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Zacks Investment Research

Zacks Investment Research (ZIR) was formed in 1978 to compile, analyze, and

distribute brokerage research to both institutional and individual investors. The

guiding principle behind our work is the belief that there must be a good reason

why the brokerage firms spend over a billion dollars a year to research stocks to

recommend to their clients. Obviously these investment experts must know

something special that is indicative about the future direction of stock prices. We

were bound and determined to unlock that secret knowledge and make it available

to our clients to improve their investment results.

This massive undertaking requires us to annually process over 500,000 pages of

brokerage research produced by the 4,000 investment analysts employed by 250

U.S. and Canadian brokerage firms. In addition, each week we record 25,000

earnings estimate revisions and changes in brokerage firm recommendations.

Zacks provides this important data through our own web site at Zacks.com and

through partnerships with hundreds of other leading web sites who display our

information. This extensive outreach makes Zacks research the most widely used

investment research on the web.

Creation of the Zacks Rank

With this wealth of information at our disposal the team at Zacks set out to find

patterns in the brokerage research data that would serve as an accurate indicator

of the future direction of a stock. What we discovered is that…


Earnings per share (EPS) estimate revisions


are the most powerful force impacting stock prices.

This led to a groundbreaking article by Leonard Zacks, Ph.D., published in the

Financial Analysts Journal in 1979 entitled "EPS Forecasts - Accuracy Is Not

Enough". From this seminal work was born the Zacks Rank, which is a

quantitative model that uses 4 factors related to earnings estimates to classify

stocks into five groups; with 1 being the highest and 5 being the lowest. Since

1988 the Zacks #1 Ranked stocks have generated an average annual return of

34.2% vs. 12.0% for the S&P 500 (calculated through 3/31/04). We will go into

depth on the Zacks Rank on the following pages, but for now be sure to note that

the Zacks Rank is very different from the 1 to 5 Average Brokerage

Recommendation rating we make available on the hundreds of other investment

web sites. More on that later.



What Really Makes the Market Tick

No matter which school of investing you subscribe to, sooner or later the

movement in the stock price can be traced back to earnings. Over the subsequent

pages we will walk you through a series of logical steps in order to show just how

powerful a force earnings estimate revisions are on the price action of a stock.

And more importantly, how the Zacks Rank is a leading indicator that allows you

to get on board the stock early enough to enjoy robust gains.

Who Are Institutional Investors?

Institutional investors are the professionals who manage the trillions of dollars

invested in mutual funds, pension plans, hedge funds etc. Whereas the

retail/individual investor is all the John Q. Publics of the world who

independently invest for their own private accounts. Now here’s a simple

question. Who has the greater ability to influence the price of a stock;

institutional investors or individual investors? The answer, of course, is the

institutional investors who come to the market ready to trade millions of dollars

on a singular stock. And that financial muscle has a much greater effect on the

movement of the stocks they buy and sell. When you understand the power

institutional investors have on the market, then the next step is to try and

understand what motivates their buy/sell decisions.


Stock Valuation Models

Most institutional investors attended prestigious business schools where they were

taught a number of classical financial models. Many of these models help them to

calculate the fair value of a company and its shares based upon a number of

financial metrics. Almost without exception these valuation models focus on

earnings generated by these companies now and far into the future. Until

someone invents a time machine, then the only way to run these models based

upon future earnings is through the use of earnings estimates. On the simplest

level it can be understood that if you raise the earnings estimates used in the

model (input), then it will create a higher fair value for the company and its stock

(output). And visa versa for a stock with lowered estimates. Thus, it is imperative

to learn more about earnings estimates.



Where Do Earnings Estimates Come From?

The best and most widely used source of earnings estimates comes from the

brokerage analysts who track these publicly traded firms (a.k.a. Sell Side Analysts

– in that they “sell” their research to others like institutional investors or to the

brokerage firms retail clients…individual investors). These analysts work handin-

hand with company management to continually rethink every aspect that may

affect future earnings. Let’s look closer at the role of each of the two main players

who help to formulate these earnings estimates:


Company Management: All businesses need to create financial

projections of their future to properly plan for and manage operations.

