Chicago, IL - December 18, 2015- Zacks Equity Research highlights JA Solar Holdings ( JASO ) as the Bull of the Day and Powell Industries ( POWL ) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on MSCI USA Quality Factor ETF ( QUAL ), PowerShares S&P 500 High Quality ETF ( SPHQ ) and SPDR MSCI USA Quality Mix ETF ( QUS ).
Here is a synopsis of all five stocks:
Late Tuesday night, Congress voted to extend federal subsidies for renewable energy. The tax credits were set to decline significantly for the solar subsidy by the end of next year, but U.S. lawmakers extended the credits through 2019. This applies to commercial installations, and home solar kits. After 2019, the credit will decline from 30% of the price of a solar array all the way down to 10% in 2022. According to the Solar Energy Industries Association, this move by Congress could add up to 140,000 jobs to the sector. Due to this move by Congress, JA Solar Holdings ( JASO ) is the Zacks Bull of the Day.
This Zacks Ranked #1 (Strong Buy) is a fast growing manufacturer of high-performance solar cells that is advancing solar photovoltaics as a financially viable yet sustainable solution to balance the world's environment and energy needs. The Company sells its products to solar module manufacturers who assemble and integrate its solar cells into modules and systems that convert sunlight into electricity.
In their most recent quarter, the company posted exceptional year over year results; Operating profit up +57.8%, Net Income rose +66.4%, Earnings per diluted share improved +73.3%, Net Revenues were up 26.4%, shipments of modules and module tooling rose 54.8%, and total shipments increased 43.5%.
According to Mr. Baofang Jin, CEO, "We are pleased to report strong financial results for the third quarter of 2015 as total shipments of 1.1 GW exceeded the high end of our previous expectations. Strong demand in China continued to drive shipment growth, as China represented 53% of our total shipments during the quarter. We also made great progress on our new cell manufacturing facility in Malaysia during the quarter, and are very excited to have announced the facility's launch in late October."
While consumers are hailing the fall in oil prices , companies that supply these oil companies with industrial infrastructure equipment are beginning to feel the pain. The overall rig count in the U.S. has been declining over the past few months due to OPEC continuing to produce about 31.5 million barrels a day. This has put pressure on the smaller U.S. oil companies, which are holding off on drilling new wells because it is not currently profitable with oil prices so low. Further, this low oil price environment is expected to continue for at least the first half of 2016. Therefore, industrial infrastructure equipment designer, supplier, and manufacturer Powell Industries ( POWL ) is the Zacks Bear of the Day.
This Zacks Rank #5 (Strong Sell) sells, designs, develops, manufactures, packages and services systems and equipment for the distribution, control and management of electrical energy and other dynamic processes. The principal products are switchgear and related equipment, bus duct and process control systems. These products and systems are utilized primarily by refineries, petrochemical plants, utilities, paper mills, offshore platforms, commuter railways, vehicular transportation and numerous other industrial, commercial and governmental facilities.
In their most recent earnings announcement, the company missed the Zacks Consensus Earnings Estimate, and slightly beat the Zacks Consensus Revenue Estimate. The two major areas where the company saw pullbacks was the decline in their backlog, which fell 13% YoY, and overall orders which declined 50% YoY.
Further, this was not just a Powell issue, the entire industrial infrastructure equipment suppliers segment has seen most of their products witness declines in orders especially oil & gas focused products. Moreover, this trend is not expected to improve as oil prices continue to decline. There would need to be a large upward swing in oil prices to reverse the yearlong trend, but this is not expected to happen anytime during FY 2016.
According to Michael Lucas, President and CEO, "bookings reflect the lagging effect of reduced capital spending levels in the energy markets. Capital spending remains depressed and uncertain. We expect little change in the oil and gas industry outlook in fiscal 2016."
