"There's no mentum like momentum." I know mentum isn't a word but you catch my drift. When a stock is consistently hitting new high after new high there is nothing like it. The market forces of accumulation continually push a stock to levels it hasn't seen before and shareholders are handsomely rewarded. Now find a stock that has positive momentum and a compelling earnings story during a tumultuous stock market and you have today's Bull of the Day.
Rambus (Nasdaq:RMBS-Free Report) is a semiconductor company that has been around for a while but has fallen off most people's radars. RMBS was a darling back in the days of the dot com bubble, trading as high as $135 before the bubble burst. Recently is has wallowed in the single digits until the tide turned in 2013. The semiconductor company is best known for making royalties from DRAM licensing. Good news for RMBS is the potential for new royalty streams from Qualcomm and Mediatek could range from $50 to $95 million per year. This would definitely be a big shot in the arm down the road.
Rambus is a Zacks Rank #1(Strong Buy) and owes that rating to its recent earnings surprises. Over the last four quarters RMBS has beat by an average of 14 per share each time. Last quarter was the most dramatic with RMBS earning 12 cents versus the consensus estimate for a 1 cent loss. The next earnings report is just around the corner, slated for April 21st. Recently, earnings estimates have been revised to the upside for the current year and next year. Current year consensus moved from a 5 cent loss to a 20 cent gain over the last 90 days. Current quarter estimates call for a 1 cent profit per share.
Let's find Zacks Rank #5 (Strong Sell) stocks with recent earnings disappointments, negative earnings revisions, and have underperformed the market. But I want to leave in stocks near their 52 week highs because maybe we are finding out something before the rest of the market is paying attention. I ran this screen today and came up with today's Bear of the Day.
American Capital (Nasdaq:ACAS-Free Report) Zacks Rank #5 (Strong Buy) in a specialty finance industry that ranks in the bottom 18% of our Zacks Industry Rank. ACAS is the only private equity fund and the largest alternative asset management company in the S&P 500. Earnings revisions recently have seen current year estimates drop from $1.10 to 92 cents and next year's numbers down from $1.41 to 92 cents. These downward revisions come on the heels of ACAS disappointing each of the prior four quarters by an average of 64.02%.
The price and consensus chart could be warning of tough times ahead for ACAS. The recent downturn in the earnings trend could be met with the stock giving up more than we have already seen. Currently the 2014 consensus is close to where it was in 2011 when the stock was trading nearly half where it's trading at today.
3 Utilities Your Portfolio Needs
Utility services play an integral role in the overall development of a country. Among these, power supply keeps the wheel of development rolling. As day-to-day activities seem unimaginable without power, cheap and consistent supply is a prerequisite.
As per a U.S. Energy Information Administration ("EIA") report, total energy use in the U.S. will increase to 107.6 quadrillion Btu in 2040 from 96.3 quadrillion Btu in 2013. Most of this demand is expected to come from the industrial sector followed by the commercial sector.
Greenhouse gas emission during electricity production is one of the biggest challenges faced by the operators. As the U.S. government started focusing on lowering emission and adoption of renewable generation standards in different states, operators too put on their thinking caps and gradually changed their generation mix.
The utilities are shifting loyalties and looking to natural gas and renewable sources for power generation. The proactive steps taken by these operators to harness new sources of energy for green power could take care of the environmental issues. For example, fuel cell technology could be the next big thing in the power generation industry.
Replete with bright prospects, the sector now perhaps offers solid investment opportunities. Stocks with the potential to beat earnings in the upcoming announcement should see faster price appreciation in the short term.
How to Pick the Right Stocks?
Choosing the correct stocks from numerous utility operators may appear an overwhelming task. This is where our proprietary methodology comes in handy. Stocks with the combination of a favorable Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) and a positive Zacks Earnings ESP are the ones that are likely to beat earnings estimates this announcement.
Earnings ESP is our proprietary methodology for determining stocks that have high chances of delivering earnings surprises in their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Here are three utility stocks that are currently equipped with the right combination of elements to post an earnings beat.
Newark, NJ-based Public Service Enterprise Group along with its subsidiaries, is engaged in the generation and distribution of electricity and natural gas. The company primarily operates through its two subsidiaries, Public Service Electric and Gas Company (PSE&G) and PSEG Power LLC (Power).
Public Service Enterprise Group currently has $20.04 billion market capitalization and carries a Zacks Rank #1.The earnings ESP for the first quarter is 2.17%. The company surpassed Zacks Consensus Estimate in the last four quarters with an average beat of 7.82%.
Public Service Enterprise Group has a stable customer base spread across commercial, residential and industrial customer classes. The company invested $3.4 billion in five transmissions lines, spent on renewable power and energy efficiency programs. These initiatives will increase reliability and lower energy usage costs. Investment grade credit rating and strong cash flow generation capability will allow the company to fund these ongoing development programs and increase shareholder value.
Public Service Enterprise Group is scheduled to announce its first quarter financial results on April 29.
Detroit, MI-based DTE Energy through its subsidiaries is engaged in regulated and unregulated energy businesses. The company serves nearly 2.1 million electric and 1.2 million natural gas customers in Michigan.
DTE Energy currently has $13.61 billion market capitalization and carries a Zacks Rank #2. The earnings ESP for the first quarter 2014 is 18.31%. The company surpassed the Zacks Consensus Estimate in two out of four quarters with an average beat of 0.96%.
The company has been generating stable returns from its regulated electric and gas utilities in Michigan. Over the next five years, DTE Energy plans to invest $6.7 billion in electric and $1.2 billion in its gas operations.
The focus on increasing renewable power generation, strengthening infrastructure and boosting storage capacity and gas pipelines will allow it to serve an expanding customer base in an efficient manner. Improvement in the state's economy is also driving demand for utility services which will help DTE Energy to sustain its solid run.
DTE Energy is scheduled to announce its first quarter financial results on April 25.
Rosemead, CA-based Edison International through its subsidiaries is engaged in generation and distribution of electricity.
Edison International currently has $18.55 billion market capitalization and carries a Zacks Rank #2.The earnings ESP for the first quarter 2014 is 2.60%. The company surpassed the Zacks Consensus Estimate in the last four quarters with an average beat of 20.55%.
Edison International is focusing on improving its transmission and distribution lines by investing in the range of $15.1 billion to $17.2 billion for the 2014 to 2017 time period. The idea is to strengthen its infrastructure, increase reliability of services, lower operating costs and supply uninterrupted power to its different customer classes.
Edison International is scheduled to announce its first quarter financial results on April 29.
What Lies Ahead?
The need for uninterrupted essential supplies is the fundamental strength of the industry. Government regulations and new pollution standards have made these operators concentrate more on lesser polluting fuel sources to generate power. But the bottom line is that the demand for utilities can never turn obsolete.
For investors looking forward to a regular return on investment, dividend yield from all three utilities mentioned above are higher than industry average of 2.1%. Their stable earnings performance also offer solid reasons to explore the Utility space. Backed by a solid Zacks Rank and positive Zacks Earnings ESP, these could be great ideas for investors to gain from this earnings season.
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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