Among other things they will certainly make earnings estimates for the

next several years. These estimates are then shared in some fashion with

the brokerage analysts who follow the firm. From there the analysts will

layer in some of their own assumptions that helps to create an independent

earnings estimate (more on Brokerage Analysts below).

An important thing to note is the motivation behind the estimates the

company will share with the analysts. You have to remember that most

corporate executives make a large percentage of their compensation from

ownership in the companies stocks (usually through stock option plans).

And these executives have learned over the years that when the company

misses earnings estimates, then almost without exception the stock price

will tumble and they will lose a considerable amount of money. Thus, it is

in their best interest to provide the brokerage analysts with fairly

conservative earnings estimates for the organization, which gives the firm

the best chance of meeting or exceeding estimates and keeping the stock

price aloft.


Brokerage Analysts: These 4000+ people form the heart and soul of the

research departments at the 250 brokerage firms throughout the U.S. and

Canada. Their job is to make profitable buy, sell, and hold stock

recommendations to the clients of the brokerage firm. Along with the

recommendation they must analyze the company fully and make financial

projections on the health of the company going forward. The most

important of these financial measures is the earnings per share (EPS)

estimate for upcoming quarters and years.

Among other things, analysts are judged by the effectiveness of their stock

recommendations. The better the firm’s clients do with the

recommendations, then the more valuable the analyst is to the firm. Just

like the corporate executives, these analysts have learned over time that

stock prices generally fall when companies miss estimates. Thus, as time

evolved analysts have learned to submit more conservative earnings

estimates for the companies they recommend in the attempt to make sure

that all meet or exceed the estimate.

(Note that over 10 years ago only about 50% of companies met or

exceeded earnings estimates every quarter. Now that number has moved to

80%+ as corporate executives and brokerage analysts have wised up to the

importance of creating conservative earnings estimates.)


Consensus Estimates

For any given stock there may be from 1 to 40 brokerage analysts following the

company and making EPS estimates. For over 20 years, Zacks has been tracking

these individual sell-side analyst estimates and creating consensus EPS estimates.

Long story short, there is no reason to rely on the estimate of just one analyst

when you can combine the intelligence of the whole analyst community by

creating a consensus estimate.

Zacks Consensus Estimate = The average of all EPS estimates made within

the last 120 days. Older estimates are not included.

Zacks calculates this consensus estimate for each of the next four fiscal quarters,

each of the next three fiscal years and as a growth rate over the next five years.

These consensus estimates are the benchmark by which the company will be

judged by the investment community. When actual earnings come out the

company will meet, exceed or miss estimates. Certainly the latter is the most

dreaded outcome for it is a clear sign of failure by the company and the share

prices will most likely tumble.


Estimate Revisions

The real value of brokerage analyst EPS estimates is not in the consensus but in

the changes in the individual brokerage analyst EPS estimates from the consensus.

As stated earlier, earnings estimate revisions are the most powerful force

impacting stock prices as proven by the work of Leonard Zacks Ph.D. back in

1979. That is why we go through the painstaking effort of promptly recording any

earnings estimate revisions into our systems. In fact, we receive daily electronic

files from almost all of the 250 brokerage firms and during an average week we

record over 25,000 estimate revisions made by these brokerage firm analysts.

These vital estimate revisions are delivered to Zacks.com members through the

web site and via their personal Daily E-mail Updates. More on that later.

Zacks Rank- The Key to Successful Investing

Now that you realize the power of earnings estimate revisions, the next logical

question is…How do I employ them to invest more successfully?

Well, not all earnings estimates are the same. Thus, we developed the Zacks

Rank, which is a special quantitative model based on trends in earnings estimate

revisions and EPS surprises that classifies stocks into five groups, #1, #2, #3, #4,

and #5 (#1 being the highest and #5 being the lowest). Since inception the Zacks

Rank has proven to be a very reliable indicator to predict future movements in

stock prices over a 1-3 month time horizon. How reliable has it been? During the

past 16 years the portfolio of Zacks #1 Ranked stocks have generated an average

annual return of 34.2% vs. the S&P return of only 12.0% during the same period.

Too often people do not appreciate how much more money would be generated at

34.2% annual return vs. 12.0%. The first mistake is to subtract the latter from the

former to say that the Zacks Rank is 22.2% better than the S&P 500. WRONG!!!

The second mistake is to divide 34.2% by 12.0% to show that the Zacks Rank is

185% better. Getting warmer, but still off the mark. That calculation only factors

the benefit of investing for 1 year. Now take this 154% improvement year after

year for 16 years (from 1988 to 2003). And that final measure is well north of

1000% improvement. Enough said.

See the table that follows for the yearly performance of the all the Zacks Rank

groups (1 through 5). You will discover that the Zacks Rank not only provides

profitable buy signals, but also points out those to sell now.

Zacks Rank performance is the total return (price changes + dividends) of equal weighted

portfolios, consisting of those stocks with the indicated Zacks Rank, assuming zero transaction

costs. These returns are not the result of a backtest. Zacks has been providing its clients with

the Zacks Rank on a weekly basis since 1985. The stocks in the Zacks Rank portfolios were

available to Zacks clients before the beginning of each month (monthly rebalancing).


How is the Zacks Rank Calculated?

The Zacks Rank is based on four factors:



Agreement: Extent to which all brokerage analysts are revising their

EPS estimates in the same direction. The more analysts revising upward,

the higher the Zacks Rank.

Magnitude: Size of recent changes in current fiscal year and next fiscal

year consensus estimates. Ex. A 10% earnings estimate revision is more

powerful than a 2% revision.

Upside: Deviation between the most accurate EPS estimates and the

consensus. We know from years of experience that the most recent

estimate is in general the most accurate. Here again, you have to realize

there is no benefit for the analyst to put in a substantially higher estimate

unless he knows something special. This measure of upside is one of the

best early indicators of a potential earnings surprise. Over time investors

have dubbed the most recent estimate the “whisper number” of what is

actually expected when earnings comes out.


Surprise: Based on the last few quarterly EPS surprises. The more often

the company has posted a positive surprise in the past, the more likely they

are to surprise in the future (and visa versa).

Every night we recalculate these four factors for the universe of stocks covered by

the brokerage analyst community (approx. 4000 stocks). The 4 measures are

combined into a composite score, which is then used to assign a Zacks Rank.

As you will note the universe of stocks takes on a "bell-shaped" distribution when

divided by Zacks Rank. Thus, the #1 stocks are truly the "cream of the crop"

since they represent the top 5% of the stock universe experiencing the strongest

earnings estimate revisions. And given the increased attractiveness of these stocks

they have subsequently generated a return at twice the rate of the S&P 500 since

inception. Over the years the Zacks Rank has gained considerable notoriety as it

has even substantially outperformed other famed ranking systems such as the

Value Line Timeliness Rank.


Frequently Asked Questions

Time after time these 3 questions surface after reading this material. So, let’s arm

you with the answers now.

Question 1: Why does the Zacks Rank change so quickly? One day a stock is

rated as #1 and the next it could be #2 or lower.

Answer: The Zacks Rank is a very “sensitive” indicator that is updated daily

(note daily update of Zacks Rank is only available on our premium service

ZacksAdvisor.com. Our free site, Zacks.com, offers weekly updates). As you can

see, only 5% of the stock universe can be a #1 at any given time. That’s pretty

stiff competition for those premiere slots. However, if a Zacks #1 Ranked

company experiences any negative changes in their earnings estimates or other

companies have stronger revisions, then the Zacks Rank may quickly turn lower

for the stock. That is why we suggest that only short-term investors strictly

adhere to the process of buying stocks ranked #1 and sell positions when the rank

falls to #2 or below. Whereas longer term investors should use a more flexible

approach with the Zacks Rank whereby they buy or add to existing positions in

stocks ranked #1 and #2 and reduce holdings of stocks ranked #4 and #5. In short,

it is important to recognize that the Zacks Rank is a short-term indicator of

potential market out performance and must be used in that context.


Question 2: What value does the Zacks Rank have for a long-term investor?