Fed Finally Hike Rates: ETFs to Buy Right Now
After a long wait, the Fed finally took a historic turn by exiting the loose monetary-policy era. It raised the interest rates for the first time in nearly a decade by a quarter percentage points to 0.25-.50%, citing that U.S. economy has largely emerged from the impact of the financial crisis and the Great Recession.
The central bank further hinted at a gradual hike next year given the considerable improvement in the labor market and increase in inflation from undesirably low levels.
A Reason to Worry?
Higher rates would attract more capital to the country, thereby boosting the U.S. dollar against the basket of other currencies. This would have a huge impact on commodity-linked investments, reflecting that a rising rate environment will hurt a number of segments. In particular, high dividend paying sectors such as utilities and real estate would be the worst hit given their higher sensitivity to rising interest rates (read: Fed Rate Hike Wait May End Today: ETFs to Gain & Lose ).
Additionally, securities in capital-intensive sectors like telecom would also be impacted by higher rates. Higher rates would also result in tighter lending conditions and curtail consumer spending on a wide range of products like cars and houses. This will in turn hurt profitability across various segments.
Coming to the impact of higher rates on the fixed income world, as the rates rise, yields will also move higher hurting bond investments. All these are expected to result in higher market volatility, as the Fed will remain on track to raise rates albeit at a slower pace.
However, the initial phase of increase might actually be good for stocks, as it will reflect an improving economy and a lower risk of deflation. In particular, stocks that are rich in value characteristics with healthy balance sheets, high return on capital, low volatility, elevated margins, and track record of stable or rising sales and earnings growth tend to outperform in the rising rate environment (read: 5 ETF Outperformers with 20% Plus Gains Year to Date ).
As per the Goldman, quality stocks have a history of outperformance in the three months after an initial rate hike. Looking at data from rate-increase cycles that began in 1994, 1999 and 2004, companies with stronger balance sheets, high return on capital, and low volatility outperformed by 5%, 4% and 3%, respectively. Given this, we have highlighted three solid picks each from the ETF and stock worlds targeting this niche strategy for investors seeking to capitalize quickly on the initial phase of rates hike.
ETFs to Buy
MSCI USA Quality Factor ETF ( QUAL )
This fund provides exposure to the stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth, and low financial leverage) by tracking the MSCI USA Quality Index. In total, the fund holds 125 securities in its basket, which are pretty spread across a number of securities with each holding less than 4.8% of assets. From a sector look, information technology takes the top spot at 20.9%, followed by financials (16.4%), healthcare (14.8%) and consumer discretionary (14.0%). The product has amassed $1.8 billion in its asset base and charges just 15 bps in annual fees from investors. Average trading volume is good at around 160,000 shares per day.
PowerShares S&P 500 High Quality ETF ( SPHQ )
This fund tracks the S&P 500 High Quality Rankings Index, a benchmark of S&P 500 stocks that have solid long-term growth as well as stable earnings and dividend. This approach has resulted in a basket of 132 stocks with none holding more than 1.51% of total assets. The fund is skewed toward industrials at 26.7% while consumer discretionary and consumer staples round off the next two spots. The product has managed $587.7 million in AUM and trades in good volume of 124,000 shares per day on average. Expense ratio came in at 0.29%.
SPDR MSCI USA Quality Mix ETF ( QUS )
This fund offers exposure to stocks that have a combination of value, low volatility and quality factor strategies. This is done by tracking the MSCI USA Quality Mix A-Series Index. The product holds a large basket of 617 stocks, which are highly diversified across each component as none holds more than 2.58% of assets. Information technology takes the top spot from a sector look while financials, healthcare, consumer discretionary and consumer staples also receives double-digit exposure each. The fund has accumulated $5.9 million in AUM since its debut eight months ago. It charges 15 bps in fees per year from investors and trades in a paltry average daily volume of around 1,000 shares (read: 5 High Quality ETFs for an Uncertain Market ).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>
About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
About the Analyst Blog
Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today . Find out What is happening in the stock market today on zacks.com.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.