Saturday, November 11, 2006
Volume 7, Issue 15

In This Issue:

1) Current Market Metrics - Mutual Fund Flows
2) Recent Blog Research Features
3) Viewing the Market
    A) How Democratic Wins Affect the Market, With Zacks Investment Research
    B) Apparel Providing Early Holiday Cheer, By Charles Rotblut
4) Feature Stock #1 - IndyMac Bancorp, Inc. (NDE)
5) Feature Stock #2 - Chesapeake Energy Corp. (CHK)
6) Additional Stocks - Worth a Further Look
    A) Steel Dynamics, Inc. (STLD)
    B) Apollo Group (APOL)
7) About VitalStocks.com
8) DISCLAIMER:  Use of this newsletter signifies your acceptance of this disclaimer.

 RSS Feed available: Fresh content each weekday http://feeds.feedburner.com/VitalstocksInvestingNewsletterDigest

This issue sponsored by...
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1) Current Market Metrics:

- NEW YORK -(Dow Jones)- Stock mutual funds saw an inflow of $3.36 billion during the week ended Wednesday, compared with an outflow of $839 million during the previous week, according to TrimTabs Investment Research estimates.

Source: http://www.nasdaq.com

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Independent Data on Fund Flows
Data As Of: 8 Nov 2006

- Including ETF activity, Equity funds report net cash outflows totaling -$3.033 billion in the week ended 11/8/06 with Domestic funds reporting net outflows of -$4.302 billion and Non-domestic funds reporting net inflows of $1.269 billion;

- Money Market funds report net cash inflows totaling $5.922 billion;

Source (Much more information available): http://www.amgdata.com/

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Visit our blog and share an article with a friend.

2) Recent Research Articles - Actionable investment research and commentary, unedited, straight from the pros.

2A)     (INDM) - United America Indemnity, Ltd - Consensus estimates for 2006 and 2007 have experienced considerable leaps over the past 30 days:

http://vitalstocks.com/blog/2006/11/indm-united-america-indemnity-ltd.html

2B)    (GMRK) - GulfMark Offshore, Inc - topped analysts’ earnings expectations in five out of the past eight quarters by an average margin of 67.2%:

http://vitalstocks.com/blog/2006/11/gmrk-gulfmark-offshore-inc-topped.html

2C)     (YUM) - YUM! Brands, Inc - 14 analysts submitted upward revisions over the past 30 days:

http://vitalstocks.com/blog/2006/11/yum-yum-brands-inc-14-analysts.html

2D)    (GIVN) - Given Imaging, Ltd - The company reported third-quarter results that beat expectations by 150%:

http://vitalstocks.com/blog/2006/11/givn-given-imaging-ltd-company.html

2E)    (FARO) - FARO Technologies, Inc - has blown away earnings estimates in the past three quarters by at least 83%:

http://vitalstocks.com/blog/2006/11/faro-faro-technologies-inc-has-blown.html

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3) Viewing the Market:  Financial analysts / journalists comment on the current stock market and future direction.

3A) How Democratic Wins Affect the Market, With Zacks Investment Research

EDITOR'S NOTE: This interview has been updated since it was first published.

From possible changes in negotiating drug prices for Medicare to possible future governmental regulations, we were interested in finding out how the shift in congressional power toward the Democratic Party will affect the overall stock market. Zacks writer Mark Vickery spoke with Senior Market Analyst Charles Rotblut, CFA and Director of Equity Research Dirk van Dijk, CFA for their impressions.

MV: We have about all of the mid-term election results in. What are your initial thoughts?

CR: The performance of the Democratic Party was a surprise. Democrats were expected to take control of the House, but not by such a notable margin. And winning control the Senate was within the realm of possibilities, but not a certainty.

The change in power is an interesting dynamic. We have a lame duck President, ideologues in both parties and real problems that cannot be solved overnight. The Democrats are going to need to get help from the other side of the aisle and find middle ground with the White House. Whether this can be done, however, is a big question.

DvD: Well, historically the markets have done much better when the Democrats have control than when the GOP does. The one exception to this is the opposite of what we have now – the market has done best when there is a Democratic President and a GOP Congress, rising at 9.6% per year. The worst of all worlds historically is what we just lived through, total GOP control, when it has gone up an average of only 1.5%. Historically, the combination of a GOP President and a Democratic Congress has led to average gains of 6.4% a year, or over 4x the gains seen under an all-GOP scenario. Thus I see the results as being very good news for the market going forward.

