Plaid is in vogue this fall season. Military themed wares have also caught on, even showing up to a degree in Banana Republic (go figure!). Although there is a sense of fashion in the malls and in discounters (by extension of course), the September same-store sales results are not displaying an aura of differentiation. Retailers largely surpassed consensus comp estimates, and a select few managed to upwardly revised 3Q EPS guidance. For the likes of Aeropostale (ARO), Gymboree (GYMB), and Target (TGT) the merchandise is striking the proper chord with consumers (right price/must have) and operating expenses have been removed from the operating model.

All told, our retail sector coverage, comprised of specialty and discount, produced a -2.9% average comp for the combined August/September periods, which we feel is a truer indicator given the shift in the retail calendar for Labor Day. The number stacks up against a -0.7% comp in 2008 for the same periods; stripping out Wal-Mart (WMT) from last year as the company no longer repots monthly sales and comps did in fact improve y/y, slightly. Part of the trend reversal could be attributed, in our view, to fewer deep promotions (sales=volume + price; the latter is helping at the moment). Retailers have gotten very creative in their promotions, offering for example buy one get one 50.0% off which brings consumers into the stores while preserving margin dollars.

It was one of those sessions where one couldn't really figure out if it was the calm before the storm or the calm after the storm. The part people couldn't figure out was the storm. Could the floodgates open and rain money into the market as the final quarter marks the last chance for professionals to get in the game? The rally has been beyond anyone's wildest imagination, and in fact many still think it's a figment of our imagination. I love it when they ask on television: "is this rally real or not?" That's like saying: "are you sitting in front of me now or are you daydreaming over a bowl of Fruit Loops with a trail of milk running down your chin contemplating if there will be any construction work if you get down to Home Depot in time." It seems that some people must sleep down there, after all. Plus, the guys doing jobs seem to dislike ex-accountants. But I digress...it's always real, the question is, however, is it justified. Well, on one hand, the answer to that question can still be kicked down the road although the educated hunch is the market is ahead of itself.

One thing that is interesting is how certain data points continue to move in one direction while stocks in those areas move in the opposite direction. Take yesterday's consumer credit report and the stocks of credit cards. Yesterday it was revealed that consumer credit declined again for the seventh consecutive month and 11 out of the past 13 months. The big hit came again in revolving credit (credit cards), although non-revolving credit (autos) edged lower, too. The Street modeled for a $10.0 billion decline; the actual number was a decline of $12.0 billion.

Since we have already examined in previous posts the potential for momentum strategies either using moving averages, 52 week or all-time highs (for more posts on those strategies click here or here), or returns over the past year, I thought the readership of the Scott's Investments blog may prefer a twist. I have partnered with Zacks Investment Research to start providing some additional screens to my readers. So, using the stock screener in Zacks Premium service, I've screened for stocks trading within 5% of their 52 week high (in other words, strong momentum) and also having positive earnings surprises the past two quarters, and also having the highest rating from Zacks, a 1. (Zacks ranks stocks on a scale of 1-5, with 1 being a 'strong buy' and 5 being 'strong sell'; the Zacks #1 Rank List has generated an annual average return of 27% since 1988.)

One idea I had was to only purchase the top rated stocks if the underlying index (S&P 500) was trading above a long term moving average such as the 200 day moving average. This could potentially reduce some upside gains, but could also reduce drawdowns, such as happened in 2008.

Sentiment

Trading was off to a slow start Thursday morning on poor weekly jobless claims data and a disappointing earnings report from Sears Holdings (SHLD). Before the opening bell on Wall Street, the Labor Department reported that weekly jobless claims increased by 15,000 in the week ended August 15. Stock index futures slipped on the news, as economists were looking for a decline of 11,000. Meanwhile, Sears shares were trading down 12.5 percent after the retailer said it lost 17 cents in the quarter. Analysts were expecting a 35-cent profit.

The major averages found a floor in morning trading with help from better-than-expected manufacturing data. The Philadelphia Fed Survey improved to +4.2 in August, which was significantly better than the -2.0 economists had predicted and a big improvement from the -7.5 seen in July. Meanwhile, AIG is ripping higher and helping the financials after the company's CEO pledged to pay back taxpayer money.