Answer: As stated several times throughout this guide, the Zacks Rank is a

wonderful indicator of a stocks performance relative to the market over the next

1-3 months. However, as we have tracked this phenomenon over the last 20+

years we discovered that many companies experience extended cycles of positive

earnings momentum that leads to multiple consecutive quarters with a high Zacks

Rank. Thus, one could effectively use the Zacks Rank to uncover profitable longterm

holdings as well as short-term trading opportunities.

Let’s illustrate. Think of a publicly traded company as a long freight train. This is

a large entity with all of its energy pointing the train in one direction down the

tracks. If all the people who work on the train are doing their job well, then it

creates positive momentum and it will be hard to de-rail the train. This

corresponds with a well-managed company that is generating exceptional profits

quarter after quarter. Targeting these companies through the Zacks Rank can help

you turn a short term play into a longer term investment.

Now lets look at the flip side of the coin with a train that is headed in the wrong

direction. Mostly likely ineffective management strategies and poor execution led

this train astray. Now imagine how much effort it takes, not only to stop this train,

but to effectively turn it around in a positive direction. This corresponds to

companies that have a chronic problem of missing or lowering earnings estimates.

Rarely is this just a “one quarter” event as company management would lead you

to believe. Thus, best to stay away from these companies that will show up in the

Zacks #4 or $5 category until they can truly turn around and get the organization

headed in the right direction as will be indicated by a Zacks Rank of 1 or 2.



Question 3: What is the difference between the Average Brokerage


Recommendation (ABR) and the Zacks Rank?

Answer: Zacks displays the ABR for stocks for free on hundreds of leading

investment web sites. The ABR is simply the calculated average of the actual

recommendations by the brokerage firms for any given stock (strong buy, hold,

sell etc). The ABR is also shown in a range between 1 and 5 like the Zacks Rank.

However, you will generally see it displayed with decimals places (ex. 1.52)

whereas the Zacks Rank is only shown in whole numbers (1,2,3 etc.). However,

their differences go far beyond these cosmetic issues. In essence, the ABR is

based off of brokerage firm stock recommendations, which have proven to be an

unreliable indicator of a stocks performance. Note that only 8% of current

brokerage recommendations are Sell or Strong Sell. That means that the

remaining 92% are Strong Buy, Buy and Hold. Pretty scary when you consider

the market was falling off a cliff the last 3 years and none of these guys was

telling customers to sell their stocks. Further, there is no statistical proof that a

Strong Buy is a better investment than a Buy or a Hold or even a Sell. Whereas

the virtues of the Zacks Rank have been proven unequivocally over the last 15

years. Not to mention that we have just as many buy recommendations as sell

recommendation in the Zacks Rank model. So, why pay attention to the ABR?

Good question. Maybe that’s why we give it away for free ;-)

Zacks Rank in Action – What Causes the Stocks to Rise

This is where the rubber meets the road. So far we have discussed all the elements

individually, but now we will put the pieces together to see just how the Zacks

Rank can alert you that a stock's price may be about to rise. To illustrate this

process we will use an imaginary company; XYZ Corporation.


Step 1: Brokerage Analysts Start to Upwardly Revise Earnings Estimates

Maybe the "sell side" brokerage analysts saw something in a quarterly earnings

report. Or maybe the notion came from meetings with management. Regardless,

when the analysts sensed that things are going better than expected at XYZ Corp.

they started to increase their earnings estimates for subsequent quarters. This

information is then immediately sent to their clients ("buy-side" analysts and

money managers) and yes, the folks at Zacks Investment Research.

Step 2: Daily Updating of the Zacks Rank- Your Personal Signal

Every night the 4 factors of the Zacks Rank are calculated and the whole universe

is reclassified into their appropriate rank. Given the upward surge in EPS

estimates for XYZ it is now a Zacks #1 Ranked stock. This important data is

updated daily to our powerful institutional clients and to subscribers of

ZacksAdvisor.com. We provide a weekly update for free on Zacks.com, which

still gives you plenty of time to react as noted in Step 3.

