Q3 2009 Earnings Call Transcript

October 23, 2009 10:00 am ET

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.

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).

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Prem Watsa is the founder, chairman and CEO of Fairfax Financial Holdings (FFH), a Canada-based property/casualty insurance and reinsurance firm. While managing Fairfax’s large investment portfolio over the past couple of decades, Watsa has built a reputation as an astute value-oriented investment manager. Some have called him “Warren Buffett of Canada.” More recently, Watsa’s firm has been embroiled in a suit against short sellers who allegedly conspired to drive down the price of Fairfax stock and hurt the company’s business.

The Manual of Ideas estimates that Watsa’s top three ideas at this time are Kraft Foods (KFT), Wells Fargo (WFC) and International Coal Group (ICO). Our analysis is based on a recent Form 13F-HR filed by Fairfax Financial Holdings with the SEC. We also consider Fairfax’s past 13F-HR filings, recent 13G and 13D filings as well as the latest market prices of the portfolio holdings. Please see below for an explanation of the MOI Signal Rank™ methodology.

Q4 2008 Earnings Call

February 5, 2009 10:00 am ET

Investors occasionally use a stock trading technique called 'Buying Dividends,' which is the technique of buying stocks before the ex dividend date and selling the stock shortly after the ex date at about the same price, yet still being entitled to the dividend. This technique generally works only in bull markets.

If you are interested in buying dividends, there are many stocks in many different industries to choose from. In order to be entitled to the dividend, you have to buy the stock before the ex-dividend date, and you can't sell the stock until after the ex date. The actual dividend may not be paid for another few weeks.

Q3 2008 Earnings Call

October 31, 2008 10:00 a.m. ET

NewMarket Corp (NEU) develops and manufactures chemical additives for the oil and industrial markets. Shares have found a long term bottom and are trading at a forward P/E of 7.59 while continuing to grow EPS at a 15% clip. The stock is relatively unknown, trading an average of only 235,000 shares a day and only Oppenheimer covers the stock. Running a “Diamonds in the Rough” screen that incorporates more than 15 criteria, NewMarket was the name that really shined, and this lubricant company looks like a buy.

A big reason to be bullish on this stock is that the recent fall in commodities will significantly reduce raw material costs that have stricken NewMarket’s margins. Operating margins came in at 7.7% last quarter and we expect a big improvement on the margins outlook. The balance sheet is very solid, as the company is 33% leveraged and maintains a strong current ratio of 2.78. NewMarket also trades at a Price/Sales ratio of just 0.42, well below its peers.

Q2 2008 Earnings Call Transcript

August 1, 2008 10:00 am ET

The effect of high oil prices is working its way through to chemicals companies, resulting in a negative outlook for most parts of the industry, according to Moody’s. “Due to the rising cost of oil and energy and flagging consumer demand, the credit outlook is negative overall for chemicals manufacturers in the U.S. and Canada.”

In an exception to the general negative trend, chemicals companies in some segments, such as agriculture and industrial gases, will continue to exhibit stronger profitability despite feedstock cost increases and weaker US growth, Moody’s says.

Q1 2008 Earnings Call

April 25, 2008 10:00 am ET

Stocks discussed in the lightning round session of Jim Cramer’s Mad Money TV program, Thursday April 3. Click on a stock ticker for more analysis:

Bullish calls:

El Paso Corp (EP): “It s a very cheap natural gas play… I do like EP as a speculative natural gas.”
Corning (GLW): “I’ve been scaling out…they are at a 52-week high… It’s getting a little north… if GLW goes to 22 buy more.”
BP (BP): “Very controversial…I know it is a terrible company, I know they are getting rid of their green project…I know it is mismanaged… but they have a beautiful yield and they are in the energy sector…even they can’t mess that up.”
Schering-Plough (SGP): “….they finally let up…I still say SGP is a good stock…I still say it is better than Pfizer…and I don’t care that up until now I’ve been wrong.”
First Solar (FSLR)

Bearish calls:

Markets were strong across the board on Wednesday after news that Warren Buffet might be riding in on a white horse to save some insurance companies. January retail sales came in at a dismal +0.3%, but it was enough to cheer up traders who had been expecting a fall of about that much after December's drop of 0.4%. The markets also showed pleasure with Washington finally passing the bill should stimulate China's economy when Americans go hold wild with their $600 checks that the Government will take out a loan from China to give them. These consumers will then likely go to Wal-Mart (WMT) or some other type store to buy goods made in China. Score China +1!

The Federal Reserve's Head Idiot at the helm was set to testify before the Senate Banking committee yesterday. Several of the Regional Fed Heads have been openly talking about the risks of recession being high. Fed fund futures are currently showing a 50% chance of another drop in Fed lending rates in March. Selfishly, I wish they would just stick to baseball – at least then they can not be tinkering with something they know nothing about and screwing me, you, my children, yours and several generations of American's to come. Of course, we should not worry about the very real infection that has taken hold of our minds and economies, Obama is a hope monger and makes us all feel warm and fuzzy inside!

Q4 2007 Earnings Call

February 1, 2008 10:00 am ET

New 5%+ positions:

Bullish calls: