Monday, November 29, 2010

Top trending ETF last week -- PowerShares Dynamic OTC

An ETF I wasn't familiar with showed up on the ETF Trend Performance Report at Alert HQ this weekend. At the top of the list, with an improvement of 2.5 points out of a total of  6 possible points was the PowerShares XTF: Dynamic OTC Portfolio (PWO).

This ETF is not based on the typical market cap weighted passive index. PWO is based on the Dynamic OTC Intellidex. This is an "active" index that selects holdings based on a variety of investment criteria including fundamental growth, stock valuation, investment timeliness and risk factors. In other words, this ETF is an actively managed fund, whether managed by computer or by a human investment committee, the literature does not say. In any case, the goal is provide alpha beyond what the typical ETF would offer.

The following diagram, from the PowerShares Dynamic ETF prospectus shows how the selection process is handled:


The 5-year return of the Dynamic OTC Portfolio ETF may not be especially impressive when compared to the NASDAQ Composite but over the course of the last year, PWO has indeed outperformed the NASDAQ as shown in the chart below:


In terms of market cap, this ETF is currently holding roughly 37% mid caps, 35% small caps and the remainder in large caps. With respect to styles, PWO is clearly over-weight growth stocks as opposed to value stocks.

This Intellidex approach to selecting stocks for this ETF seems to be working for the time being. As we all know, markets change and what used to be successful can lose its luster. But for now, PWO is trending strongly bullish. Investors should take notice.

Disclosure: no positions 



Thursday, November 18, 2010

7 value stocks that just increased dividends

Now that the Fed has rolled out QE2, many investors are surprised that bonds have been struggling, especially the longer maturities. Those ETFs that hold 20 and 30 year Treasuries and corporate bonds, for example, have been especially weak. While this has resulted in higher yields it is having the unfortunate effect of decreasing the capital gains that investors have enjoyed after a multi-month run-up in prices. This is making life complicated for dividend and income investors.

Among the features of the Alert HQ Premium site there are several stock screens that focus on dividends. In particular, I will be identifying those stocks that just raised their dividend during the previous week and yet are still more or less in the value stock category.

The following list is from this weekend's screen:

Symbol Name Last Price EV to EBITDA PE Ratio Price to Sales New Dividend Yield New Annual Dividend Old Annual Dividend
AFSI AmTrust Financial Services, Inc. 16.27 7.1 8.13 1.17 1.97% 0.32 0.28
DDIC DDi Corp. 10.56 6.89 13.09 0.89 3.79% 0.40 0.24
LFUS Littelfuse, Inc. 44.01 8.28 17.96 1.81 1.36% 0.60 0
LINC Lincoln Educational Services Corporation 14.91 2.59 5.97 0.61 6.71% 1.00 0
MHLD Maiden Hldgs Ltd 7.68 5.78 8.69 0.5 3.65% 0.28 0.26
PFG Principal Financial Group Inc 28.34 8.81 15.32 1.02 1.94% 0.55 0.50
PH Parker-Hannifin Corporation 79.39 9.53 18.26 1.24 1.46% 1.16 1.08

Many of these stocks have been discovered by investors and are in solid up-trends.  AmTrust Financial Services, DDi Corp, Littelfuse, Principal Financial Group and Parker-Hannifin all fall into this category.

One is beginning to recover from a sell-off:  Lincoln Educational Services which I recently wrote about in the post titled "For-profit education stocks -- throwing Lincoln Educational Services out with the bathwater?".

Then we have Maiden Hldgs. This stock seems to have been consolidating for a couple of months now. It was threatening to break out when the recent pull-back began. After today's gains, it is now positioned for a breakout again.

This list of stocks fits the bill for anyone who considers themselves to be value investors but who want the safety of dividends and a bit of momentum, too. For the most part, then, these stocks have three important things going for them:
  • Rising dividends which are generally an indication that management considers the company's financial position to be strong 
  • Reasonable valuations indicating the stocks are not particularly over-priced
  • Rising trend-lines that are an indication that the market has some confidence in these stocks
As such, these seven stocks are good candidates for income investors and value investors alike.

NOTE: To see the original page from which this list came, click on this link to see Value Stocks with increasing Dividends. The value criteria are also included on the page along with market cap and price data and you can download the list into Excel.

Disclosure: no positions in any of the stocks listed



Thursday, November 11, 2010

For-profit education stocks -- throwing Lincoln Educational Services out with the bathwater?

You may be a aware of some of the controversy surrounding for-profit schools like Apollo Group's University of Phoenix. The U.S. Department of Education intends to review financial-aid practices at the school.