• UBS settles tax probe. UBS (UBS) announced a formal tax probe settlement with the IRS. The bank won't pay a monetary fine and will identify 4,450 clients, turning the names over to the Swiss tax administration who will review the names before passing them on to U.S. authorities. IRS Commissioner Douglas Shulman cautioned other banks and financial advisers that the data received from UBS could lead to a larger probe of tax evasion by banks and lawyers. Separately, the Swiss government announced it would sell its 9% stake in UBS and received lively bids in a Thursday morning sale. The Swiss government will likely net a total of 7.5B Swiss francs from the deal, turning a profit on its initial 6B franc ($5.6B) investment. Shares +5.8% premarket (7:00 ET). (Read the UBS agreement (.pdf) and press release)
• BBVA tipped to buy Guaranty. BBVA, Spain's second-largest bank by market value, has reportedly been chosen by the FDIC to take over Guaranty Financial Group (GFG). Guaranty has around $16B in assets and $9B in deposits, and a deal will help BBVA expand its U.S. operations after its 2007 acquisition of Alabama-based Compass Bank. If a deal falls through and regulators are forced to seize Guaranty, it will be the ninth-largest lender to fail in U.S. history. The purchase is expected to be announced by the end of the week.
• AIG unit may lose bidders. A group led by Chinatrust Financial Holding may not move forward with a planned bid for AIG's (AIG) Taiwan unit because of a disagreement over the value of the business. AIG wants to sell the unit for at least $2B, but the group, which includes Bain Capital and Oaktree Capital Management, has been unable to determine how much capital the unit will need in the coming years and are concerned the unit won't post a profit for the next three years. Though sources said the group may submit a "low-ball, non-binding" bid at the end of the month, this could be another case of AIG chasing away bidders by setting its prices too high. Shares +0.6% premarket (7:00 ET).
• Profits nosedive at Rio Tinto. Rio Tinto (RTP) reported H1 profit fell 65% to $2.45B because of sagging commodity prices. Chairman Jan du Plessis said the company remains cautious about a recent rally in commodity prices, though the outlook is better in the long-term. The company expects improved results going forward, in part because of its decision to cut 16,000 jobs, trim production at its higher cost operations and pay off nearly 40% of its debt. Shares +0.65% premarket (7:00 ET).
• CFTC pushes tougher derivatives bill. Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, is pushing to "enhance" proposed legislation of over-the-counter derivatives by making sure the law covers "the entire marketplace without exception." In particular, Gensler wants to get rid of exemptions for small derivatives dealers and for foreign exchange swaps, repeal parts of the FDIC Improvement Act, and require money be set aside to back up trades. Separately, the CFTC said yesterday it withdrew a 2006 position-limits exemption given to Deutsche Bank's (DB) commodity-services unit that allowed the unit to exceed speculative limits on corn and wheat futures.
• Adjusted deficit still highest in decades. The White House will update its projections for the fiscal 2009 federal budget deficit next week and sources said the number will come in at around $1.58T, slightly less than the $1.84T previously predicted. The reduction stems from improvements in the financial sector that are expected to lessen the government's bailout commitments, but as a percentage of the economy, the deficit will still be larger than any since World War II.
• Northrop may sell advisory unit. Northrop Grumman (NOC) reportedly plans to sell its Tasc consulting unit, which advises military and intelligence agencies, as the government prepares to tighten scrutiny of firms that both advise and sell equipment to the government. Goldman Sachs (GS) and Credit Suisse (CS) have been hired to handle the bidding process, which could see the unit sold for $1-2B.
• Clunkers headed for an end. The White House plans to wind down the cash-for-clunkers program, possibly by early September. The exact end-date is still up in the air, as the administration expects a surge of last-minute trade-ins once the program's expiry is announced but wants to avoid having dealers agree to sales after the program's funds have already been committed. The popularity of cash-for-clunkers has left many dealers concerned that the $3B of funding set aside for the program will run out before they are fully reimbursed. For those who don't have a clunker to trade in, a similar rebate program will soon be available for fridges, washing machines and dishwashers.
• YouTube, Time Warner ink distribution deal. YouTube (GOOG) and Time Warner (TWX) reached a deal to distribute movie clips and TV shows online and will split the advertising revenue. Time Warner CEO Jeff Bewkes said he expects the deal to "improve our ability to monetize this short-form content through new and creative advertising initiatives." The deal is part of Google's recent efforts to ramp up deals with media companies for the video site and to push new forms of advertising. Premarket: GOOG +1.8% (7:00 ET).
• MySpace likes new music purchase. MySpace (NWS.A) confirmed it bought music service iLike as the struggling website tries to remake itself as the go-to location for music, videos, games and other entertainment content. Terms of the deal weren't disclosed, but MySpace is rumored to have paid around $20M.