MV: Which industries do you expect will be the big winners and losers?

DvD: I think the pollution control industry will benefit from a lot more emphasis on issues like global warming than we had previously. Also, if we get a minimum wage increase passed, one really obvious beneficiary will be the teen retailers, like Abercrombie & Fitch (ANF). Because although quite a few heads of households are working at or near minimum wage, an awful lot are also suburban kids. For them, this is purely discretionary income that will go get spent at the mall.

As far as losers, I see tougher times ahead for the pharmaceuticals industry. We are likely to see a big effort to make the federal government able to negotiate prices for the new Medicare prescription drug plan, which could save the government tens of billions of dollars over the next several years. This will come right out of the hide of companies like Pfizer (PFE) and Eli Lilly (LLY).

CR: Democrats are likely to try and change laws to have more drugs imported from Canada. We’re already seeing a trend going on with major insurance HMOs pushing for the increased use of generics, and we’ve seen all kinds of brand-name prescription drugs come off-patent and cause increased competition from the generic drug companies. But some of these reactions we’re seeing in the market actually reflect underlying trends already going on outside the political spectrum; attributing them purely to politics might just be an easy place to lay the blame for a stock that might be declining.

MV: How do you see the energy industry being affected by the changes to congressional power?

CR: Certainly you should see some type of change – or at least a push for a change – in energy policy. This should have a net benefit for companies more focused on alternative fuels. But even if we see more of a push toward more environmentally friendly policy, it’s important to remember that the underlying factors supporting oil remain. Nigeria is still having problems, the Mid-East is still uncertain, and even with the Democrats in control of one or both houses of Congress, the simple fact is that the Bush administration still controls Iraq policy to large extent. And a lot of what’s going on in Iraq is out of U.S. control completely. So macro factors affecting oil should keep prices high, which is a net benefit for oil companies.

DvD: I don’t expect we’ll see on the energy front anything like a windfall profits tax, but an awful lot of special tax breaks that energy companies have gotten in the past might be taken away. Will the Democrats be able to do that over Bush’s veto or maybe graft it onto some much larger packages, which would require some serious negotiation? At the margin, we might see some of that happen, but I don’t expect anything really radical like a windfall profits tax on the energy industry. Oh, and I think ANWAR is dead, too, by the way.

MV: Are you expecting increased federal regulations with the increase in Democratic power?

DvD: Again, anything like that would have to get past a presidential veto. But what we do have is an awful lot of regulations already on the books that have been totally unenforced, because those who have been put in charge of enforcement really have no desire to enforce them. Take the mine safety industry, for instance – a top lobbyist for the mining industry heads that up. People like that might get their feet held to the fire, and they might decide that it’s just easier to do their jobs. So I don’t think there will be any new regulations written, but we should see a lot more oversight of the Administration.

CR: I think it’s likely we’ll actually see less regulation – really less laws, period – because I expect more gridlock in Congress, simply because there is likely to be more partisan bickering. We should keep in mind that we have a Bush White House that, from an ideological standpoint, is very much opposed to a Democratic Congress. I also think that Democrats coming in and trying to change too much too soon might suffer a backlash.

In the Senate, the Democrats have a very slim margin of control, so they are going to have to work to find middle ground.

MV: Any other passing thoughts on what the affects of the midterm elections might be?

CR: The question for the Democrats is, “Now that they’ve regained power, what will they do with it?” I think they will need to choose their steps carefully to give themselves the best opportunity to win back the presidency in two years. This will be mixed in with the inklings of some Democrats who want to take advantage of their new power and get their agenda across. But my guess is we’re going to see mostly stagnation coming out of government instead of new policy. It should be interesting to see how things play out in the next couple years.

DvD: I agree that the Democrats will want to show some accomplishments, and not be seen as just out for revenge. Still, they really have only about one third of the total power in Washington. With seven of the nine justices appointed by the GOP, I would count the Supreme Court as being basically in the GOP camp. The power the Democrats have is still mostly the power to block bad ideas from the GOP, rather than proactively advance most of their agenda.

There are areas where we will probably see things done. For example, on immigration Bush is actually closer to many Democrats than big parts of his own party. The Democrats can probably get a few items passed, like the minimum wage. However, they have positioned themselves as the party of fiscal responsibility, so don’t look for many big spending initiatives.