Step 3: Institutional Money Starts Flowing into the Stock

Almost everyone will agree that the institutional investors (mutual funds, pension

plans, money managers etc) have the greatest buying power to influence a stock's

price. Well as previously noted, most of these institutional investors employ

valuation models that use earnings estimates as a prime component. Thus, when

they buy new research from the sell side brokerage analysts that says that EPS is

going up for XYZ, then certainly their projected fair value for XYZ will also rise.

So now these institutional investors want to purchase more of this undervalued

security. However, since they have so much money to spend and don’t want to

run up the price on themselves, they end up accumulating shares over the coming

weeks and months. This gives the individual investor plenty of time to sneak in

ahead of the slower moving institutions to reap the rewards of the rising share

price.


Step 4: Momentum & Technical Analysis Investors Jump on the Bandwagon

There is a vast legion of investors who employ charting and quantitative models

that look for trends like a rising share price and the increase in daily trading

activity to spot winning stocks. In general they believe that a stock on the rise

will continue its ascent over the short-term. Therefore, given the impetus in the

stock price and volume from the institutional investors in Step 3, these

momentum and technical analysis investors may jump on board XYZ for a shortterm

profit and drive the price even further.



Step 5: Earnings Surprise

Nothing catapults a stock faster than a strong earnings surprise. And when you

buy a Zacks #1 Rank stock you highly increase your chance of owning companies

that will post a positive earnings surprise. That is because 2 of the 4 factors used

in the Zacks Rank look for stocks with the strongest potential to post a positive

earnings surprise (Upside and Surprise). So, in the case of XYZ Corporation's

stock, you would certainly profit if they announced a stellar earnings report.

Step 6: Rinse and Repeat

If indeed XYZ Corporation posted an upside earnings surprise and gave solid

guidance for the future, then it is very likely that this positive cycle will start all

over again at Step 1. And that is how the short-term benefits of the Zacks Rank

begin to carry over into a major benefit for long-term investors.


Conclusion

In many cases the Zacks Rank is the earliest possible signal you will receive about

the future potential of a stock. And Zacks.com (and ZacksAdvisor.com) are the

services designed to give the individual investor an edge in beating the street with

this timely information. Please note that this chain of events also plays out when

the Zacks Rank falls to a #4 or #5, but to the detriment of the share price (and

your portfolio). So you can use any negative signal to sell or lower your exposure

to a company whose rank has fallen.



Zacks Rank – A Tool For Every Investor

There are many different schools of investing. Yet the Zacks Rank has been

proven effective for most of them due to its reliance on the two of the most

important investment criteria; Earnings & Timeliness. Below we have grouped

some of the major classes of investors. See how the Zacks Rank can help each

group improve their investment results.


Value Investors

Value investors are looking for stocks selling at prices under their "fair value" and

have the patience to wait for other investors to see the same inherent value that

they do. Many value investors rely on earnings measures like P/E (price/earnings

multiple) or PEG ratio (PE divided by growth rate) to figure out the fair value of a stock. The problem is always in estimating the fair value of a stock because many

times it is truly in the eye of the beholder. Also, their return on investment (ROI)

may be sapped as they wait endlessly for the stock to rise.

The key for value investors who turn to the Zacks Rank is our emphasis on

earnings, which is the basis of most valuation models. Remember that every night

Zacks ranks 4,000 stocks on the market to find those that have experienced the

largest and most frequent earnings estimates revisions. When the Zacks Rank

signals a "Strong Buy" or "Buy" (#1 or #2) it means that earnings estimates are

going dramatically higher for a firm and most likely other investors will think it is

undervalued given this new information. So, they jump in to run up the price of

the stock. The beauty is that this is also a timeliness rating, which should help

them shrink the holding period of the stock. i.e. They will reach fair value in a

shorter period of time that helps them maximize their ROI.

Value investors may want to take one further step in their stock selection and that

is to screen the #1 list for stocks with PEG’s under 1.5. Rarely is a stock

considered a value above this mark. On Zacks.com you will find one of the most

robust stock screeners on the web. More details later on.


