For Immediate Release
Chicago, IL - May 25, 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 the thin
line of stock investing. Stocks include:
Coinstar, Inc.
(
CSTR
),
Timken Co.
(
TKR
),
WellCare Health Plans, Inc.
(
WCG
),
Cummins Inc.
(
CMI
) and
Eaton Corporation
(
ETN
).
Learn more about Research Wizard at this site:
Research Wizard
Here are highlights from our most recent Research Wizard
feature:
There are certain things in life where the gap between the best
and worst performers is immense. Then there are others where
the gap is infinitesimal. Sports, for example, is something
with an extremely large gap. Neither myself nor anyone I know
could beat Derek Rose in a game of one-on-one even if spotted a few
baskets. Tiger Woods' form has slipped a little recently, but
I personally do not know any golfer that could defeat him.
And, I'm a pretty good defender, but I'm 100% sure Lionel Messi
could dribble around me as if I were a blade of grass. So
it's fairly obvious there are some things in life where the average
Joe just can't compete against the pros.
However, there are areas with much, much smaller gaps between
the pros and everyone else. Poker is one of these.
There have only been four repeat winners of the World Series of
Poker in over 40 years. Why do you think it's so difficult
for a champion to win it more than once? Most of the winners
are first-timers and never win it again. Why is that?
It's not because they truly aren't good players. In reality,
they are some of the best. You can only win a tournament like
that by fully understanding the game.
Stock investing also falls into the "small gap" camp. I
would even wager the market's gap is more narrow than
poker's. You've probably heard at least a hundred times how
most professional portfolio managers don't beat the market in a
given year. Even though Bill Miller's 15-year market-beating
streak is legendary, it ended in 2005. But you also hear the
stories about how individual investors are beating the market even
when the pros aren't. Clearly a very thin line exists in
stock investing and an individual investor
can
compete against the pros!
Explaining the Thin Line
So why does the thin line exist in the realm of some activities
and not others? The answer lies in the amount of skill and
variance that's inherent in whatever contest you're looking
at. As a child, I used to play in chess tournaments yet I'm
sure Gary Kasparov would make me look silly even while lying
sideways from the worst hangover he's ever had. To say it
another way, even at his worst, Kasparov is better than my
best. Same goes for Rose, Woods and Messi. So those
guys have a lot of skill in what they do--and very little
variance.
Stock investing isn't like that. First, it's hard to
actually tell which investment managers are skillful over
time. Second, and this is the main reason, there's so much
variance in a manager's historical return series that it's often
difficult to distinguish it from noise. Therefore,
statisticians would say that sports and chess, for example, have a
high signal-to-noise ratio (lots of skill, little to no variance)
and poker and the stock market have low signal-to-noise ratios
(skill is less evident, with high variance in outcomes). This
is math-speak for saying there's a lot of short-term luck involved
in the market and very good investors--as well as very bad
investors--will occasionally experience results that are at
complete odds with their skill levels. The key is to greatly
improve your skill so there's less doubt that you have a
market-beating strategy.
Improve your odds
It's pretty clear that you have to find a strategy that is
profitable over a long time frame and stick with that strategy
through thick and thin. The
Zacks Research Wizard
presents you with many pre-built strategies designed to beat the
market. All you need to do is find one that fits your
investing style and trading frequency or build one of your own.
As an example, I tested a few of the strategies available to you
via the Research Wizard from the beginning of 2000 until the end of
2011. Here are the results of the S&P 500 and five of the
over 100 existing strategies:
|
|
Total Return
|
Invest $10K
|
Annual Rate
|
Max Drawdown
|
|
S&P
500
|
0.5%
|
$10,049
|
0.0%
|
-48.8%
|
|
All Cap Growth
|
1289.4%
|
$138,937
|
24.5%
|
-50.1%
|
|
Value & Spark
|
2030.4%
|
$213,036
|
29.0%
|
-49.1%
|
|
Multi-Anomaly
|
2602.7%
|
$270,275
|
31.6%
|
-62.0%
|
|
Momentum Anom
|
492.6%
|
$59,264
|
16.0%
|
-54.4%
|
|
Growth & Inc Winner
|
994.1%
|
$109,412
|
22.1%
|
-33.1%
|
The above results clearly show that each of the five pre-built
strategies easily beats the S&P 500. It's not even
close. Placing $10,000 in these strategies at the beginning
of 2000 would have allowed you to make a nearly six-fold profit at
minimum, and up to over 27 times your investment at the max.
All this while the S&P 500 basically went nowhere.