Many for-profit education companies face federal scrutiny because almost 90 percent of the companies’ revenues derive from funds from the Title IV federal aid program. Many of these funds are disbursed to the schools as government-guaranteed student loans. Essentially, the schools can't lose if students fail to finish their degree programs or default on the loans. The schools have been accused of marketing too aggressively to sign up students and get their hands on the Federal student loan money with little regard for the students or their potential to actually benefit from the programs being offered. The difficulties many students have in obtaining the jobs the schools led them to expect has also led critics to contend that the for-profit schools are simply in business to obtain Federal loan dollars.

On today's Alert HQ Premium Value and Growth Report, however, there is a for-profit school that may be worth your consideration. Lincoln Educational Services (LINC) recently announced earnings and exceeded expectations. The following chart from Google Finance shows the improvement on both top-line and bottom-line:

 By virtue of being on the Growth and Value Report, the company needed to register year-over-year growth in earnings and revenue as well as sequential quarter-over-quarter growth. Lincoln was able to deliver that kind of performance.

Valuation --

As a result of the sell-off in the whole for-profit education sector, Lincoln's valuation has been driven deeply into value stock territory. At this point, the PE is less than 6, PEG is less than 0.6, Price-to-Sales is merely 0.61 and Enterprise Value/EBITDA is a paltry 2.73. These numbers are characteristic of very deep value.

Not only is the valuation attractive, but other financial measures are notably good. With the combination of Return on Assets over 20% and Return on Equity over 31% management effectiveness appears to be solid. Net Profit Margin of nearly 11% is almost twice that of the sector. Price to Cash Flow is roughly three times better than that of the sector.

Momentum --

In terms of momentum, the stock has appeared on the Alert HQ Trend Leaders list which means that three trending measures are all currently positive. In the following chart, you can see that Wilder's DMI, MACD and Aroon are all bullish:


The outlook --

As alluded to above, enrollment counselors have in some cases been accused of over-promising the benefits of attending these for-profit schools and also of enrolling less than qualified students who have little chance of do well. With the jobs students expect failing to materialize, the student is left owing money on their student loans and facing serious difficulties in making the payments. Ultimately, the taxpayer is left holding the bag if the students default. The schools, however, are left relatively unscathed though a school may lose its eligibility to receive federal financial aid under certain Title IV programs if its Cohort Default Rates (CDRs) exceed specified percentages in the 25% to 30% range.

The question is, should Lincoln Educational Services be considered one of the major offenders in this game of roping in students just to harvest the student loans?

The company says its 2-year CDRs range from 8.69% to 13.42%. Unfortunately, regulations have changed and now 3-year CDRs are being used. The company's CDRs are not so good for this extended evaluation range; however, the company has said that the new regulations will mean that they will stay more involved with the students for a longer time. Lincoln intends to actively work with former students in danger of defaulting during the 3-year measurement period in order to help them manage their outstanding loan commitments and to counsel them on alternatives to meet their financial obligations.

Also, Lincoln is different from University of Phoenix, for example, in that Lincoln tends to focus on training for fairly down-to-earth professions rather than offering degrees like liberal arts or communications. This should tend to make graduates more employable as they enter the job market with more specific skills.

So have investors thrown the baby out with the bathwater? Lincoln Educational Services is clearly cheap at current levels, their earnings and revenues are growing and, after seeing the stock plunge, positive momentum is now building. That momentum suggests that the fear of government scrutiny may be over-done with respect to Lincoln Educational Services. Which all implies this stock is a buy.

Disclosure: no positions



Monday, November 8, 2010

Coal and dividends make a good mix

This weekend's report on reasonable value stocks that increased dividends in the last week included two stocks. The one I'd like to focus on is Alliance Resource Partners, L.P. The symbol is ARLP.

The company just raised its dividend from $3.24 to $3.32 which works out to a forward annual dividend rate of 5.5% which, in these days of zero interest rate policy, is not too shabby.

As the title of this post suggests, the company is engaged in the production and marketing of coal for utilities and industrial users. They also provide systems and services for the mining and transportation of coal.

I alluded to the fact that the company qualifies as one of my "reasonable value" stocks. With a PE of 8, a PEG less than 1, Enterprise Value/EBITDA less than 6, Price-to-Sales less than the average for both the sector and the S&P 500, the stock certainly can't be considered particularly over-priced.