Long-term Investors

Long-term investors like to "buy and hold" the stocks in sound companies for a

long time. They seek a company of value and virtue, which they believe will

consistently report solid earnings pushing the share price ever higher. They do

not worry as much about short-term volatility in the share price. The key

ingredients for a long-term investor are the fundamentals like; earnings growth,

strong management/leadership, excellent products, competitive strategy etc.

What is the most tangible proof that a company is worth holding for the longterm?

Earnings. Or more specifically earnings growth. That is because a

company that has strong management, excellent products etc. should be producing

a steady stream of positive earnings. Here again earnings estimate revisions are

the cornerstone of the Zacks Rank. Generally when you find positive earnings

revisions you will find a company moving in the right direction and is a candidate

for long-term ownership. (Also remember the example in the FAQ section about

companies being like large freight trains. You want them headed in the right

direction.)

Note that large-cap companies are usually best suited for long term ownership as

they generate a steadier flow of earnings. Thus, you may want to narrow your

focus to stocks ranked #1 and #2 with market caps above $10 billion.

Growth Investors

Growth investors are generally more aggressive in nature. They are looking for

companies with high earnings growth potential, which should propel their stock

price in the future. Growth stocks usually come with a bit more risk, since high

earnings growth (generally considered about 20% a year) is hard to sustain over

the long haul. And when the high growth dissipates, then the stock's shrivels up

like a popped balloon.

Once again we find a group of investors that is focused on earnings. In particular

companies that exhibit above average earnings growth (20% plus). By

concentrating on the Zacks #1 Ranks you could easily screen for companies

exhibiting these stellar growth rates. The best part is that the Zacks Rank will

alert you at the earliest possible stage that future prospects for the firm are looking

very bright, which generally leads to higher share prices. And just as importantly

we will let you know of the first sign of earnings weakness so you can sell your

position at the earliest possible stage to avoid unnecessary losses.


Momentum and Technical Analysis Investors

These folks are generally interested in turning short-term profits based on the

general direction/momentum of the stock and changes in daily trading volume.

Investors Business Daily (IBD) and other charting software providers are the

biggest "torch-bearers" for this movement.

The Zacks Rank is a great fundamental companion to folks who rely on technical

analysis and momentum because it tips them off before most other systems.

Essentially we are talking about "cause and effect". The cause of the move is first

sounded off by the Zacks Rank system that looks for positive revisions in

earnings estimates. This upward shift in earnings estimates prompts more and

more investors to find interest in the company with the effect being that the shares

in the company start on a bull run. Volume increases, as does the stock price.

However, if you were just to rely on technical analysis, then your chart would not

show a buy signal 'til the rally already started. i.e. In many cases you will be able

to get in right at the outset of the major move in the stock which will increase

your total ROI on the trade. (To see how this happens refer back to Step 4 of

"Zacks Rank in Action -What Causes Stocks to Rise" on page 11.)

Momentum and technical analysis investors should concentrate on stocks with a

Zacks Rank of 1. More specifically, those stocks most recently added to the #1

list have the best chance to outperform the market over the next 1-3 months. Our

strength in this category was best summed up by the Zacks customer below…

Zacks Rank – Limitations

For as powerful an investment tool as the Zacks Rank is, it is by no means fool

proof. Below are listed the main limitations of the Zacks Rank. Without

considering these potential shortfalls, then you may be apt to make poor

investment decisions that greatly affect your personal wealth and that is the last

thing we want to see happen. So, be sure to understand this section fully before

you attempt to use the Zacks Rank to enhance your investment returns.


Performance Relative to the Market

The most powerful force affecting any individual stock is the movement of the

overall market. As such it is very difficult for a stock to rise in the face of a bear

market. We can see countless examples of this happening during the market

downdraft since 2000. Thus, it is better to think of the Zacks Rank as an

indication of a stocks relative performance to the overall market. For example, if

the market is tumbling down then a #1 Ranked stock will most likely be down,

but not as much as the overall market. And when the overall market is up, then a

#5 ranked stock may very well be up, but not to the same degree as the average

stock. Yet it is interesting to note that the Zacks #1 Ranked stocks overall did

produce profits in 2000, 2001 and 2002 (+14.3%, +24.3% and +1.2% respectively

during this bear market stretch.)