Earnings: Thursday Before Open

• Buckle (BKE): Q2 EPS of $0.54 beats by $0.02. Revenue of $193M (+14%) in-line. (PR)
• Children's Place Retail Stores (PLCE): Q2 EPS of -$0.42 beats by $0.02. Revenue of $316M (-7%) vs. $315M. (PR)
• China Mobile (CHL): Q2 net income of 30.1B yuan ($4.4B), down from 30.6B a year ago and short of consensus of 31.1B. Sales of 111.6B yuan (+8.9%). Average monthly phone bills declined 11%. Added 15.96M customers (vs. 22.5M last year) to 493M. (PR)
• Patterson Companies (PDCO): FQ1 EPS of $0.38 beats by $0.01. Revenue of $790M (+6%) vs. $756M. (PR)
• Regis (RGS): FQ4 EPS of $0.59 beats by $0.13. Revenue of $625M (-2.5%) vs. $615M. (PR)
• Rio Tinto (RTP): H1 underlying earnings of $2.57B (-65%) vs. consensus of $2.73B. Says it may pay a final dividend, subject to “satisfactory trading results, progress on divestments and prevailing market conditions." (PR)
• Sears (SHLD): Q2 EPS of -$0.17 misses by $0.52. Revenue of $10.5B (-10%) vs. $10.7B. (PR)
• Suntech Power (STP): Q2 EPS of $0.06 beats by $0.04. Revenue of $321M (+2%) vs. $343M. (PR)

Earnings: Wednesday After Close

• Gymboree (GYMB): Q2 EPS of $0.41 beats by $0.02. Revenue of $215M (+5%) in-line. Sees Q3 EPS of $0.95-1.03 vs. $1.05. (PR)
• Hot Topic (HOTT): Q2 EPS of -$0.07 beats by $0.01. Revenue of $158M (-5%) vs. $159M. Sees Q3 EPS of $0.11-0.13 vs. $0.15. (PR)
• JDS Uniphase (JDSU): FQ4 EPS of -$0.01 beats by $0.01. Revenue of $276M (-29%) vs. $279M. (PR)
• Limited Brands (LTD): Q2 EPS of $0.19 beats by $0.03. Revenue of $2.1B (-10%) in-line. Same-store sales down 9%. (PR)
• NetApp (NTAP): FQ1 EPS of $0.22 beats by $0.02. Revenue of $838M (-4%) vs. $828M. Not providing Q2 guidance due to "reduced visibility" caused by macro environment. Names Tom Georgens new CEO. (PR)
• PetSmart (PETM): Q2 EPS of $0.31 beats by $0.02. Revenue of $1.3B (+5%) in-line. Sees Q3 EPS of $0.20-0.24 vs. $0.26. Sees full-year EPS of $1.37-1.45 vs. $1.52. (PR)
• Phillips-Van Heusen (PVH): Q2 EPS of $0.60 beats by $0.16. Revenue of $529M (-1%) vs. $515M. Sees Q3 EPS of $0.80-0.85 vs. $0.90 and revenue of $655M-665M vs. $675M. Raises full-year EPS guidance to $2.30-2.40 from $2.05-2.30. (PR)
• Synopsys (SNPS): FQ3 EPS of $0.47 beats by $0.06. Revenue of $345M (flat) in-line. Sees Q4 EPS of $0.29-0.33 vs. $0.34 and revenue of $335M-343M vs. $348M. Sees full-year EPS of $1.71-1.75 vs. $1.70. (PR)

Today's Markets

Asian markets posted solid gains. European markets and U.S. futures are rising.