Looking at the maximum drawdowns, you can see that risks are
very similar for all of these. So how does it sound investing
in a strategy with a similar potential loss as the market, yet with
at least six-times the potential profitability? Yea, me
too!
Here's a screen that captures a mix of the five strategies
listed above:
- First, start with only
US stocks
.
- Next, create a liquid, investible set of the stocks that have
at least a market capitalization of $100 million
and
average daily trading volume ≥ 100,000 shares
(if there's not enough liquidity, it'll be hard for you to trade
it).
- Because a lot of stocks under a certain price are difficult
to trade, keep
only those stocks trading above $5/share
.
- Add another filter by selecting only those stocks with
Zacks Rank <= 2
. (We only want companies that are a "Buy" or "Strong
Buy.")
- From this set, the
Price/Cash Flow, Price/Earnings, and Price/Sales should
ALL be less than the S&P 500 median respectively
. (We want to pay a low price for Cash Flows, Earnings and
Sales.)
- The
four week change in both the current quarter and annual
earnings estimates should be greater than the S&P 500 median
respectively
. (We want improving quarterly and annual earnings
estimates.)
-
The company's Return on Equity should be greater than the
S&P 500 median
. (Companies with a high ROE perform well on average.)
- Finally, the
PEG Ratio should be less than the S&P 500
median
. (We want a low price, high earnings and a high growth
rate.)
Here are five of the stocks that passed this screen this week
(5/25/12):
(
CSTR
)
- Coinstar, Inc.
Coinstar owns and operates self-service Redbox kiosks that
enable consumers to rent or purchase movies and video games, and
self-service coin-counting kiosks where consumers can convert their
coin to cash, gift cards, or E-certificates. From time to
time, this stock often bubbles to the top of my idea list. At
the moment, the company looks very attractive by any valuation
measure and has seen analysts dramatically increase their quarterly
and annual earnings estimates over the last four weeks.
(
TKR
)
- Timken Co.
Timken develops, manufactures, markets, and sells anti-friction
bearings and assemblies, alloy steels, and mechanical power
transmissions systems. It's been a favorite stock of mine for
a couple of years now. This company has a "Strong Buy" Zacks
Rank, increasing earnings estimates for both the current quarter
and the year, yet still has a very attractive (9.0) P/E
Ratio.
(
WCG
)
- WellCare Health Plans, Inc.
WellCare Health Plans provides managed care services for
government-sponsored health care programs in the United
States. This company has a solid (30%) ROE, a fantastic
Price-to-Sales Ratio, and, over the last four weeks, experienced
nearly a 17% increase in annual estimated earnings. The
latter can be attributed to first quarter earnings more than
doubling and the company expects good times to continue throughout
the year.
(
CMI
)
- Cummins Inc.
Cummins designs, manufactures, distributes, and services diesel
and natural gas engines, and engine-related component products
worldwide. This company has a great (32%) ROE, a low (9.3)
P/E, a good (22%) expected growth rate, and is a Zacks Rank "Strong
Buy" based on the company's most recent earnings being up 36%.
(
ETN
)
- Eaton Corporation
Eaton, a Cleveland-based company, provides electrical components
and systems for power quality, distribution, and control;
hydraulics components, systems, and services for industrial and
mobile equipment; aerospace fuel, hydraulics, and pneumatic systems
for commercial and military use; and truck and automotive
drivetrain and powertrain systems for performance, fuel economy,
and safety. The company is a Zacks Rank "Buy," has strong
cash flow and sales relative to price, and a good ROE.
Take Advantage of the Thin Line
The stock market presents a unique situation for you to go
head-to-head against the pros and come out victorious. There
aren't many arenas in life that present you with that kind of
opportunity. That's one of the things I like best about stock
investing. So take advantage of that thin line!
Want to find other strategies that outperform the market and
match your investing style? Perhaps you have your own ideas
and would like to see how they stack up. The
Zacks Research Wizard
can provide a lot of answers to most of your questions
.
Starting today, you are invited to use it free of charge. You'll
have 14 days to create, tweak, and backtest your strategies. At the
same time, you can see the latest picks from pre-loaded winning
strategies with average gains of up to +67.4% per year.
Learn more about your
Research Wizard
free trial >>
Let's make some money!
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
.
About Zacks
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CUMMINS INC (CMI): Free Stock Analysis Report
COINSTAR INC (CSTR): Free Stock Analysis Report
EATON CORP (ETN): Free Stock Analysis Report
TIMKEN CO (TKR): Free Stock Analysis Report
WELLCARE HEALTH (WCG): Free Stock Analysis
Report
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