The Zacks Analyst Blog Highlights:PIMCO 1-5 Year US TIPS Index Fund, FlexShares iBoxx 5-Year Target Duration TIPS Index Fund, PIMCO 15 Year US TIPS Index Fund, TIPS Bond ETF and Lowe's
CHICAGO, May 20, 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 PIMCO 1-5 Year US TIPS Index Fund (AMEX:STPZ-Free Report), FlexShares iBoxx 5-Year Target Duration TIPS Index Fund (AMEX:TDTF-Free Report), PIMCO 15 Year US TIPS Index Fund (AMEX:LTPZ-Free Report), iShares TIPS Bond ETF (AMEX:TIP-Free Report) and Lowe's Companies Inc. (NYSE:LOW-Free Report).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
Here are highlights from Monday's Analyst Blog:
Forget Inflation Fears with These TIPS ETFs
Inflationary pressures have started bothering Americans lately as the cost of living in the U.S. has risen steadily on higher food and gas prices. Consumer prices rose 0.3% in April, reflecting the largest increase in 10 months, compared with 0.2% in March. Annual inflation matched the Fed's expected 2%.
On the other hand, producer prices recorded the largest increase in one and half years, rising 0.6% in April from 0.5% in March. On an annual basis, producer prices have risen 2.1%, above the Fed's projected 2% inflation. These data indicate that inflation is now picking up gradually in the country after being at levels below 2% for the past two years (read: Breakfast Turning Dearer: 3 ETFs to Pick).
This trend is likely to continue in the coming months on rising consumer demand, gradually improving economy, and accelerating job market. This is especially true as the U.S. economy added 288,000 jobs in April, representing the largest job creation in two years and unemployment reached the six-year low of 6.3% from 6.7% in March.
In order to combat inflationary fears, investors may want to consider securities that could benefit from a bout of inflation. Ultra-safe Treasury Inflation-Protected Securities (TIPS) ETFs offer solid protection against infaltion. Generally, TIPS not only combats increasing prices, it also protects income for the long term.
For an explanation, consider a fixed interest rate of 2.0% on 5-year TIPS with initial face value of $1,000. In the first six months when inflation is zero, the semi-annual interest payment would be $10 but when inflation rises 5% annually in the next six months, semi-annual interest rate would be $10.25 (1,025*2%-1/2 = 10.25).
This is because TIPS pays interest on an inflated-principal amount (principal rises with inflation) and in this case principal becomes $1,025 when the semi-annual inflation is accounted for. As a result, both principal amount and interest payments will go on rising with increasing consumer prices.
While there are several options in the space to tap the rising consumer prices, we have highlighted three that could be better picks for investors. With the economy and the job market gaining strength, inflation will definitely increase in the coming months, making these products compelling investments (see: all TIPS ETFs here):
PIMCO 1-5 Year US TIPS Index Fund (AMEX:STPZ-Free Report)
This fund provides short-term exposure to the TIPS market with effective maturity of 3.01 years. This is easily done by tracking the BofA Merrill Lynch 1-5 Year US Inflation-Linked Treasury Index. The ETF has amassed $1.3 billion in its asset base and charges a low annual fee of 20 bps. Volume is good as it exchanges about 121,500 shares a day.
Holding 13 securities in its basket, the ETF zeroes in on the top rated securities and has a lower interest rate risk with effective duration of 2.68 years. The fund is up 1.21% so far this year and has 5.34% in 30-Day SEC yield.
FlexShares iBoxx 5-Year Target Duration TIPS Index Fund (AMEX:TDTF-Free Report)
This ETF seeks exposure to the mid-term maturity of the TIPS market, holding 12 bonds in its portfolio. It follows the iBoxx 5-Year Target Duration TIPS Index and has accumulated $301.5 million in its asset base. Expense ratio came in at 0.20% while volume is relatively light at less than 46,000 shares.
Average maturity of the fund is 4.97 years while modified duration is 5.16 years. The ETF focuses on higher quality TIPS (AA+), suggesting a somewhat higher default risk than many other choices in the space. TDTF has returned 2.4% in the year-to-date time frame. However, yield is low with annual dividend yield of 0.17% and 30-Day SEC yield of 3.58%.
PIMCO 15 Year US TIPS Index Fund (AMEX:LTPZ-Free Report)
This fund targets long-term securities of the TIPS market by tracking the BofA Merrill Lynch 15+ Year US Inflation-Linked Treasury Index. In total, the product holds 7 bonds having effective maturity of 26.59 years and carries a high interest rate risk given effective duration of 20.13 years (read: Play Rising Rates with These ETFs).
In terms of credit quality, the fund boasts top-rated bonds from Moody's and the S&P, suggesting lower default risk. The ETF is less popular and less liquid with AUM of $76 million and average daily volume of under 10,000 shares. LTPZ has generated excellent returns of over 13% so far this year, and has 2.33% in annual dividend yield and 6.00% in 30-Day SEC yield.
iShares TIPS Bond ETF (AMEX:TIP-Free Report)
Investors seeking a diversified exposure to all term securities could find TIP an intriguing choice. This is the largest TIPS ETF in the space with AUM of $12.8 billion and average volume of more than 711,000 shares a day. It follows the Barclays U.S. TIPS Index and holds 39 securities in its basket.
The fund has a slight tilt toward mid-term securities as about 55% of the portfolio is allocated to this cap level, 25% to long term and the rest to short term, resulting in weighted average maturity of 8.54 years. The fund focuses on top-rated bonds with AAA credit ratings, suggesting minimal default risk while effective duration of 7.67 years indicates relatively higher interest rate risk for this popular fund (read: 5 ETFs for a Relaxed Retired Life).
It charges 20 bps in annual fees from investors and has added 4.8% in the year-to-date time frame. The fund also has 2.76% in annual dividend yield and 5.53% in 30-Day SEC yield.
Will Lowe's (LOW) Miss Earnings Estimates?
Lowe's Companies Inc. (NYSE:LOW-Free Report), a leading home improvement retailer, is set to report its first quarter fiscal 2014 results on May 21, 2014. Last quarter, it posted break even results. Let us see how things are developing for this announcement.
Growth Factors This Quarter
Lowe's is expanding in high-growth markets, which will bring significant opportunities to improve its sales and profitability. We remain positive on the company's strategic initiatives and expect its merchandising resets and focus on enriching customer-shopping experience to help generate higher sales. However, we remain concerned about Lowe's spending on big remodeling projects, which will likely remain under pressure until the housing market fully stabilizes, inventory levels normalize and consumer-spending rebounds.
Earnings Whispers
Our proven model shows that Lowe's Companies is likely to miss earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below.
Negative Zacks ESP: ESP (Expected Surprise Prediction) for Lowe's is -1.64%. This is because the Most Accurate Estimate stands at 60 cents whereas the Zacks Consensus Estimate stands at 61 cents.
Zacks Rank #4 (Sell): Lowe's Zacks Rank #4 when combined with a negative ESP makes an earnings beat unlikely. We caution against stocks with a Zacks Rank #4 and #5 (Sell-rated stocks) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today.
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros.
Get the full Report on STPZ - FREE
Get the full Report on TDTF - FREE
Get the full Report on LTPZ - FREE
Get the full Report on TIP - FREE
Get the full Report on LOW - FREE
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Logo - http://photos.prnewswire.com/prnh/20101027/ZIRLOGO
SOURCE Zacks Investment Research, Inc.
Share this article