Short Term Indicator

With 16 years of data behind us we know conclusively that the effects of earnings

estimate revisions are good for a 1-3 month time frame. This makes sense when

you consider that every 3 months a company will provide a new round of earnings

that wipes the slate clean on any previous announcements. Yet, even long term

investors get caught up with the fever for wanting to own just #1 stocks.

Unfortunately being long term and a #1 ranked zealot are not compatible.

Remember that only the top 5% of companies receiving positive estimate

revisions in the last 60 days will be a Zacks Rank of 1. There is pretty stiff

competition for those slots in the top 5% and a company can be on today and be

off tomorrow if another company receives stronger estimate revisions. However,

that company that slipped out of the #1 ranked position may still be an excellent

investment. So, long term investors should be comfortable with ownership of

shares that are ranked between 1-3. Then use any slippages to #4 or #5 to trim or

completely sell your position in the stock.


Blind to Everything, But 4 Measures

There are only 4 measures used to calculate the Zacks Rank. Three of the four measures look at

analyst earnings estimate revisions; Agreement, Magnitude, and Upside. The fourth measure

considers the size of the most recent earnings surprise. (Be sure to review this section starting on

page 6). You will note there is no accommodation for other fundamental metrics such as P/E,

book value, ROE, ROA, debt ratios, growth rates etc. Nor does it consider technical attributes

such as recent changes in price or volume. Thus, in reality the Zacks Rank acts as an initial filter

that provides a raw list of potentially successful investment candidates. With these raw lists you

can do additional screening according to your own investment criteria. You will find a robust

screener for free on Zacks.com that is perfect for this task.



Market Cap Bias

The larger the company, the more analysts are likely to cover the stock. The more

analyst to cover the stock the tougher it is for the stock to score big on any of the

4 measures of the Zacks Rank. Thus, the list of Zacks #1 Ranked stocks will be

over represented by small to mid cap stocks. That is why a large cap stock with a

Zacks Rank of 2 is actually a very good thing and one with a Zacks Rank of 3

may still provide excellent upside potential relative to the overall market.

Remember to keep a diversified portfolio that includes a mix of stocks by market

cap and by industry (discussed further below).

Too Many Speculative Stocks

Speculative stocks (such as technology, internet and bio-tech) have the hardest to

predict earnings outcomes. That’s because small companies make up the bulk of

the speculative stock universe and due to their size they do not get as much

coverage by brokerage analysts. Further the uniqueness of their product lines

makes revenue and profit predictions very difficult. When things go well for these

companies, then the above attributes lead to exceptionally high scoring for the

Zacks Rank. So, those who strictly adhere to the buying stocks Ranked #1 may

end up having a disproportionate number of small growth companies in the tech,

internet and bio-tech industries. At times that may be of benefit, but that has

certainly not been the case since March 2000. Here again, the need to keep a

diversified portfolio should always outweigh an investors desire to blindly invest

in #1 stocks because you do not want to be severely over-weighted in any one

sector.


Zacks.com – Profit from the Pros

Zacks.com was designed to help individuals become more successful investors by

tapping into insights and recommendations from those rare few experts with a

track record of beating the street. And that is why our motto is “Profit from the



Pros.”
The first step in the journey to help people Profit from the Pros was

accomplished by making the Zacks Rank available to the public for the first time

on the Zacks.com web site (after many years of just being available to

professional investors and Wall Street insiders). We then added many additional

features to the site to further empower individuals to research, select and track

their investments more effectively. Below you will find a synopsis of the main

features of the Zacks.com web site that you can use to become a more successful

investor.


Zacks #1 Ranked List – Updated Weekly

Every Monday we will keep you posted of all the new additions and deletions to the Zacks #1

Ranked list. You can see this list in full and broken down by industry. You will definitely want to be up to date on the changes on this exclusive list.