F2Q09 Earnings Call Transcript

August 19, 2009 4:30 pm ET

Sentiment

Stocks rebounded from steep losses suffered yesterday and are trading mostly higher late Tuesday. Home Depot (HD) is helping the Dow Jones Industrial Average recapture some of the 186 point drop suffered Monday. HD is up 2.6 percent after the home improvement retailer reported quarterly earnings that beat Street estimates. Twenty-three other Dow stocks are higher, six are lower, and the industrial average is up 85 points heading into the final hour of trading. The NASDAQ is up 25.

Volume is light and trading remains rangebound, however, as the day's economic news didn't offer much reason to cheer. A report released before the bell showed housing starts fell by 6,000 to an annualized rate of 581,000 homes in July. Economists were looking for an increase to 599,000. Building permits, a better gauge of future activity, fell by 10,000 to 560,000. Economists were expecting 577,000.

4:18 PM, Jul 9, 2009 --

• NYSE up 42.8 (0.8%) to 5,667.37.
• DJIA up 5.1 (0.1%) to 8,183.
• S&P 500 up 3.1 (0.4%) to 882.68.
• Nasdaq up 5.4 (0.3%) to 1,753.

From Lehman Brother's collapse on September 15th, 2008, until March 9th of this year, the S&P 500 and stocks in general were in a massive free fall seldom witnessed in the market's history. The SPY S&P 500 ETF (SPY) closed at 68.11 on that day, its lowest point since September of 1996! Since then, the market has rebounded strongly, and SPY is up an impressive 46%, closing last Friday at 95.08. Consumer confidence has improved, housing is showing signs of stabilization, banks are again reporting profits, and overall the worst appears to be behind us.

Nearly all investors have performed well, but Magic Formula investors in particular have really benefited, especially those that focus on small cap picks. This makes sense, of course. Small cap, value based stocks are the best performing class of stocks over the history of the market. The inherent volatility in small cap stocks provides investors ample opportunity to buy them at a discount, and in market downturns these stocks get significantly cheaper than the perceived "safer" large-cap companies. Of course, a low stock price more than mitigates these "risks", in many cases.

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up is Chase Coleman's Tiger Global. Chase Coleman is yet another 'Tiger Cub,' or manager who learned his trade under the watch of Julian Robertson while at Tiger Management. We track Coleman's Tiger Global due to its strong historical performance and proven fundamental research methodology.

According to the recent TIM (Trade Ideas Monitor) report, over the last five trading days institutional brokers have switched from being bearish to being more bullish on equities (see previous post or youDevise website for additional information on the TIM report). For the five trading days ending June 11, the number of long ideas as a percentage of new ideas sent to investment managers increased 73.66%, compared to 58.65% one week earlier. Longs represent 67.03% of ideas in June.

The TIM Long-Short Index, measuring the total number of long ideas compared to the total number of short ideas sent to clients, increased 97.2% after recently falling. As for individual securities, JetBlue (JBLU), Intuit (INTU), and Gymboree (GYMB) were the stocks most recommended as longs by institutional brokers.

The owner of the Justice and Limited Too brands that focuses on the tween girls category (7-14 year olds) has been crushed by the markets and the weak economy.

Oddly though, Tween Brands (TWB) has been crushed much more by the markets then the likes of Children's Place (PLCE), Gymboree (GYMB), and Pacific Sunwear (PSUN). Was it because of the the move to transition all of the Limited Too stores to the much better performing Justice brand?

Investors are positioning for children's retailer Gymboree to move higher.

optionMONSTER's Heat Seeker monitoring system detected the sale of 1,100 August 45 calls for $1.25 and the purchase of 550 August 40 calls for $2.90.