The other major power the Democrats will have is oversight and the ability to subpoena. We will probably see quite a bit of good political theatre in the form of hearings. Perhaps they’ll be able to better position themselves in 2008, but I don’t think they can just run roughshod and pass a whole laundry list of things they’d love to see get done.

Dirk van Dijk, CFA is the Director of Zacks Equity Research. Charles Rotblut, CFA is the Senior Market Analyst for www.zacks.com

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What do we pick?

VitalStocks newsletter presents the two best ideas from the commentary of the week.  Here is the secret:  We take all those ideas and compare each stock to various industry averages.

Professionals pay thousands of dollars per year for access to this information.  Our publishers feel some investors need to take a test drive before purchasing the investing newsletters of their choice.

Submit all comments or ideas: webmaster@vitalstocks.com

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3B) Apparel Providing Early Holiday Cheer, By Charles Rotblut

Clothing remains one of the most popular gifts and with only 46 shopping days left until Christmas (and 38 shopping days until Hanukkah), it is a good sign to see clothing manufacturers near the top of the Zacks Industry Rank list. At the very least, bullish reports from several companies in the Textile Apparel group gives us hope that we won’t find coal in the proverbial holiday shopping season stocking.

Among apparel manufacturers to have recently delivered bullish reports are Zacks #1 Rank stocks Crocs (CROX) and Guess (GES) and Zacks #2 Rank (“buy”) stock Under Armour (UARM).

Crocs generated third-quarter profits of 53 cents per share, 12 cents above expectations. Revenues soared 192% to $111 million thanks to still growing popularity of the company’s rubber clogs and the successful launches of new footwear products. Analysts raised their forecasts for 2006 by 27 cents to $1.53 per share.

Guess delivered third-quarter profits of $1.05 per share, 34 cents above expectations. Total revenues rose 31.3%, aided by an 8.6% jump in comparable store sales. Operating margins widened by 780 basis points. Both revenues and margins were aided by good demand in Europe, though North America remained an area of strength. Looking forward, the company predicted revenues would reach between $1.3 billion and $1.35 billion and earnings per share would total between $2.75 and $2.85 per share in 2007. Analysts raised their forecasts for both 2006 and 2007 to $2.28 and $2.84 per share, respectively, in response to the report and guidance.

Under Armour gave investors a treat on Halloween with third-quarter profits of 28 cents per share, three cents above expectations. Revenues grew 47.5% to $127.7 million as demand for the company’s performance athletic clothing continued to expand. Gross margins widened helping to offset the impact of higher general and administrative (G&A) expenses. UARM raised its net income guidance to a range of $38.5 million to $39.5 million. The company also expects that 2007 earnings will exceed its projected long-term growth rate of 20% to 25%. Not surprisingly, analysts raised their forecasts for both 2006 and 2007 full-year earnings. The new projections of 78 cents and 95 cents per share compare to pre-earnings report forecasts of 70 cents and 90 cents per share, respectively.

Santa’s preferred method of transportation is a sled, but investors might find more gifts among ship companies. Transportation-Shipping contains 11 Zacks #1 Rank stocks, including American Commercial Lines (ACLI) and Tidewater (TDW). Shipping rates appear to be holding up better than some analysts had predicted. Plus, the ability of oil to stay at elevated prices and worldwide economic expansion are providing a favorable backdrop for the industry.

American Commercial Lines recently reported third-quarter profits of 80 cents per share, beating the consensus estimate by 10 cents. Revenues rose 59% to $267 million, aided by price and volume increases in the company’s transportation segment. All of the covering analysts reacted to the report by raising their forecasts for both 2006 and 2007. The new full-year consensus estimates of $2.75 and $3.69 per share compare to the month-old forecasts of $2.45 and $3.44 per share.

Tidewater generated fiscal second-quarter profits of $1.55 per share, versus expectations for earnings of $1.34 per share. Vessel revenues rose nearly 37% to $271 million. Following the release of the report, analysts raised their forecasts for fiscal 2007 profits to $5.51 per share from $5.26 per share.

Earnings estimate revisions for companies within the Zacks Rank universe1 hit a three-month high this week. Using a four-week rolling period, a total of 11,380 profit forecasts have been revised for 2006. More notably, the ratio of the positive to negative revisions improved to 1.18, the highest since Aug 21, and the average growth rate2 improved to 21.4%.

The outlook for 2007 is basically unchanged. The average company is projected to grow earnings by 12.4%, which is within the range we have seen over the past four weeks.

