db-X 2010 Target Date Fund – Zacks ETF Series
TDD is a lifecycle fund designed for investors who retired or had a life event in 2010. The fund looks to employ a very conservative asset allocation strategy with heavy exposure to bonds and, to a lesser extent, large cap equities.
This gives the fund an extreme focus on high quality low risk securities and minimal loss potential, a situation that should be perfect for those who are currently in retirement or just experienced a life event. Investors should also note that the fund looks to automatically move down the risk glide path to gradually increase its risk exposure to match that of the Lipper Conservative Funds Index by the end of 2015. TDD will then seek to replicate the Lipper equity allocation (currently 33%) on a static basis, into perpetuity. For more information check out TDD's home page.
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db-X In-Target Date Fund – Zacks ETF Series
TDX is a lifecycle fund designed for investors who are at or near their target retirement date at time of investment. The fund looks to employ a very conservative asset allocation strategy with heavy exposure to bonds and, to a lesser extent, large cap equities.
This db-X In-Target Date Fund seeks investment results generally corresponding to the performance, before fees and expenses, of the Zacks In-Target Lifecycle Index-a passively managed, rules based methodology comprised of publicly traded common stock, bonds and ADRs developed by Zacks Investment Research. Index constituents represent a diversified group of securities from three broad asset classes: international equities, domestic equities and fixed income. Currently, fixed income makes up over 70% of the portfolio while international equities make up less than one-tenth of the total holdings. This gives the fund a focus on high quality securities and minimal loss potential, a situation that should be perfect for those at or closing in on retirement. For more information check out TDX's home page.
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Ford’s Turkish Partner Invests $3.4Bn – Analyst Blog
Koc Holding AS, the joint venture partner of Ford Motor Co. (F) in Kocaeli, Turkey, announced that it will invest 6.5 billion liras ($3.4 billion) in 2012.
The investment will be focused both on Ford’s joint venture, Otomotiv Sanayi AS (Ford Otosan), and Tupras Turkiye Petrol Rafinerileri AS, the country’s sole crude oil supply and refining company.
Ford Otosan started production in 1965, with each company holding a 41% share in the venture. It operates four facilities in Turkey, two in Kocaeli, one in Eskisehir and one in Istanbul.
The joint venture has a share of about 15% in the domestic market. Its share in the passenger car market is roughly 10%, while the share is nearly 20% in the light commercial vehicle segment.
A few months back, Ford Otosan revised its sales forecast upward to 351,000 units from 345,000 units for 2011. The forecasted sales reflect a 16% increase from the sales in 2010.
The guidance included domestic sales of 135,000 units, up from the previous forecast of 131,000 units and 126,000 units in 2010, and exports of 216,000 units, up from the prior guidance of 214,000 units and 177,000 units in 2010.
Ford Otosan plans to produce 292,000 units in 2011, up 21% from 242,000 units in 2010. The joint venture will invest $300 million this year compared with $56 million a year ago.
Turkey is one of the most important markets for the automobile in Europe. It occupies the sixth position in the continent in terms of automobile production. The country’s light vehicles market expects to grow 11% to 882,000 units this year from 792,000 in 2010.
As a result, it attracted the attention of many global automakers, including Toyota Motor Corp. (TM), Honda Motor Co. (HMC), Opel, Hyundai, Mercedes-Benz and MAN AG. The companies mostly produce vans, buses and trucks in the country.
Ford, a Zacks #3 Rank (Hold) stock, posted a 3.5% drop in profits to $1.85 billion in the third quarter of the year from $1.91 billion in the same quarter of prior year. However, on per share basis, earnings were 46 cents versus 48 cents a year ago, beating the Zacks Consensus Estimate of 44 cents. The decline in profits was attributable to a drop in commodity prices and anticipated reductions in Financial Services results.
Total revenues in the quarter went up $4.1 billion or 14.1% to $33.1 billion. This compared with the Zacks Consensus Estimate of $29.8 billion.