In terms of growth, y-o-y revenues increased by 37% and y-o-y earnings doubled. On a sequential basis, however, the most recent quarter saw a dip in earnings compared to the previous quarter as shown in the chart below from Google Finance:


The moderation in sequential quarterly top-line and bottom-line growth seems to be putting some pressure on the stock price. The chart below shows that the stock has run into some resistance:

 
You can see the mixed signals on this chart. While the stock consolidates, MACD has been in decline. Slow Stochastics also seem to trending lower though there has been a recent spike upward. The most promising technical feature is that the 50-DMA seems to be providing good support. Note as well that the stock has roughly tripled over the last two years so it is not unreasonable for it to take a breather at this point.

The outlook --

The fundamentals for coal are primarily driven by economic activity. As a result, the growth in the U.S. economy, painful as it may be, is leading to increased demand for electricity. This should support pricing as demand from utilities should remain firm. Furthermore, foreign markets are also showing demand for coal for both steel making and utilities.

Another positive factor is that there is now a perception that, with Republicans in the ascendancy, regulations may be easing on coal-fired utilities. The assumption then is that coal will remain a primary fuel for power generation and that alternate energy sources may see less of a push from the government.

So as Alliance Resources flirts with its 50-day moving average, the stock may actually be providing a decent entry point. Keeping in mind that the company is still fairly cheap, a failure to break below the 50-DMA would be reassuring, indeed.

Disclosure: no position at time of writing



Tips for Trade-Radar users - correcting weekly and monthly data

Just a couple of days ago I wrote a post about the newest release of the Trade-Radar Stock Inspector software (read: Trade-Radar Stock Inspector update -- especially important for those who track weekly and monthly data). As the title suggests, that post focused on improvements in the processing for weekly and monthly data.

This post is a follow-on to explain how to correct old price data that may contain errors from back before the latest release. Note that stocks with weekly data in the database have the suffix "-W" tacked onto the symbol in the "Stock Symbol" dropdown. Similarly, stocks with monthly data in the database have the suffix "-M" tacked onto the symbol.

Even if you are not sure if you have erroneous data, it is easy to just get rid of it and get fresh data. Here are the steps to take:

  1. Select the stock or ETF you wish to fix and click the "Search Database" button
  2. If the chart is displayed, click the Exit button at the top right corner of the chart
  3. Click the garbage can icon on the toolbar. This is the one where the tool-tip says "Delete bulk data"
  4. In the form that pops up, click the checkbox titled "Delete all Price data for this symbol"
  5. When the form disappears, just click the "Load Data from Yahoo!" button.
Following this process will allow you to discard old data and refresh it with the latest, most correct data. After that, you can display charts again.

By the way, you may not know that moving averages are handled somewhat differently for daily versus weekly versus monthly data. Here is a breakdown:
  • For daily data, we plot 20-day and 50-day moving averages
  • For weekly data, we plot 10-week and 40-week moving averages
  • For monthly data, we plot 6-month and 12-month moving averages
I hope this post helps you with any concerns you may have with the software.

To get the software --

As always, anyone who already has a registered copy installed on their PC is welcome to get the update for free. Anyone else who is interested in starting or continuing their 45-day evaluation is also welcome to download it at our Download page. Just click one of the "Download Now" buttons and it will take you to the page where you can download the full install package.

If you already have a recent version installed, you can download just the program executable by clicking [ this special Download link ]. Just be sure to copy the downloaded EXE file into the folder where the Trade-Radar Stock Inspector is installed. That would typically be C:\Program Files\Trade-Radar\Trade-Radar Stock Inspector



Sunday, November 7, 2010

Bulls get a reprieve -- market breadth positive again as stocks move higher

It has sort of been an event driven week. The mid-term elections were held Tuesday and the Republican surge occurred as expected. Since this was not exactly a surprise, market reaction was just modestly positive. On Wednesday, the Federal Open Market Committee finally announced QE2 and provided the details of how it would be implemented - carefully and with restraint. Markets barely budged until Thursday, when stocks finally put on a strong follow-through rally. Friday, the Non-Farm Payroll report was published and surprised everyone with a relatively strong gain in private employment. Perversely, the market reaction was a big "ho hum".

So Thursday provided a big gain and every other day in the week provided just small gains which in total, though, added up to a pretty strong week for the stock market with the S&P 500 up 3.6% and the Russell 2000 up 4.7%. Does that mean we no longer have to worry about the deteriorating breadth that we were seeing for the last two weeks?

The view from Alert HQ --

For those readers who are new to TradeRadar, the data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6200 stocks and ETFs each weekend and gather the statistics presented below.