Zacks Premium and ZacksAdvisor subscribers can view the Zacks Industry Rank List at http://www.zacks.com/zrank/zrank_inds.php. This interactive list allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. Shown below is the Zacks Sector Rank List, which shows the trend in estimate revisions on a broader scale.

Source: http://www.zacks.com

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4) Feature Stock #1 – IndyMac Bancorp, Inc. (NDE)

John Reese, editor of the Validea Hot List newsletter, updates investors on how well his Hot List portfolio has performed against the S&P 500. Take a look at the latest numbers. Then read about one of the additions to this featured expert’s portfolio. Afterward, learn about two more stocks from the Validea Hot List portfolio.

Validea Hot List Performance from October 20

Since the inception of the Validea Hot List, it has outperformed the S&P 500 by a wide margin - 171.8% versus 36.6%. Year-to-date, the Validea Hot List is up 22.5%, compared with a 9.5% gain by the S&P 500. Since John Reese and his team’s last newsletter two weeks ago, the Validea Hot List is up 1.9%, at a time the S&P 500 was up 1.0%.

An Addition to the Hot List

Thor Industries (THO) makes and sells recreational vehicles and smaller buses under such names as Airstream, CrossRoads, Dutchmen, Four Winds, Thor, Champion Bus and Goshen Coach.

This company is favored by three guru strategies. One of the gurus is Peter Lynch.

The Peter Lynch Strategy

Considered a "fast grower," Thor has a growth rate of 34.7 percent based on the average of the three, four and five year historical growth rates. Its P/E ratio is 14.74, giving it a P/E/G ratio (P/E relative to growth) of 0.42. That's great, as this strategy thinks a P/E/G of 0.50 or less is superb.

Also in its favor is a drop in the inventory-to-sales ratio. Though growth is high, management has demonstrated its ability to control inventories. That's impressive. Its EPS growth rate, already noted at 34.7 percent, is well within the Lynch strategy's desired range of 20 percent to 50 percent. And, as a final salute to Thor's desirability, it has no debt, which the Lynch strategy loves.

Other Hot List stocks include:

IndyMac Bancorp, Inc. (NDE) is the holding company for IndyMac Bank, F.S.B., a hybrid thrift/mortgage bank that originates mortgages in all 50 states of the United States. Indymac Bank provides financing for the acquisition, development, and improvement of single-family homes. Indymac also provides financing secured by single-family homes and other banking products to facilitate consumers' personal financial goals. The Company facilitates the acquisition, development, and improvement of single-family homes through the e-MITS (Electronic Mortgage Information and Transaction System) platform that automates underwriting, risk-based pricing and rate locking via the Internet at the point of sale. Indymac Bank offers mortgage products and services to meet the needs of both consumers and mortgage professionals. Indymac is structured to achieve synergies among its operations and to enhance customer service, operating through its two main segments, Mortgage Banking and Thrift.

Old Dominion Freight Line, Inc. (ODFL) is a less-than-truckload (LTL) multi-regional motor carrier providing timely one- to five-day service among five regions in the United States, and next-day and second-day service within these regions. The Company offers its products and services through four branded product groups: OD-Domestic, OD-Expedited, OD-Global and OD-Technology. As of March 1, 2006, it provided full-state coverage to 37 of the 46 states that it served directly within the Southeast, South Central, Northeast, Midwest and West regions of the United States. Through marketing and carrier relationships, the Company also provides service to and from the remaining states, as well as international services around the globe.

This article highlights the commentary of John Reese for the Zacks.com audience. John Reese provides insightful analysis, market commentary, and favorite recommendations on a timely basis in "The Validea Hot List" newsletter. Try it free for 30 days and see if you can improve your investment performance. Learn more about "The Validea Hot List" and 30-Day Free Trial. And get immediate access to current issues and special reports. Click here now.

Here’s How You Can Profit from the Pros
Find out what other leading experts are saying about the market. And what stocks they are recommending. For free. Just sign up for our free email newsletter, Profit from the Pros, where we’ll give you the commentary, advice, and insight from those rare few experts who consistently beat the market year in, year out.

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Actionable, Professional Research updated daily

Our daily professional research content blog is up and running.  We post new research daily.  See it here:  http://www.vitalstocks.com/blog/index.html

 RSS Feed available: Fresh content each weekday http://feeds.feedburner.com/VitalstocksInvestingNewsletterDigest

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VitalStocks.com Research Summary:
Data as of: 9 Nov

Price / Cash Flow Ratio is 35.2% of the Industry Average.