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Thai Floods Impact Opnext – Analyst Blog
Opnext, Inc. (OPXT) recently stated that production at the Chokchai campus of Fabrinet (Opnext’s primary contract manufacturer) remains suspended following the floods in Thailand in October.
Fabrinet has stated that it is unlikely production at Chokchai will resume. As a result, Opnext has relocated limited production capacity to its manufacturing facilities in Totsuka, Japan and Fremont, California.
Additionally, Opnext plans to divert a portion of the 10Gbps module production capacity, which was previously located at Fabrinet’s Chokchai facility, to Fabrinet’s Pinehurst facility. This new facility is located approximately seven miles north of Chokchai.
Meanwhile, in an effort to minimize the disruption caused by flooding, Fabrinet has allocated surface mount technology (SMT) lines at Pinehurst to Opnext and new test systems are being constructed to replace systems lost in the flooding.
Nevertheless, Opnext anticipates that Fabrinet will start production in February 2012 and ramp production as new test systems come on line. Opnext also plans to deploy an additional contract manufacturer to diversify its sources for manufacturing.
Opnext expects to restore approximately 20% of the lost 10Gbps module production capacity by the end of December. The company expects to increase production capacity during the quarter ending March 31, 2012, with a return to full production capacity expected sometime early in the quarter ending June 30, 2012.
On the other hand, the loss of production capacity at Fabrinet will significantly impact both the topline and bottomline in the December quarter and March quarter. In addition to the loss of revenue, Opnext has experienced loss of equipment and inventory in connection with the flooding at Fabrinet’s facility; the full extent of which is still not known.
Opnext, Inc. designs and manufactures optical components, modules and subsystems for communications uses primarily in the Americas, Europe, Japan, and the rest of the Asia Pacific region.
Another company, LSI Corp (LSI) has also been impacted by the floods in Thailand. The company will experience a revenue loss of $35 million - $45 million due to supply constraints in its hard disk drive business.
We continue to maintain a Neutral recommendation on Opnext. In the short-run. The stock has a Zacks #4 Rank, which translates into a short-term rating of Sell, primarily due to near-term pressure on the stock.
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Trading Goals for 2012 – Weekend Wisdom
As 2011 comes to a close, and 2012 is ready to begin, it's only natural to start thinking about the year ahead and all of the things you hope to accomplish.This includes both personal goals and work goals and everything in between.
The key is to decide what you want. And when it comes right down to it, a goal is really just that -- a decision.
Decisions, Decisions
Goals come in all shapes and sizes; big and small, long-term and short-term, simple and complex, etc.
Something as simple as waking up and deciding to go to the store that day is a goal. That probably didn't take a lot of planning. But you did have to write down what you needed to get. And organize your day to make sure you could fit that task into your likely already busy schedule. If you have food in your refrigerator, you can take pride in achieving your goal.
Taking a vacation is a goal. That takes a little more planning. But once you decide you want to take one, all you need to do is determine where you want to go, what you'd like to do, and then make the time to do it.
Goals are not wishes. They are decisions. And once you decide to do something, it's amazing how often those 'decisions' come true.
3 Steps to Investment Success
Financial decisions are no different.
If one of your goals in 2012 is to become a better trader, then decide to be one.
How does one do that? Just like any decision, it only requires a few simple steps to get the ball rolling.
1) Decide what kind of trader you are or want to be.
Do you prefer upward trending momentum stocks or deeply discounted value stocks? High-flying aggressive growth stocks or more mature income producing stocks?
There's no wrong answer.
But this is important because if you find yourself buying stocks that are not in alignment with who you are or want to be as a trader, you'll find yourself abandoning those stocks the moment they hit a rough patch.
The best style of trade is the one that's right for you.
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2) The next step is to determine what strategies work best for that style of trade.
In other words, what characteristics have proven to work for those types of stocks? The key word being 'proven'.
