big or small. But the best returns come from buying the stocks that have the highest growth rates. That is because once the turnaround takes place, the PE will start to rise from abnormally low levels. The higher the growth rate of the company, the more the multiple will expand and the greater your final return.

Focus on growth stocks for the best turnaround profits.

#3: Value Is Still King

Not every cheap stock is a bargain. Fundamentals, such as rising earnings, still matter. A company may trade for a $1 but if it's just days away from bankruptcy then it's likely not going to be a good turnaround possibility.

In the NCAA, the bracket busters almost always come from a Cinderella team. It's not risky to pick all four #1 seeds to make it to the finals. But betting on a #9 seed to make it there? That takes a lot of guts.

It also takes guts to buy a turnaround stock. You can cut down on the risk by buying one that is trading at a discount to its peers. I use low PE, PEG and Price-to-Book ratios as a way to find value.

Where to Find Cinderella Stocks Right Now

Turnarounds can easily be detected when a company's earnings estimates suddenly reverse from downward to upward. So the proof of the turnaround occurs when a stock makes a sudden leapfrog from a lowly Zacks Rank #5 (Strong Sell), Zacks Rank #4 (Sell) or Zacks Rank #3 (Hold) all the way to a Zacks Rank #1 (Strong Buy).

In fact, I'm directing a turnaround detection strategy that combines these Zacks Rank movements with valuation and aggressive growth factors. During 2013 alone, it has already closed four double-digit gains unseen by our other services.*

If you'd like to look into Zacks' Turnaround Trader, I suggest you do it right now. The number of investors who share its recommendations must be limited, and a lot of new people are sure to climb aboard.

Get Turnaround Trader details now >>

Best,

Tracey Ryniec

Tracey is Zacks' Value Stock Strategist and is also Editor in Charge of our Zacks Turnaround Trader and Value Investor stock recommendation portfolios.

*All data as of April 23, 2013

 
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Zacks Investment Research ]]> Fri, 19 Apr 2013 11:05:01 GMT The rest of us call it "earnings season."

Yet for all the talk about how good companies are at massaging their numbers so that they beat the EPS estimate, there are, surprisingly, very few that can actually beat consistently quarter after quarter, year after year.

Apple, for instance, used to be a member of this exclusive club. It hadn't missed for over 5 years until September 2011. Since that first miss, however, it has missed two out of the last four quarters.

In recent quarters, it seems to have gotten even more difficult to continue with these streaks. Oil States International was looking golden until last quarter when it missed by 11 cents, or 5.8%. AGCO also seemed to be on track to keep its hot streak but 2 quarters ago it suddenly missed by 5 cents, or 5%.

Never Missing

I ran a screen on Zacks Research Wizard to find those companies that have either beaten or met estimates every quarter for the last 5 years. Those are the companies that have, technically, never missed. I came up with only 26 companies.

But if you want the "pure" beat, i.e. companies that have only beaten every single quarter with no quarters where it also met the estimate, than the number is even smaller. I only found just 6 companies that haven't missed on earnings over the last 5 years.

That's out of 4,400 companies that Zacks covers.

Not only did these companies have to navigate the shock to the global economy in 2008 and 2009, but they also managed to beat estimates at the same time. Impressive.

Worth Investing In?

But just because a company has managed its earnings reports well doesn't mean that it's necessarily worth buying. In this case, out of the 6 stocks, 5 are a Zacks Rank #3 (Hold) and one stock is a Zacks Rank #1 (Strong Buy).

Of course, anything can happen this earnings season (just ask Oil States), so the streak isn't a guarantee of future performance.

But it can be an indication of a management team that knows how to control expectations and then knows how to deliver just a little bit more than expected. It may not be a coincidence that Apple only started missing after Steve Jobs had died and new management had taken over.

6 Stocks on a Streak

1. Jarden
2. Apollo Group
3. Dollar Tree
4. Herbalife
5. Kadant
6. Wyndham Worldwide

Love 'em or hate 'em, these 6 stocks haven't missed in five years.

Can they keep it going this earnings season?

Jarden Corporation (JAH)

Jarden makes well known consumer products like Mr. Coffee, Crockpot and First Alert.

Scheduled to report: Apr 24
Average surprise last 4 quarters: 7.3%
Zacks Rank #1 (Strong Buy)
Forward P/E = 13

Apollo Group Inc. (APOL)

Apollo is better known through its flagship brand, The University of Phoenix. The company provides online and on campus higher education in undergraduate, master's and doctoral programs.

Scheduled to report: June 24
Average surprise last 4 quarters: 38.9%
Zacks Rank #3 (Hold)
Forward P/E = 6.3

Dollar Tree Inc. (DLTR)

Dollar Tree operates thousands of stores in the lower 48 states which sell food and other consumer items for $1.00 each.

Scheduled to report: May 23
Average surprise last 4 quarters: 4.2%
Zacks Rank #3 (Hold)
Forward P/E = 16.9

Herbalife Limited (HLF)

Herbalife sells weight loss, energy, fitness and sports products through its network of independent distributors.

Scheduled to report: Apr 29
Average surprise last 4 quarters: 6.8%
Zacks Rank #3 (Hold)
Forward P/E = 7.6

Kadant Inc. (KAI)

Kadant has been serving global manufacturing customers for 100 years. It makes fiber processing products, fluid handling and doctoring, cleaning and filtration systems.

Scheduled to report: Apr 24
Average surprise last 4 quarters: 24.5%
Zacks Rank #3 (Hold)
Forward P/E = 10.9

Wyndham Worldwide Corporation (WYN)

Wyndham is one of the largest hospitality companies in the world with hotels, vacation rentals and fractional ownership properties.

Scheduled to report: Apr 24
Average surprise last 4 quarters: 4.8%
Zacks Rank #3 (Hold)
Forward P/E = 17.1

Want More of Our Best Recommendations?

Zacks' Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential.

Learn More>>

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 ]]>