In this first chart below we count the number of stocks above various moving averages and count the number of moving average crossovers, as well. We then plot the results against a chart of the SPDR S&P 500 ETF (SPY).


You can see that two weeks of deterioration has been wiped out in a flash. Now, the number of stocks above their 50-DMA has managed to just sneak above the number of stocks whose 20-DMA is above their 50-DMA (yellow line crossed above magenta line). We saw similar behavior in the spring of this year and it presaged an extension of the rally that was underway at that time. It now suggests we should have a couple more decent weeks before facing the prospect of a pull-back again.

The next chart provides our trending analysis. It looks at the number of stocks in strong up-trends or down-trends based on Aroon analysis.

Here, too, we a reversal in the indicators. Now, the number of stocks in strong up-trends is once again surging though the number of stocks in strong down-trends only decreased slightly (not so surprising since it is already at a very low level).

Conclusion --

As some pundits suggested, the election was already priced into the market. Investors apparently had a "don't fight the Fed" moment on Thursday that resulted in the week's one day of big gains. Friday's excellent employment report didn't light a fire under stocks but did serve to support current levels in the market. This suggests investor sentiment is positive but still cautious, a good backdrop for stocks to climb the infamous  "wall of worry".

With breadth improving again, the Fed supplying liquidity and holiday hiring starting in earnest, conditions are looking better for stocks. In the short term, a few more weeks of strength followed by the pull-back everyone has been expecting for a while now should set us up for the next move higher.

Disclosure: none



Trade-Radar Stock Inspector update -- especially important for those who track weekly and monthly data

This is a quick post to let all of you know that a new version of Trade-Radar Stock Inspector is available.  We are up to version 6.0.10 now.

What has changed --

I received an email from a trial user the other day who said that he was encountering an error when he tried to enter a symbol for a stock on the Bombay stock exchange. It seemed to work fine for daily data but the program blew up when trying to get weekly or monthly data.

In solving this problem (the field that contains the symbol had to be made larger in the database), it got me started looking at how the program processes weekly and monthly data. And this led me to fix a few other things.

You may not have noticed that the program attempts to pull in intra-day data when the markets are open and you are retrieving daily data. It does a similar thing when looking at weekly data and monthly data. Where the problem occurred is that a new record was created for mid-week or mid-month data, leading to extra data points that shouldn't have been there.

The new version simply looks at the current day's data and determines whether any changes are needed to the data point for the current week or month. For example, increasing the weekly high might be required or adding the day's volume to the weekly volume accumulated thus far.  No more strange looking records are left in the database.

In addition to the changes listed above, we have also corrected a few other issues including the display of an incorrect number on the TradeRadar Technical Analysis tab on the Dashboard screen. The evaluation of the data was done correctly so the LED lit up as it should; however, the Latest Price data value displayed was not right. I'm sure that led to some confusion.

How to get it --

As always, anyone who already has a registered copy installed on their PC is welcome to get the update for free. Anyone else who is interested in starting or continuing their 45-day evaluation is also welcome to download it at our Download page. Just click one of the "Download Now" buttons and it will take you to the page where you can download the full install package.

If you already have a recent version installed, you can download just the program executable by clicking [ this special Download link ]. Just be sure to copy the downloaded EXE file into the folder where the Trade-Radar Stock Inspector is installed. That would typically be C:\Program Files\Trade-Radar\Trade-Radar Stock Inspector

I encourage you to give version 6.0.10 of Trade-Radar Stock Inspector a try. And be sure to report any errors that you encounter. I am always happy to fix problems and make the software better for everyone.



Tuesday, November 2, 2010

Q3 Earnings Aristocrats -- 30 stocks that delivered the goods

Consistency is tough to achieve.

The following table of stocks comes from a list of those companies that reported during the month or so that comprised earnings seasons in Q1, Q2 and Q3 of this year. The screen uses the following criteria:

  • The company beat earnings estimates each quarter
  • There was an increase in year-over-year earnings each quarter
  • There was an increase in year-over-year revenues each quarter
  • The company offered upside guidance in Q1 and Q2