For example: some investors incorrectly believe that the best aggressive growth stocks are those with the biggest growth rates. But studies have shown that's not the case. In fact, in my testing, I have found that stocks with the absolute highest growth rates, oftentimes, perform just as poorly as those with the lowest growth rates. How can this be? It's usually because those growth rates are unsustainable. And the moment those sky-high growth rates, which were priced for perfection, have even the slightest downward revision, the stock price can fall back down to earth as well.
I have found that the best growth rate ranges are those that are above the median for their industry and no higher than 50%. That does not mean stocks with growth rates higher than 50% won't go up, because they do. And that doesn't mean that stocks with growth rates in the optimum range won't go down, because they do too. But sticking with stocks with characteristics that have proven to work more often than not will increase your odds of success.
And each style of trade has a set of characteristics that, if followed, will help you pick more winning stocks than losers.
3) The last step is really the easiest and the most fun. And that's doing it.
Once you've decided what you want, and how to go about getting it, then it's time to do it.
And you'll find picking winning stocks has never been easier. Because now that you know what you're looking for, they'll be easier to find.
Think about the last car you bought. Once you decided on what kind of car you wanted, you probably saw them everywhere. They didn't just magically appear. They were always there. You just became aware of them.
And it's the same with stocks. The most profitable stocks that are right for you have always been there. But now you'll be able to spot them.
And nothing is as exciting as waking up each day, and following your proven plan for success.
A long time ago, I read a book on goal setting. And a passage the author wrote stuck with me.
He said: if you want to add meaning and richness to your experience of living, begin now to plan. You only need to set goals for every area of your life. Working toward worthwhile goals and purposes, whatever they may be, makes you feel alive and vibrant.
Wow!
Resolutions for 2012
So take some time this weekend, to decide what your worthwhile goals and accomplishments will be this year.
And start acting on them immediately, because each year seems to go by just a little quicker than the last.
If one of your goals includes becoming a better trader, you might want to consider our Zacks Method for Trading: Home Study Course. It's an interactive online experience that guides you to better trading step by step. In it, we help you identify what kind of trader you are, how to find stocks with the highest probability of success, and how to trade them so you can consistently beat the market, regardless of what the market is doing. It also goes over some of our best performing strategies from a variety of different trading styles, and it shows you how to create and test your own.
A lot of people jumped on this home study course earlier this week when we offered it at its lowest price ever. That offer expired, but I want to encourage you to make better trading a high priority. So I'm bringing the savings back one more time for Weekend Wisdom readers until the clock strikes midnight and 2012 begins.
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Thanks. Here's to a great new year.
Kevin
Zacks VP Kevin Matras is our chart patterns and stock screening expert. He runs the Research Wizard and personally developed many of its built-in market-beating strategies. He also directs the Zacks Method for Trading: Home Study Course.
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United Strikes Deal with IBT – Analyst Blog
After a long battle between United Continental Holdings (UAL) and International Brotherhood of Teamsters (IBT), both parties have now struck a new labor deal.
Recently, United Airlines, a wholly owned subsidiary of United Continental, reported that a new labor contract was approved by 5,500 airplane mechanics represented by IBT. The agreement deals with factors like compensation benefits and work rules, including an $11,500 bonus and recovery of items that were lost when United went through a bankruptcy in 2009.
Looking back, United Airlines and IBT agreed upon a tentative labor agreement for mechanics at United in March and was awaiting ratification by the members. In September, talks of expediting the ratification surfaced before the mediation with the National Mediation Board was scheduled for November.
We believe that the company’s effort to integrate its work force will bode well for its operational efficiency and serve its plan to reach a single contract covering employees of United Airlines and Continental Airlines. In November 2010, the company had already received approval on a collective bargaining agreement by Continental mechanics represented by IBT. The company believes that a single contract is highly beneficial as the merged airline focuses on curtailing costs, contributing to annual savings of approximately $1.2 billion by 2013.
In October 2010, United and Continental merged to form United Continental Holdings. However, labor unions of both companies remained disintegrated, causing union disputes.