• BofA looks to repay TARP this year. After raising $13.5B in a share sale this week, Bank of America (BAC) plans to pay back its $45B in TARP loans by year-end, much earlier than many expected. BofA has already raised more than half of the $34B capital shortfall it needs to cover before the Treasury will allow it to exit TARP; it plans to raise the rest through sales of non-core assets and by converting preferred shares.
• S&P demotes U.K. S&P downgraded the U.K. economy to Negative from Stable, a move that embarrassed the British Treasury and sent sterling reeling. S&P worries the government debt burden could approach 100% of GDP and remain there for some time. Yesterday, IMF concluded its week-long stay in the U.K. by issuing its own blistering report, saying more banks may still be nationalized as "further shocks will lead to an erosion of capital buffers."
• Feds to inject another $7B+ into GMAC. The Treasury is poised to inject another $7B into GMAC, and may invest another $7B over time, a move which could give the government a majority stake in the car lender and its half-parent GM (GM). Earlier this month, stress-test results pegged GMAC's capital shortfall at $11.5B. What began last December as a $20B batch of emergency loans to the auto industry now looks likely to balloon well beyond $50B, and could approach $100B by the end of 2009.
• Fed mulled larger debt buyback. Some officials favored increasing the Fed's $300B program to buy U.S. Treasurys in order to keep interest rates low and capital markets well oiled, minutes from the FOMC's April 28-29 meeting released yesterday showed. The Fed also lowered its outlook for this year (-1.3% to -2% vs. -0.5% to -1.3%) and next, saying GDP would contract more sharply (9.2% to 9.6% vs. 8.5% to 8.8%) and unemployment would be worse than its January projections. The thought of increasing the Treasury buyback plan - which Pimco's Bill Gross thinks is inevitable - sent Treasury futures sharply higher, with yields on the 10-year dropping to 2.5% from 3% earlier in the day.
• Greenspan bearish on banks. Despite the recent drop in borrowing costs, Former Fed chief Alan Greenspan says we're not out in the clear, and worries a lack of capital at banks may choke any economic recovery. Greenspan thinks recent stress tests underestimated banks' capital needs: "There is still a very large unfunded capital requirement in the commercial banking system in the United States and that's got to be funded," he said yesterday, and noted the mortgage crisis will not abate until home prices bottom.
• Geithner sees healing. Testifying before the Senate Banking Committee yesterday, Treasury chief Tim Geithner outlined to lawmakers how TARP money has been allocated and how much is left (see table), and said banks have raised about $56B following the stress tests. But some economists are worried TARP repayments are not the beginning of the end of government crutches, but rather the end of the beginning. Geithner says he sees signs of healing in the financial system, but warned it's still too early to be thinking about an exit. In the Q&A, Democrats called out the Treasury for not being firm enough with aid recipients, while Republicans argued recent steps have become too intrusive. (read Geithner's prepared comments)
• Sony slashes suppliers. In another ominous sign things may not be as rosy as hoped for the tech sector, Sony (SNE) said it will halve its parts suppliers to slash buying costs by $5.3B, or about 20%. Sony will reduce equipment suppliers to about 1,200. On Tuesday, Hewlett-Packard (HPQ) surprised analysts with hefty layoffs and a downbeat outlook.
• Google Times, not. Google (GOOG) did toy with the idea of buying newspapers, and of using its charitable arm to prop up papers seeking non-profit status, but ultimately decided against both, CEO Eric Schmidt says, responding to speculation Google might look to save New York Times (NYT) or others. In an interview with the FT, Schmidt says Google is "trying to avoid crossing the line" between technology and content, but that it's working with Washington Post (WPO) and others to help them improve their online offerings.