Forward Price to Earnings Growth (PEG): 0.29

Debt / Equity Ratio is 160.4% of the Industry Average.

Net Profit Margin is 139.2% of the Industry Average.

Return on Equity is 117.7% of the Industry Average.

Current P/E Ratio is 62.1% of the Industry Average.

5-Year Avg. Pre-Tax Profit Margin: 136.5% of the Industry Average.

Price/Sales Ratio is 38.2% of the Industry Average.

Income Per Employee is 90.7% of the Industry Average.

MSN Money Price Target:  http://moneycentral.msn.com/investor/research/wizards/srwtarget.asp?Symbol=chk

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5) Feature Stock #2 – Chesapeake Energy Corp. (CHK)

Jack Adamo, editor of the Insiders PLUS newsletter, updates investors on where his Insiders Plus Model Portfolio stands. Then find out what happened to a couple of energy stocks after their earnings reports came out. Afterward, read about two more of Adamo’s holdings that recently reported quarterly results.

Commentary from October 28

This week Jack Adamo and his team fought to a draw. After beating the market three of the last four weeks, their Insiders Plus Model Portfolio gained 0.6% this week, which matched the average gain of the three major indices. Adamo’s team will need a strong finish if they are to extend their 5-year streak of beating the market. Adamo won’t be too upset if they don’t, as long as they make a respectable showing. Right now, they have a lot of ground to make up, but Adamo will be surprised if the market holds all its current gains after the elections.

Adamo and his team’s mining and energy stocks have had anywhere from good to great moves in the last month. Peabody Energy Corp. (BTU) is up 22%; Companhia Vale do Rio Doce (RIO) is up about 20%, and most others are up at least 10%. Meanwhile, the broader market continued to rise, but at a much slower pace.

The question for Adamo and his team now is: Are their stocks just rising with the market, but with a little extra bounce, or, is the broader market topping out, and their "anti-market" portfolio reasserting the ascendancy it's held for nearly 3 years? It’s too early to tell, but if we get another $3 rise in oil prices, like we had this week, Adamo will bet the ranch on this team. It’s certainly not out of the question.

Earnings Season

None of Adamo and his team’s regular energy companies reported earnings this week, but their two alternates, Apache Corporation (APA) and Chesapeake Energy Corp. (CHK) did.

Apache shares sank 2.3% on somewhat disappointing earnings. Its much lower realized natural gas prices were the main culprit in a 6% drop in net EPS. Nonetheless, the company will have a record year in terms of production and financial results.

Chesapeake blew away estimates, surprising everyone except Adamo. Apparently no one on Wall Street knows how to read a hedge table. As Adamo has been saying for months, Chesapeake hedged 80% of its 2006 natural gas output at more than $9 per mcf. Hence, the company’s average realized price came in at over $8 -- up 26% from last year.

Outside of the oil patch, two of Adamo and his team’s companies reported very different results, but both got the same rude treatment. Meanwhile, another of their holdings significantly reduced its revenue projections for this year and next, but the stock rose 3.3%.

This is actually not as bizarre as it sounds. It means the rally is starting to narrow again. Stocks that have had a good year are getting the benefit of the doubt, but those that have struggled are given short shrift if the slightest thing is not perfect. Let’s get down to specifics.

AVON UPDATE

On the weak side, Avon Products Inc. (AVP) had a pretty ragged earnings report. There were shortfalls in many areas, partially offset by strong revenue gains in China, Turkey and South America. Unfortunately, start-up expenses in China resulted in a loss there, and the continuing cost of the company’s reorganization resulted in a net profit of only 19¢ a share, compared with last year’s 35¢.

Adamo is comfortable with the restructuring. Total costs to implement it should be in the range of $500 million, but annual savings are expected to exceed $300 million when fully realized. That’s a good return; it will pay off in less than two years. The company announced a couple of new initiatives as well. One is a reduction in skews, or number of items carried; the other is a consolidation of its supply chain.

Adamo likes both new initiatives, although they will cost more money in the short term. Product obsolescence was costing the company $65 million to $85 million annually. By reducing skews, the company lowers overhead and sharpens the focus of its sales channels. By reducing its number of suppliers, the company simplifies logistics, and can negotiate better pricing, due to the higher volumes purchased from each source.