Symbol Name Sector
ALTR Altera Technology
ANAD Anadigics Technology
APH Amphenol Capital Goods
APKT Acme Packet Technology
BWA Borg Warner Capital Goods
EMN Eastman Chem Basic Industries
ETN Eaton Technology
FFIV F5 Networks Technology
HITT Hittite Microwave Technology
INTC Intel Technology
IPGP IPG Photonics Technology
LXK Lexmark Technology
LZ Lubrizol Basic Industries
OFIX Orthofix Health Care
PII Polaris Inds Capital Goods
PRGO Perrigo Consumer Durables
RADS Radiant Systems Technology
RCL Royal Caribbean Consumer Services
RVBD Riverbed Technology Technology
SHOO Steven Madden Consumer Non-Durables
STJ St. Jude Medical Health Care
STRA Strayer Education Consumer Services
SYNA Synaptics Technology
TKR Timken Capital Goods
TLAB Tellabs Public Utilities
UNH UnitedHealth Health Care
VECO Veeco Instruments Technology
VMW VMware Technology
VSEA Varian Semi Technology
WBC WABCO Holdings Capital Goods

Not only did these companies deliver continuously improving results, they delivered the results promised in their upside guidance.To put things into perspective, this screen identified 30 companies out of almost 1400 stocks that have reported so far during this Q3 earnings season.

Loosening the criteria a bit by removing the requirement for upside guidance and the list increases in size from only 30 companies to 250 companies. This now pulls in companies like Apple, Microsoft and Coca-Cola among many others. Many of these companies simply offered no guidance at all. This was especially the case in Q1 where perhaps many companies became cautious as fears of a double-dip recession became more of a concern for the markets.

One thing that is noticeable is that the tech sector is especially well-represented on both lists. Though a few tech large-caps are present, like Intel, many of these companies are small-caps or mid-caps. Tech often leads the way during the first stages of recovery. This, to me, implies that the recovery, though sluggish in terms of employment, is solid in terms of company profits across the market cap spectrum. I think that is reassuring for those who are looking for the economy to continue to strengthen.

Disclosure: no positions



Power Integrations -- ready to power to new highs?

Do two data points make a trend? Breakouts by power semiconductor companies are starting to establish a pattern. A couple of weeks ago I wrote about ON Semiconductor (ONNN) in a post titled "ON Semiconductor -- on a roll as it breaks out". Today we have a breakout by Power Integrations (POWI) that is worthy of notice.

The stock has appeared on our Trend Busters list based on weekly data. Here is the weekly chart:


Note the breakout above the bearish trend line. If you look at a chart based on daily data, you will see that the stock is challenging its 200-day moving average. A little nudge and a bullish trend could be confirmed.

Background -- 

Power Integrations, Inc. designs, develops, manufactures, and markets proprietary, high-voltage, and analog integrated circuits for use in high-voltage power conversion. Their ICs are used in TV set-top boxes, DVD players, desktop computers, liquid crystal display monitors, and power adapters for notebook computers as well as power supplies for home entertainment equipment, appliances, light emitting diode (LED) light fixtures, and desktop PCs. The list of applications goes on and on; suffice it to say that the company's products are designed into a wide array of consumer electronics.

The fundamentals --

Power Integrations is necessarily a cheap stock but growth stocks never are. The following shows the Fundamental Analysis screen from Trade-Radar Stock Inspector:

[ Click to see larger image. ]

You will see that almost every LED is green. This indicates that the stock offers reasonable value, is exhibiting good growth, has very manageable debt and the dividend is secure. Management effectiveness, as measured by Return on Equity and Return on Assets is OK but should be a bit better for a growth stock.

The following chart is from Google Finance and shows year-over-year growth is solid while sequential growth is less impressive:

Last week the company announced Q3 earnings: revenue of $75.5 million with non-GAAP profits of 53 cents a share. This beat analyst expectations of $74.1 million and 49 cents.

In keeping with the caution and reined in projections that many semiconductor companies have expressed lately, Power Integrations has guided downward for Q4: revenue falling back to a range of $67 million to $73 million; the Street had been expecting $73.5 million.

The outlook --

The near term seems to be somewhat challenging for POWI but the company does have a couple of things going for it.

The company's chips are used in such a widely diversified array of products that the risk of problems in one sector of the electronics industry are unlikely to create to major headwinds. Every electronics products requires power - whether to charge batteries or to directly provide the juice to run the product. Power Integrations has ICs for both major categories.

As is increasingly the style these days, Power Integrations is trumpeting their clean tech credentials. The companies products are designed to ensure that power is not wasted. The company's energy-efficiency technology could be a positive differentiator.

Though the company's near-term forward guidance has been lackluster, investors seem to be overlooking the weakness. The stock has been strong for two months now, having bounced off a bottom established in early September. Investors must be focusing on the value aspects of the stock and betting on the a resurgence in the semiconductor sector. We'll have to see if the move is strong enough to surge above the 200-DMA and confirm the bullish reversal.

Disclosure: no position at time of writing




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Disclaimer: This site may include market analysis. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.




 
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