Earnings: Before Open

• Barnes & Noble (BKS): Q1 EPS of -$0.04 beats by $0.11. Revenue of $1.1B (-4.4%) in-line. Sees Q2 EPS of $0.05-0.15 vs. $0.03 consensus. Sees full-year EPS of $1.10-1.40 vs. $1.07. (PR)
• Bon-Ton Stores (BONT): Q1 EPS of -$2.67 beats by $0.77. Revenue of $644M (-8%) vs. $1.05B. Reaffirms full-year guidance. (PR)
• Brocade Communications Systems (BRCD): FQ2 EPS of $0.11 beats by $0.02. Revenue of $506M (+42.7%) vs. $476M. (PR)
• Buckle (BKE): Q1 EPS of $0.58 beats by $0.08. Revenue of $200M (+24.6%) vs. $195M. (PR)
• Children's Place (PLCE): Q1 EPS of $0.80 beats by $0.05. Revenue of $402M (+0.4%) in-line. Comps +1%. (PR)
• GameStop (GME): Q1 EPS of $0.42 in-line. Revenue of $1.98B (+9.2%) in-line. Sees Q2 EPS of $0.28-0.33 vs. $0.40 consensus. New software sales -2.8%; used products +31.9%, "illustrating that value is becoming more important to our customers." Shares -9.9% premarket. (PR)
• Hormel Foods (HRL): Q1 EPS of $0.59 beats by $0.09. Revenue of $1.6B vs. $1.68B. Sees full-year EPS at upper end of $2.15-2.25 vs. consensus of $0.24. Says consumers seek value in retail channels while foodservice sales remain soft. (PR)
• MF Global (MF): FQ4 EPS of $0.04 misses by $0.04. Revenue of $257M (-37.1%) vs. $302M. (PR)
• Navios Maritime (NM): Q1 EPS of $0.12 beats by $0.03. Revenue of $147M (+56.5%) vs. $139M. (PR)
• New York & Company (NWY): Q1 EPS of -$0.08 in-line. Revenue of $233M (-13.8%) vs. $240M. Comps -15%. Sees comps down similarly in Q2. (PR)
• Ross Stores (ROST): Q1 EPS of $0.72 in-line. Revenue of $1.69B (+8.7%) in-line. Sees Q2 EPS of $0.60-$0.63 vs. $0.54 consensus, and full-year EPS of $2.62-$2.72 vs. $2.54. Shares +3.9% premarket. (PR)
• Stage Stores (SSI): Q1 EPS of $0.02 beats by $0.01. Revenue of $334M (+5.6%) in-line. Sees Q2 EPS of $0.20-0.27 vs. $0.09. (PR)
• Stein Mart (SMRT): Q1 EPS of $0.38 beats by $0.22. Revenue of $320M (-9.2%) vs. $316M. "Despite a very difficult sales environment, first quarter earnings improved due to tightly controlled inventories that enhanced merchandise margins, and significant expense reductions." (PR)
• Suntech Power (STP): Q1 EPS of $0.01 vs. consensus of -$0.06. Revenue of $316M (-27.4%) vs. $351M. (PR)
• Tech Data (TECD): Q1 EPS of $0.63 beats by $0.29. Revenue of $4.99B (-17.7%) in-line. Gross margin 5.28% vs. 4.86% a year ago. Sees sales down in Q2 due to decline in IT spending and strength of dollar. (PR)
• Toro Company (TTC): FQ2 EPS of $1.00 beats by $0.10. Revenue of $500M (-21.7%) vs. $508M. Sees full-year EPS in line, and revenue down 18%. Shares +0.75% premarket. (PR)

Earnings: Wednesday After Close

• Advance Auto Parts (AAP): Q1 EPS of $1.02 beats by $0.10. Revenue of $1.7B (+10.3%) vs. $1.6B. (PR)
• Computer Sciences (CSC): FQ4 EPS of $1.53 beats by $0.06. Revenue of $4.1B (-8.3%) vs. $4.2B. (PR)
• Gymboree (GYMB): Q1 EPS of $0.74 beats by $0.03. Revenue of $228M (-4.6%) vs. $233M. (PR)
• Hot Topic (HOTT): Q1 EPS of $0.03 beats by $0.01. Revenue of $175M (+10.1%) in-line. (PR)
• Intuit (INTU): FQ3 EPS of $1.68 beats by $0.07. Revenue of $1.4B (+9.2%) in-line. Issues in-line guidance for FY '09, sees EPS of $1.78-1.82, revenue of $3.155-3.185B. (PR)
• Limited Brands (LTD): Q1 EPS of $0.01 beats by $0.04. Revenue of $1.7B (-10.4%) in-line. Issues in-line guidance for Q2, sees EPS of $0.11-0.16. Sees FY '10 EPS of $0.67-0.87 vs $0.74 consensus. (PR)
• NetApp (NTAP): FQ4 EPS of $0.31 beats by $0.08. Revenue of $880M (-6.2%) vs. $856M. (PR)
• PetSmart (PETM): Q1 EPS of $0.37 beats by $0.07. Revenue of $1.3B (+9.4%) in-line. (PR)
• Synopsys (SNPS): FQ2 EPS of $0.45 beats by $0.05. Revenue of $337M (+3.8%) vs. $336M. (PR)

Today's Markets

Overseas markets moved lower Thursday after U.S. stocks sold off at the end of Wednesday's session. Futures have followed suit.

