The Zacks Analyst Blog Highlights:Northrup Grumman, CNO Financial, Almost Family, Baker Hughes and Emerge Energy Services

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Feb 11, 2014, 09:30 ET

CHICAGO, Feb. 11, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Northrup Grumman (NYSE:NOC-Free Report), CNO Financial (NYSE:CNO-Free Report), Almost Family, Inc. (Nasdaq:AFAM-Free Report), Baker Hughes Inc. (NYSE:BHI-Free Report) and Emerge Energy Services LP (NYSE:EMES-Free Report).

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Here are highlights from Monday's Analyst Blog:

Stock Leadership Changed in February

Is It Time to Buy in Early February?

Based on recent ADP jobs and weekly February unemployment claims data and ISM and PMI numbers, yes. Based on Federal non-farm payroll numbers from Dec and Jan, there is some worry.

After a two-year budget deal passed through DC, we got further onboard for a rise in U.S. stocks under an optimistic forward 2014 earnings outlook…if DC games stay sidelined.

Markets are fairly priced to full year 2014. Earnings targets need to be met.

Our Tactical Sense of Stock Market Timing Tied to Valuations

This market's valuations have been ignored.

Bearish sages will keep pointing at them from time to time. Still other bearish sages will point at a rising 10-year Treasury rate or any volatility seen there.

Bullish sages think there is more space for the cycle to run. Any failure in DC needs to be seen as a very, very real roadblock. The 10-year is actually declining at the moment, supporting stocks.

Zacks February Sector/Industry/Company Telescope

February saw sector leadership shift. New leaders are Industrials, Finance, Health Care, and Info Tech. The Consumer Discretionary sector is not leading the way for the first time in several months.

(1) Industrials got a big Upgrade to Very Attractive. Aerospace & Defense industry is the Most Attractive, followed by Construction-Building Services, Airlines, Business Services, and Machinery-Electrical. It looks like air travel, and business and construction services are prospering. The only loser is Machinery.

Company to look at: Northrup Grumman (NYSE:NOC-Free Report)

(2) Financials is a sector Upgraded to a Very Attractive sector in February. Look for M&A activity to keep Investment Banking & Brokering moving. Insurance remains Attractive. Finance and Real Estate are at Market Weight. The loser is Banks-Major with fines and more regulations.

Company to look at: CNO Financial (NYSE:CNO-Free Report)

(3) Health Care is a solid Market Performer. Drugs are Attractive here.

Company to look at: Almost Family, Inc. (Nasdaq:AFAM-Free Report)

(4) Info Tech Stayed a Market Weight. There is strength in Telco equipment and Computer Software-Services to take a look into. Semis are losers, as are Misc-Tech and Electronics.

(5) Utilities get an upgrade to Market Weight in February. It has been a cold winter. The sale of natural gas heating led to some upgrades by analysts.

(6) Materials get a downgrade to Market Weight. Steel, Container & Glass, Chemical, and Building Products – Construction Materials hold up.

(7) Consumer Discretionary is downgraded to an Underperform sector. The only industries that held up were Leisure Services, Publishing, and Home Furnishing - Appliances. This is a major change. It remains to be seen if this trend stays put after the completion of earnings season. This could be related to stale Zacks Rankings.

(8) Energy is more or less static at a slight Underperform. The Energy-Alternate Sources, in particular Solar, continues to be the bright spot.

(9) Consumer Staples now a deep Underperform Sector. The only major Upgrade and exception was a Very Attractive rating on Agri-business. Five of seven industries in Very Unattractive. That's an all-time low.

U.S. Drilling Rig Count Down by 14

In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (NYSE:BHI-Free Report) reported a fall in the U.S. rig count (number of rigs searching for oil and gas in the country). This downside can be traced back to a decrease in the tally of both oil and gas-directed rigs.

The Baker Hughes' data, issued since 1944, acts as an important yardstick for energy service providers in gauging the overall business environment of the oil and gas industry.

Analysis of the Data

Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 1,771 for the week ended Feb 7, 2014. This was down by 814 from the previous week's rig count.

The current nationwide rig count is more than double the lowest level reached in recent years (876 in the week ended Jun 12, 2009) and is above the prior-year level of 1,759. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending Aug 29 and Sep 12.

Rigs engaged in land operations descended by 12 to 1,696, offshore drilling shrunk by 3 to 54, while inland waters activity increased by 1 to 21 units, respectively.

Natural Gas Rig Count: The natural gas rig count – which last year slumped to its lowest point since Jun 1995 – decreased to 351 (7 rigs less than the previous week). Despite the weekly fall, the number of gas-directed rigs is down almost 57% from its peak of 811, achieved in 2012.

In fact, the current natural gas rig count is 78% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 425 active natural gas rigs.

Oil Rig Count: The oil rig count – that rocketed to a 25-year high of 1,432 in Aug 2012 – fell by 6 to 1,416. It has recovered strongly from a low of 179 in Jun 2009, rising 7.9 times. The current tally is also above the previous year's rig count of 1,330.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 4 was down by 1 from the previous week.

Rig Count by Type: The number of vertical drilling rigs fell by 3 to 389, while the horizontal/directional rig count (encompassing new drilling technology that has the ability to drill and extract gas from dense rock formations, also known as shale formations) decreased by 11 to 1,382.

Gulf of Mexico (GoM): The GoM rig count was fell by 3 from its week-ago levels to 54.

Conclusion

A Key Barometer of Drilling Activity: An increase or decrease in the Baker Hughes rotary rig count heavily weighs on the demand for energy services – drilling, completion, production etc. However, our preferred pick in this group is Emerge Energy Services LP (NYSE:EMES-Free Report). The Southlake, Texas-based firm – carrying a Zacks Rank #2 (Buy) – has a solid secular growth story with potential to rise from the current level.

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