A good chunk of the savings garnered this quarter went into more advertising, and that should continue for 2007. This is money well spent to restore Avon’s dominant position in its market.

All and all, it was a pretty ugly earnings report if you just looked at the topline numbers, but the company is doing all the right things to get back on the growth track. Adamo is very sanguine about its outlook over the next few years. He is even considering doubling his team’s position in the stock, if the market has a significant pullback this winter.

MONTPELIER UPDATE

Montpelier Re Holdings (MRH) came down on the other side of the earnings spectrum. It had good margins and expenses and delivered great net EPS and return on equity. Still, the stock was kicked for a 6.1% loss for the week because the company didn’t retain enough net policy premiums to satisfy analysts. In other words, it played it safe, reduced its risk by retaining fewer policies in dangerous regions, and still made a very handsome profit, but Wall Street threw a tantrum. Because the company is coming off a bad year, analysts are seeing the glass as half empty, when in fact, it’s 90% full.

Montpelier earned 86¢ for the quarter, compared to a huge loss last year, due to Katrina, etc. For the nine-month period, the firm netted $1.95/share. If it doesn’t earn another penny for the rest of the year, the stock is selling at 9-times earnings.

This article highlights the commentary of Jack Adamo for the Zacks.com audience. Jack Adamo provides insightful analysis, market commentary, and favorite recommendations on a timely basis in "Insiders PLUS" newsletter. Try it free for 30 days and see if you can improve your investment performance. Learn more about "Insiders PLUS" and 30-Day Free Trial. And get immediate access to current issues and special reports. Click here now.

Here’s How You Can Profit from the Pros
Find out what other leading experts are saying about the market. And what stocks they are recommending. For free. Just sign up for our free email newsletter, Profit from the Pros, where we’ll give you the commentary, advice, and insight from those rare few experts who consistently beat the market year in, year out.

==============================================

Actionable, Professional Research updated daily

Our daily professional research content blog is up and running.  We post new research daily.  See it here:  http://www.vitalstocks.com/blog/index.html
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VitalStocks.com Research Summary:
Data as of: 9 Nov

Price / Cash Flow Ratio is 41.3% of the Industry Average.

Forward Price to Earnings Growth (PEG): 0.67

Debt / Equity Ratio is 0.0% of the Industry Average.

Net Profit Margin is 97.7% of the Industry Average.

Return on Equity is 179.4% of the Industry Average.

Current P/E Ratio is 39.8% of the Industry Average.

5-Year Avg. Pre-Tax Profit Margin: 105.6% of the Industry Average.

Price/Sales Ratio is 43.5% of the Industry Average.

Income Per Employee is 69.9% of the Industry Average.

MSN Money Price Target:  http://moneycentral.msn.com/investor/research/wizards/srwtarget.asp?Symbol=nde

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6) Additional Stocks - Worth a Further Look

6A) Steel Dynamics, Inc. (STLD)

Steel Dynamics, Inc., has exceeded earnings estimates in four consecutive quarters. Year-over-year growth exceeded 130% in its latest quarter. Six analysts have raised their estimates for this year, while four have done so for next year. Over the past 30 days, this year's estimates have increased 27 cents to $7.49 per share. The company sports a return on equity (ROE) of 34%, ahead of the industry average of 28%.

Full Analysis

Steel Dynamics, Inc. (STLD) is a steel manufacturing company in the United States. The company operates in two segments: steel operations and steel scrap substitute operations. STLD's customer base includes steel service centers, pipe and tube producers, original equipment manufacturers, steel fabricators, cold finishers, forgers and intermediate processors.

In mid-October, the company said third-quarter profit more than doubled on an 83% increase in revenue. Steel Dynamics earned $118.7 million, or $2.17 per share, compared with $45.4 million, or 92 cents per share, for the same quarter in 2005. Revenue grew to $911.9 million from $498.7 million in the year-ago period. Analysts expected $2.10 per share.

STLD stuck with its fourth-quarter profit prediction of $2.10 to $2.20 per share, although the company expects shipping volume to be lower in the quarter because of planned maintenance. Analysts, on average, expect fourth-quarter profit of $1.99 per share for Steel Dynamics. As would be expected, the CEO had great things to say about the quarter: "The third quarter was an excellent quarter, setting company records for revenue and earnings," said Keith Busse, President and CEO of Steel Dynamics. "Three of our steel-making divisions, Structural and Rail, Engineered Bar Products, and the Roanoke Bar division, set new tonnage shipping records in the third quarter.”