United and Continental are both highly unionized companies unlike its peer Southwest Airlines (LUV), which has so far been successful in integrating its labor force. As of December 31, 2010, United Continental had approximately 86,000 employees, of whom approximately 72% were represented by various U.S. labor organizations. Thus, union disputes, employee strikes or slowdowns, and other labor related disruptions may delay expected merger synergies and increase labor costs or disputes, thereby hurting profitability of the company.
Currently, we maintain our long-term Neutral recommendation on United Continental supported by a Zacks #3 (Hold) Rank.
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Anadarko Gets More from 2008 Sale – Analyst Blog
Independent oil and gas producer Anadarko Petroleum Corporation (APC) received $419 million from Statoil Brasil Óleo e Gás Ltda, in relation to the sale of a 50% interest in the Peregrino oil field located in Campos Basin offshore Brazil.
In 2008, Anadarko agreed to sell its 50% interest for $1.4 billion and added an agreement for an additional payment based on commodity prices. This $419 million payment fulfills the covenant. The payment came in as a New Year surprise for the company, exceeding expectations. The higher payment was attributable to the strength of Brent oil pricing and Statoil's operational success in bringing the Peregrino field online.
Anadarko is consistently working on improving its overall portfolio, and exploration and drilling programs in 2011 have earned rich dividends. The company has concentrated its operation in Africa, after the Gulf of Mexico accident, with big discoveries in Ghana and Mozambique.
In addition, in October 2011 the company finally reached a settlement with BP plc. (BP) by shelling out $4 billion that released all mutual claims regarding the Deepwater Horizon explosion. In December 2011, the company decided to jointly develop the Lucius project, located in the Keathley Canyon area of the deepwater Gulf of Mexico.
We believe these initiatives will pave the way for future growth, though Anadarko had to dig deep into its pockets to fulfill the BP obligations. We believe the receipt of a windfall $419 million will definitely add to the company’s cash position.
Anadarko Petroleum currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
Based in The Woodlands, Texas, Anadarko Petroleum is primarily engaged in the exploration, development, production, gathering, processing and marketing of natural gas, crude oil, condensate and NGLs.
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EQR Throws Hat in Archstone Legal War – Analyst Blog
In order to safeguard its own interests in federal court, Equity Residential (EQR), a multifamily real estate investment trust (REIT), recently filed a motion to "intervene as a party in interest” in the legal proceedings for acquiring a stake in rival company Archstone – one of the largest investors, developers and operators of apartment communities in the U.S.
Archstone is presently owned by a consortium of financial institutions that include Bank of America Corporation (BAC), Barclays PLC (BCS), and the bankruptcy estate of Lehman Brothers Holdings Inc. While the banks collectively hold a 53% stake in the company, Lehman holds the remaining 47%.
Despite continuous negotiations throughout the first half of the year, the owners failed to unanimously decide on how to unwind Archstone. This led the banks to put their ownership stake on the block in their concerted effort to raise cash and avoid a similar fate as that of Lehman.
Earlier, the industry was rife with speculation that Equity Residential would acquire the entire 53% of the banks’ share in Archstone for about $2.6 billion in cash and stock, creating one of the largest real estate transactions since the recession.
However, Equity Residential initially settled for a lower bid and decided to acquire about a 26.5% ownership stake (one half of the combined interests of the banks) in Archstone for $1.325 billion in cash, probably due to its complex ownership structure.
Insider sources had then revealed that the proposed buyout by Equity Residential valued Archstone at about $16 billion, including $11 billion in debt held primarily by government-sponsored mortgage companies like Fannie Mae and Freddie Mac. However, Archstone was originally valued at about $22 billion in 2007 when Lehman had first bought it.
The market value was partly eroded by asset sales worth approximately $2 billion, leaving it with about 77,000 apartments. The lower valuation was also due to the fact that the new owner would have a contentious partnership with every major decision requiring unanimous consent from all owners, which would likely dilute earnings.