Republican Ex-EPA Chief Criticizes Bush

"It's almost as if the motto of the administration in power today in Washington is not environmental protection, but polluter protection." Why, what sort of pinko environmental extremist would say such a thing?  Meet Russell Train, a Republican, chief of the U.S. EPA under Nixon and Ford, co-chair of Conservationists for Bush during the 1988 presidential campaign, and one fed-up dude.  Claiming Bush II has betrayed a legacy of eco-friendly conservatives that stretched from Theodore Roosevelt to George H.W. Bush, Train yesterday vowed to vote for John Kerry in November.  He was joined at a news conference -- organized by Environment2004, a group campaigning to oust Bush -- by two New Hampshire Republicans, state Rep. Jim Pilliod and former state Sen. Rick Russman, who stopped short of endorsing Kerry but stressed the importance of environmental issues.

straight to the source:  The Boston Globe, Associated Press, Erik Stetson, 19 Jul 2004


<http://www.gristmagazine.com/cgi-bin/forward.pl?forward_id=2714>

straight to the source:  ABC News, Associated Press, Liz Sidoti and Aparna H. Kumar, 19 Jul 2004


<http://www.gristmagazine.com/cgi-bin/forward.pl?forward_id=2715>

The Immigrations and Customs Enforcement Bureau's financial investigations program has launched the Cornerstone program a year ago this month to target alternative financing mechanisms that terrorist and criminal organizations use to earn, move and store money. The initiative has 400 agents working at 27 field offices around the country.

While the program is meeting its current mission, ICE plans to add more agents in the future, said Marcy Forman, the agency's director of investigations, at a forum in Washington.

"Everybody can always use more [agents], but I think we have enough right now to address the threats that we're identifying," Forman said, adding that "as more and more time goes on, more and more agents will be trained to assume money laundering investigations." She did not know how many additional agents would be hired.

"A key component in our training academy is Cornerstone and money laundering," Forman added. "Any time a new recruit comes in, they are trained in the money-laundering aspects of the various authorities [we have], as well as Cornerstone."

The program has successfully integrated personnel from the now defunct Customs Service and the Immigrations and Naturalization Service, said Forman, who was previously with Customs.

"Any agent, whether they are legacy Customs or legacy INS or from another agency, takes a period of time to learn these methods on how to detect and then follow the money," she said.

ICE Assistant Secretary Michael Garcia acknowledged, however, that his bureau faces constraints. The Washington Times reported Tuesday that ICE has 18 fugitive teams consisting of about 200 officers trying to track down and arrest about 400,000 criminal aliens and absconders.

"We have limited resources," Garcia said during the forum. "What we have to do, like every force and agency has to do, is prioritize how we use them. I think we've done a good job at that."

The Government Accountability Office concluded in a November 2003 report that government agencies should investigate how terrorists might use alternative financing schemes.

"Terrorists earn assets through illicit trade in myriad commodities, such as drugs, weapons, cigarettes and systems, such as charities, owing to their profitability," GAO said. "Like other criminals, terrorists can trade any commodity in an illegal fashion, as evidenced by their reported involvement in trading a variety of counterfeit goods."

Forman said Cornerstone has uncovered activities by criminal organizations, but officials don't know whether it has disrupted terrorist plots.

"We believe we may have choked funds that may have been destined for terrorists or terrorist acts from leaving the country," she said. "We've identified methods and means of these various financial systems, to include charities and nongovernmental organizations, that we believe were facilitators of funds destined to terrorists."

She said agents are investigating transactions within the United States that are suspected of financing terrorism, but nothing definite has been confirmed.

"As long as we know there's an illegal act involved," she said, "we'll just choke off the funds and then work the investigation from there to determine what the use of those funds was supposed to be for."

advocacy group Partnership for Public Service

Since Congress last acted to strengthen whistleblower protections, in 1994, the appeals court has ruled in 95 cases, finding against the whistleblower in 94 of them. In 1999, in Lachance v. White, the court determined that an employee claiming retaliation based on whistleblowing would have to have "irrefragable"--or irrefutable--proof that he had disclosed violations of law. The standard is considered nearly impossible to reach, according to Tom Devine, legal director of the Government Accountability Project, a whistleblower protection group in Washington.





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