The company said this week its board approved a 2-for-1 stock split. The split will be paid through a stock dividend. It will double the number of authorized common shares to 200 million, up from 100 million. The company expects to distribute the shares on, or around, Nov. 20. to shareholders on record as of Nov. 9.

STLD has exceeded earnings estimates in four consecutive quarters. Year-over-year growth exceeded 130% in its latest quarter. Six analysts have raised their estimates for this year, while four have done so for next year. Over the past 30 days, this year's estimates have increased 27 cents to $7.49 per share. The company sports a return on equity (ROE) of 34%, ahead of the industry average of 28%.

The stock is cheap at 8x this year's estimates of $7.49 per share. This is below the company's projected long-term growth rate of 10.33%, giving the stock a PEG ratio of 0.78.

Content Courtesy: Zacks Investment Research

#1 Ranked Stocks Highlight Archive
To truly take advantage of the Zacks Rank, you need to first understand how it works. That is why we created the special report: Zacks Rank Guide: Harnessing the Power of Earnings Estimate Revisions.

http://vitalstocks.com/blog/2006/11/stld-steel-dynamics-inc-exceeded.html

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6B) Apollo Group (APOL)

Paul Tracy, editor of the StreetAuthority Market Advisor newsletter, outlines the differences between real turnaround candidates versus the value traps that have little chance of recovery. Take a look at this featured expert’s commentary. Then read Tracy’s analysis of one of his corporate turnaround plays.

FEATURE ARTICLE from October 31

Winners and Losers

Not all corporate turnaround stories pan out. When once-great companies are unable to adapt to changing market conditions, they can eventually fail.

A perfect example of this is Polaroid. The company's instant camera was tremendously popular in the 1970s, and Polaroid stock gained steadily throughout the decade. But the firm failed to adapt to new innovations -- digital cameras and other instant photography technologies eroded Polaroid's market. The company ultimately went bankrupt in 2001.

Fortunately for investors, there are ways to separate the real turnaround candidates from the value traps that have little chance of recovery. While turnaround candidates certainly don't have to exhibit all of these traits to be successful, these are some of the key factors Paul Tracy and his team look for:

Low Debt or Debt Reduction -- Companies with enormous debt loads generally have a much harder time turning around their operations. Significant debt burdens lead to high interest bills and less cash available to fund restructuring initiatives. In addition, companies with too much debt are more likely to go bankrupt, particularly when the economy slows down and overall business conditions deteriorate.

When searching for turnaround candidates, Tracy and his team look for firms that already have relatively low debt loads. A good rule of thumb is to focus on stocks with debt-to-equity ratios (total debt divided by shareholder's equity) of less than 50%.

Alternatively, if a firm does carry a higher debt load, then Tracy and his team prefer to focus on companies that have a viable plan for repaying their debt as part of their restructuring initiative. Carlos Ghosn, for example, made debt repayment the centerpiece of his turnaround plan; he started paying down debt almost immediately after joining Nissan.

New Management Team -- Some companies, such as Apple Computer, have managed successful turnarounds without a management shake-up. But in many cases, a new management team is key to the recovery of fallen angels.

Oftentimes older firms fall into a rut -- even quality, longstanding managers can fail to see new opportunities or adapt to changing conditions. For example, Nissan's management team clung to the traditional practice of lifetime employment even after it became clear that labor costs were too high for the company to survive. While the system promoted extreme employee loyalty and high quality in the 1980s, it wasn't compatible with the weak Japanese economy of the mid-1990s.

A new management team with a fresh focus can often reinvigorate companies that have lost their way. In Nissan's case it took a total outsider -- a foreigner with limited business experience in Japan -- to see what changes needed to be made.

Long Operating History -- The best turnaround candidates are often older firms with a long operating history. Such firms have proven that they have a successful, workable business model; most have simply lost their way in the short run due to mismanagement or a failure to adapt to new business conditions.

By contrast, relatively new companies that are financially distressed or underperforming may simply not be solid, viable businesses. Such firms have not yet established their business models and brand names. Thus, it's much harder to know if less-established firms will successfully turn things around.

Divestments -- Like Tyco, some of the best turnaround candidates are firms that divest or sell off underperforming business units.