The frenzy in owning apartment company Archstone became murkier with the ‘right to first offer’ by Lehman, under which the banks were obliged to present it with any offer they would like to accept and give the estate a chance to either match or beat it. Lehman had a brief period to respond and roughly about 50 days to put up the money.
As expected by insiders familiar with the situation and confirming the latest buzz in the industry, Lehman decided to forestall Equity Residential from owning Archstone and filed a legal suit against the banks for an alleged ‘breach of conduct’ amid claims that key information regarding the proposed deal were kept under wraps. Lehman further sought to have an injunction on the deal and decided to recover damages and legal fees from the banks.
The strategic decision to pre-empt the deal also stemmed from the inherent fears of Lehman about losing management control of Archstone should Equity Residential agree to buy it. Equity Residential already had a large management operation and Lehman feared that it might replace Archstone's management team and apartment management operation with that of its own.
The legal injunction by Lehman made matters more complex. In accordance with the initial agreement between the banks and Equity Residential, if Lehman agreed to buy the first half of the banks’ share, the second half on offer could be bought by the REIT for the same price or higher.
This in turn could make Archstone more expensive for Lehman should it aim to purchase the entire stake of the bank. On the other hand, if Lehman chooses not to acquire the second half of the banks’ share, it would saddle the company with an asset whose biggest rival had a considerable stake in it.
The present scenario, therefore, is a double-edged sword for Lehman, which was hoping to liquidate its biggest real estate asset for at least $6 billion in order to repay its creditors who collectively owe a staggering amount of $370 billion.
With creditors lining up for payment, a new investment is not what the company would have ideally liked. But the involvement of Equity Residential and the proposed deal has left Lehman with no other option other than vying for a part or the entire banks’ stake in Archstone.
In addition to Equity Residential, Archstone’s owners had also received competitive bids from other REITs like Avalonbay Communities Inc. (AVB) – a private-equity firm; The Blackstone Group (BX); and Canada-based investment firm Brookfield Asset Management Inc.
The renewed interest in owning one of the prized apartment companies in the U.S. is primarily due to the underlying fact that the multifamily sector has emerged as one of the best performing commercial real estate sectors in the recent quarters.
As ‘echo boomers’ (the children of the baby boomer generation) opt to move out on their own and more renters decide to part ways with family and roommates, the single-family homeownership rate across the U.S. has witnessed a continuous decline and demand for multifamily rental apartments has surged.
With new supply remaining muted until late 2013 or 2014, renting has emerged as the only viable option for customers who could not get mortgage loans or are unwilling to buy a house at present. Consequently, national apartment vacancy rates have dipped to 5.6% at the end of third quarter 2011 – the lowest since 2006.
Irrespective of the outcome of this ownership battle, the apartment sector as a whole is expected to benefit in the long run from market consolidation. In particular, Equity Residential is also expected to benefit from the acquisition of premium assets in some of the most desirable markets in the U.S.
By the end of the third quarter 2011, Archstone’s portfolio included 48,922 wholly owned and stabilized apartment units as well as 1,332 apartment units under construction, land sites for the potential development of 5,279 apartment units and 9,423 apartment units owned in unconsolidated joint ventures with third parties. The portfolio also included approximately 14,000 wholly owned or unconsolidated joint venture-owned apartment units in Germany.
The initial proposed purchase price of $1.325 billion for acquiring 26.5% of Archstone equates to a capitalization rate of 5.3% for the wholly owned and stabilized portfolio. Equity Residential expected to fund the acquisition through a combination of cash on hand, available borrowings under its $1.25 billion revolving credit facility, proceeds from non-core asset sale, bank term debt and secured and unsecured debt and equity offerings.
We maintain our ‘Neutral’ recommendation on Equity Residential, which currently has a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.
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U.S. Bancorp Reaffirmed at Neutral – Analyst Blog
We are reiterating our Neutral recommendation on U.S. Bancorp (USB) stock.
