For Immediate Release
Chicago, IL - February 17, 2012 - Zacks Investment Research
presents their newest list of stocks featured in their weekly
Research Wizard article, which describes how to profit from stock
market opportunities. The ideas in this article focus on
target stock prices set by Wall Street analysts. Stocks
include:
Visa Inc.
(
V
),
Primoris Services Corporation
(
PRIM
),
CBS Corporation
(
CBS
),
YUM! Brands, Inc.
(
YUM
) and
Wyndham Worldwide Corp.
(
WYN
).
Learn more about Research Wizard at this site:
Research Wizard
Here are highlights from our most recent Research Wizard
feature:
Are Target Prices Important?
Recently, my family has developed an interest and aptitude for
archery. This could have something to do with our shared
fondness for the Elves in
Lord of the Rings
, but I've found it to be a genuinely compelling sport that
involves a fair amount of art and technique. This past
weekend, we spent the better part of an afternoon at a Junior
Olympic training session, where target archery was at its
best. While there, I had some time to ponder the target. I
got to thinking, "Obviously, the target is the focus in archery,
but are target stock prices set by Wall Street analysts useful in
picking stocks?"
For some time now, I've wanted to test the effectiveness of
target prices in picking stocks, but I haven't had the historical
data available. Well, now I have access to that data and more
via the
Research Wizard
, which contains over 600 corporate and stock data items.
Target prices are one of many pieces of information provided by
Wall Street analysts. Other examples of analysts' data and
how to use them can be found by
clicking here
.
So what's the deal with target prices? Are they useful in
indicating a stock's future direction? How should one use
them in analyzing a stock? Let's try to uncover the answers
to these questions.
Looking at the period from 2000 to 2011, I began with a universe
of the 3000 most liquid stocks, and tested the ratio of the target
price divided by the current trading price. Perhaps the
stocks which have the highest values (target price is much higher
than current trading price) still have lots of room to move while
those with low values (target price is below current trading price)
are probably due for a correction. At least that's the
theory.
I divided the target/trading price ratios into five equal
buckets (approximately 600 stocks in each bucket) with bucket #1
containing the highest values and #5 containing the lowest
values. The tests were done for each bucket to determine the
average annual return an investor might expect per bucket. So
what do the tests reveal? You should probably be sitting down
for this.
Bucket # (1=high ratio, 5=low ratio)
1
2
3
4
5
Average Annual Return
(%)
-0.1
3.3
5.7
5.1 2.6
The above results show that the bucket that had the highest
target/trading price ratios (#1) had the lowest return at
-0.1%. Therefore, you should NOT buy the stocks that have a
target price significantly higher than the current trading
price. You probably also should avoid the stocks that
had the lowest ratio of target/trading price (#5). Ideally,
you want to buy something in the moderate range (#2 to 4) with a
target price about 5-15% above the current trading price.
These results are contrary to our initial belief that it's
better to have a much higher target price when compared to the
current trading price. But there's often too much optimism
and not enough reality built into expectations. So the
expectations, or target prices in this case, are too lofty and most
are never fully realized. Also, if the target prices are too
high, it probably indicates the stock is over-hyped or
"glamorous." As you may know by now, it rarely ends well for
glamour stocks.
Moderate expectations seem to be the best pathway to
profitable stock returns
.
Because
momentum
is playing such a big part in the market at the moment, let's
continue building on that theme by adding those stocks within the
best range of their target price:
· First,
start with only
US common stocks.
· Next,
create a liquid, investible set of the stocks with
the largest 3000 market values
and
average daily trading volume ≥ to 100,000 shares
(if there's not enough liquidity, it'll be hard for you to
trade).
· Select
only those stocks with a
Zacks Rank
≤ 3.
(Let's avoid the worst rated stocks.)
· Add
another filter that only selects stocks that are
currently trading within 10% of the target price
. (Recall we want stocks that have reasonable and reachable
targets.)
· Choose
only the top 20 stocks with the best 52-week price
change
. (We're looking for winning stocks over the last year.)
· Pick
the five with the best price change over the last 12
weeks
. (We also want them to be doing well over the last 3
months.)
Here are five stocks using the above methodology (2/17/12):
V
- Visa Inc.
Visa, a payments technology company, engages in the operation of
retail electronic payments network worldwide. The company's
target price is at $123.47 and is within a very reachable distance
compared to its current price. The earnings reported this
week came in above expectations and its strong cash balance has
enabled the company to buy-back shares. Furthermore, Visa
expects its 2012 earnings to grow over last year's. This
company is also rated a "Strong Buy" by brokerage analysts.
PRIM
- Primoris Services Corporation
Primoris, a Dallas-based company that's a specialty contractor
and infrastructure company, provides a range of construction,
fabrication, maintenance, replacement, water and wastewater, and
product engineering services. This company has an average
broker rating of a "Buy" and Zacks Rank of a "Strong Buy."
Its current stock price is below, yet close to the target price of
$17.66. This company continues to announce new contracts
(adding another $40 million two weeks ago) and reported record
profits in November.
CBS
- CBS Corporation
This New York-based company's current stock price is in range of
its $32.41 target and is highly rated among Wall Street brokers and
on the Zacks Rank. The earnings report this week showed
moderate increases in both earnings and sales. Price momentum
looks very strong and the stock is up considerably over the last
four months. CBS operates as a mass media company in the
United States and internationally.
YUM
- YUM! Brands, Inc.
YUM operates as a quick service restaurant company around the
world. The company develops, operates, franchises and
licenses a system of restaurants including KFC, Pizza Hut, Taco
Bell, Long John Silver's and A&W. This company is rated
as a "Buy" by Street analysts and has had a string of earnings
surprises and estimate revisions. The stock of this company
has seen a recent surge in price, yet is still within striking
distance of its $70.05 target. I've never been to China, but
I guess they love KFC there because YUM Brands has seen tremendous
growth in the Land of the Sleeping Dragon.
WYN
- Wyndham Worldwide Corp.
Wyndham, together with its subsidiaries, provides various
hospitality products and services to individual consumers and
business customers in the United States and internationally.
This company is rated a "Strong Buy" by all eight of the brokers
providing coverage and is a Zacks Rank "Buy" as well. The
target price of this company is a modest 8% over its current
trading price. This is another company that has initiated a
share buy-back program and that's usually a sign the company
believes its stock is under-valued.
These five stocks are a good start. Now if you remember my
previous article "
How Many Stocks Should You Own?
" I justify at least a ten-stock portfolio. So I encourage
you to
click here
to learn more about the screening and backtesting power of a stock
research system built for the individual investor. With this
tool, you'll be able to perfect your aim and discover additional
stocks to add to your portfolio. You'll also be able to take
target practice on non-live portfolios and, once you've honed your
technique, you'll be able to trade live with confidence.
So summon your inner William Tell for stock picking and visit
this
site
today!
Click here to learn more about this stock
research tool.
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
.
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CBS CORP (
CBS
): Free Stock Analysis Report
PRIMORIS SERVCS (
PRIM
): Free Stock Analysis Report
VISA INC-A (
V
): Free Stock Analysis Report
WYNDHAM WORLDWD (
WYN
): Free Stock Analysis Report
YUM! BRANDS INC (
YUM
): Free Stock Analysis Report
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