Sometimes ambitious management teams will enter ventures outside a company's core business. Expansion and business diversification aren't necessarily bad moves. But excessive expansion into unrelated business lines can divert management's focus away from its core business. And if a company's main business lines and products are ignored too long, then performance can clearly suffer. In addition, even the largest companies have only a limited supply of funding to invest in various business lines -- over-expansion can starve key product and business lines of precious capital.

One of the easiest ways to turn around an underperforming firm is to sell off or simply eliminate these non-core businesses and unprofitable products. This allows a firm to re-focus attention and available capital on its most profitable markets.

Cost-Cutting -- The best turnaround plans usually involve some degree of cost-cutting. In fact, cutting out unnecessary or unproductive costs is one of the fastest ways for companies to boost profitability.

A key component in cost cutting usually involves a firm's labor force. Older firms often develop bloated labor costs and unnecessary overhead. By reducing employee counts or benefits, management can quickly trim these excessive costs. Meanwhile, some companies can cut costs and boost efficiency by redesigning manufacturing processes or simply refinancing debts.

New Products, New Markets -- As companies mature and expand, they often come to saturate their core markets. Earnings and revenue growth tend to slow when this happens.

But just because a company's traditional markets are maturing doesn't mean it can't grow. For example, under Ghosn, Nissan was able to expand aggressively overseas by designing car models to appeal specifically to American and European consumers. And in Motorola's case, the company reinvented itself as a designer of popular mobile telephone handsets rather than building its semiconductor chip business. Rapid expansion into this new market helped Motorola reignite its growth.

With these points in mind, Tracy and his team recently spent countless hours combing the investment landscape in search of compelling corporate turnaround plays. In the text that follows, they profile one stock that fits the bill.

Apollo Group (APOL), Business Overview

Apollo Group runs the largest private university in the U.S. The company is best known for its University of Phoenix (UOP) unit, which offers both online and campus-based education to more than 320,000 students. In addition to the main UOP brand, Apollo targets younger students with its Axia division; students in this division can acquire an associate degree in a wide variety of course disciplines.

Turnaround Plan

Apollo was truly an impressive performer from 2000 through early 2004, returning roughly +1,000% over this period.

But over the past two-and-a-half years, Apollo has stumbled. Specifically, the company has suffered from declining growth in new student enrollments, as well as a falling retention rate. Thanks to a string of negative surprises, shares of APOL have tumbled more than -65% from their early 2004 highs.

But there's reason to believe APOL can turn around its business. The company has absolutely no debt, and while growth has slowed, APOL still generates more than $500 million per year in free cash flow. In addition, the company sports a near 30% operating margin. While growth may have stumbled, Apollo is still a highly profitable business.

Moreover, APOL is taking some important steps to address its falling enrollment growth and faltering retention rate. First, the company has greatly stepped up its marketing and promotional efforts. At the beginning of January, APOL employed 3,500 "enrollment counselors" -- employees who help promote APOL's courses to students who have expressed interest. By the end of September, APOL had boosted its base of enrollment counselors to more than 4,300. In addition, APOL has stepped up its marketing on both Ad.com and Monster.com. These two sites are frequented by working adults -- the very demographic that Apollo and University of Phoenix target.

On the retention front, Tracy and his team like APOL's long-term strategy with its Axia subsidiary. While the UOP division targets older adults, Axia is aimed at young adults that are 18-23 years old. Axia offers associate degrees at a much lower cost than a degree at University of Phoenix.

APOL has found that nearly half of Axia students go on to enroll in UOP after completing their studies. This conversion rate is rising rapidly, thereby increasing the pool of probable students for University of Phoenix. Even better, more than 90% of Axia students who enroll in UOP go on to finish their degrees at UOP. This retention rate is far higher than the company average.

Meanwhile, a recent management shake-up may also help breathe some vigor into Apollo's turnaround plan. APOL's President, Brian Mueller, was appointed to his role at the beginning of January. Mueller is heading up the company's turnaround plan, and Tracy’s team sees the management shuffle as another positive for APOL.

This article highlights the commentary of Paul Tracy for the Zacks.com audience. Paul Tracy provides insightful analysis, market commentary, and favorite recommendations on a timely basis in "StreetAuthority Market Advisor" newsletter. Try it free for 30 days and see if you can improve your investment performance. Learn more about "StreetAuthority Market Advisor" and 30-Day Free Trial. And get immediate access to current issues and special reports. Click here now.

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