U.S. Bancorp’s third-quarter 2011 earnings of 64 cents were slightly ahead of the Zacks Consensus Estimate of 61 cents, reflecting an improvement in credit metrics given a decline in provision for credit losses coupled with modest revenue growth. However, these positives were partially offset by an increase in non-interest expenses and taxes.
U.S. Bancorp remains one of the most profitable large-cap banks in the industry. The company has weathered the economic downturn relatively well. Its core franchisee is attractive and the diverse revenue stream is encouraging. Going forward, we expect strategic acquisitions to help its top-line growth.
In recent years, U.S. Bancorp has been an active acquirer on the processing side of the business. The payment business is expected to continue to help maintain growth in an otherwise unfavorable operating environment.
Recently, U.S. Bancorp’s unit, Elan Financial Services, acquired $700 million in Financial Institution credit card portfolios from FIA Card Services, N.A., Bank of America Corp.’s (BAC) credit-card unit. The portfolio acquired by the U.S. Bancorp unit comprises credit card assets of 28 financial institutions and includes small business and consumer cards. Terms of the deal were not disclosed.
Improving credit quality, solid capital levels and a focus on capital redeployment also bode well. Yet, a sluggish economic recovery and low interest rate environment, as well as regulatory issues, will continue to restrict any robust development at the company. Hence, our Neutral recommendation on the stock remains in place.
U.S. Bancorp currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals we have a Neutral recommendation on the stock.
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Coach Walks the Tightrope – Analyst Blog
Being a leading American marketer of fine accessories and gifts, Coach Inc. (COH) boasts a proven strategy of investing in stores to enhance sales productivity through product innovation, compelling pricing strategy, new merchandise assortments and a cost-effective global sourcing model. This strategy should drive comparable-store sales and operating margins in the long term.
Management remains confident of sustaining a double-digit growth momentum in both the top and bottom lines, after posting better-than-expected first-quarter 2012 results on the back of healthy sales in North America and China.
The quarterly earnings of 73 cents per share beat the Zacks Consensus Estimate of 70 cents and jumped 15.9% from 63 cents in the prior-year quarter, buoyed by strong top-line growth. Coach said that total net sales for the quarter came in at $1,050.4 million, up 15.2% from the year-ago quarter and above the Zacks Consensus Estimate of $1,023 million.
The company’s long-term growth drivers include the expansion of its global distribution model and its movement into under-penetrated markets. After North America and Asia, Coach also extended its global footprint in Europe. It is also investing in rapidly-growing emerging markets, such as China, Brazil and Vietnam to increase its brand awareness. The company continues to open new dedicated men's stores and gain market share in North America.
Coach maintains a healthy balance sheet with significant cash balance and negligible debt load. The company also has been proactively managing its cash flows by making prudent capital investments and enhancing shareholders’ return. The company’s strong liquidity positions it well to drive future growth.
The company ended the first quarter with cash, cash equivalents and short-term investments of $848 million and total long-term debt of $24.1 million with shareholders’ equity of $1,816.5 million. Coach generated a free cash flow of $194 million during the quarter, and incurred capital expenditures of $31 million.
Coach also bought back approximately 1.1 million shares at a cost of $55.30 per share, aggregating $59 million during the quarter. The company still has $900 million at its disposal under its share repurchase authorization.
Coach sells products that are discretionary in nature. Its customers remain sensitive to macroeconomic factors including interest rate hikes, increases in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability. Therefore, we remain concerned about erratic consumer behavior and sluggish recovery in the economy.
Fashion obsolescence remains the main concern for Coach’s business model, which requires sustained focus on product and design innovation. The company’s pioneering position may be compromised by delays in its product launches.
Given the pros and cons, we prefer to have a long-term ‘Neutral’ recommendation on the stock with a price target of $64.00. However, Coach, which competes with Polo Ralph Lauren Corporation (RL), holds a Zacks #2 Rank that translates into a short-term ‘Buy’ rating, and reflects the company’s optimistic attitude of accomplishing double-digit growth in both top and bottom lines going forward.
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