According to Bespoke Investment Group, the companies on this list have incurred the biggest changes in their EPS estimates over the past month. We took the top/bottom 10 companies (excluding financials) on the list and provided our outlook on these firms based on their attractiveness from a valuation standpoint and the sales growth expectations embedded in their current stock price. The companies on this list with an attractive valuation and reasonable expectations for growing sales are the companies we believe are the most likely to outperform.

It is important to note that earnings are important but not sufficient for evaluating a firm’s ability to create wealth and the shortcomings of EPS alone, take a look at a recent article titled EPS Incresed…Company Underperformed? For a more comprehensive approach to valuation, we suggest you look at the following strategy of how The Applied Finance Group finds value.

With earnings season kicking into gear this week, below we highlight the 25 names in the S&P 1500 that have seen the biggest increases and decreases in their earnings estimates over the last month. As shown, Goldman Sachs (GS) has seen the biggest one-month increase in its Q1 earnings estimate at $0.443. GS is followed by Clearwater Paper (CLW), NewMarket (NEU), and JC Penney (JCP). Other notables on the positive list include Aeropostale (ARO), Family Dollar (FDO), Best Buy (BBY), and Freeport-McMoRan (FCX).

click to enlarge

At the end of each trading week, Hillbent scans for the equity market for potential anomalies which exhibit extremely oversold and overbought conditions. Past observations have revealed that such candidates may experience reversal corrections to the upside or downside once the market reconfirms that their fundamentals remain solidly intact or relatively poor. From a contrarian perspective, these lists may also serve as a precursor to changes in institutional sentiment and underlying fundamentals.

(The purpose of this report is not to provide specific recommendations, but instead serve as a time-saving reference tool and starting point for investment ideas as the upcoming trading week unfolds. Of course, the results generated are not always perfect and users are strongly encouraged to perform their own due diligence on these names. Note that overbought and oversold conditions are based upon proprietary algorithms and quantitative models instead of conventional technical analysis indicators. As a supplement to this report, please refer to our Market Condition Summary to determine if market direction trends support a bullish or bearish investment bias over short-term, intermediate, and long-term timeframes.)

Q4 2008 Earnings Call Transcript

March 4, 2009 4:30 pm ET

At the end of each trading week, Hillbent scans for the equity market for potential anomalies which exhibit extremely oversold and overbought conditions. Past observations have revealed that such candidates may experience reversal corrections to the upside or downside once the market reconfirms that their fundamentals remain solidly intact or relatively poor. From a contrarian perspective, these lists may also serve as a precursor to changes in institutional sentiment and underlying fundamentals.

(The purpose of this report is not to provide specific recommendations, but instead serve as a time-saving reference tool and starting point for investment ideas as the upcoming trading week unfolds. Of course, the results generated are not always perfect and users are strongly encouraged to perform their own due diligence on these names. Note that overbought and oversold conditions are based upon proprietary algorithms and quantitative models instead of conventional technical analysis indicators. As a supplement to this report, please refer to our Market Condition Summary to determine if market direction trends support a bullish or bearish investment bias over short-term, intermediate, and long-term timeframes.)

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

Next up, we have Maverick Capital. Lee Ainslie started Maverick Capital back in 1993 with $38 million. Nowadays, the fund is worth $4 billion. Ainslie, like many of the other fund managers we've profiled, has a background rooted in learning from legendary great Julian Robertson at Tiger Management. These proteges (nicknamed 'Tiger Cubs') learned from the best and have had great success running their own funds. Some of the other Tiger Cubs include Stephen Mandel's Lone Pine Capital and Andreas Halvorsen's Viking Global.