Author Archives: Scalper1

6 Mutual Funds To Buy As Russell 2000 Outperforms

Over the past one-month period, the major U.S. benchmarks witnessed a positive trend that helped most of them to register gains. Among these, the Russell 2000, which tracks the performance of small-cap stocks, clearly emerged as the top performer in the last one month. While the Dow, the S&P 500 and the Nasdaq gained 2.6%, 2.7% and 2.6%, respectively, in the past one month, the Russell 2000 increased 6.5% during the same period. In line with the performance of the small-cap index, the small-cap mutual funds also registered healthy returns – higher than the large- and mid-cap ones. Small-cap mutual funds posted an average return of 6% in the last one month, while the large- and mid-cap funds registered average gains of 3.3% and 4.4%, respectively. Moreover, small-cap funds have gained 2.4% in the year-to-date frame, beating their large-cap counterparts, which gained only 1.7%. Against this backdrop, investing in small-cap funds may prove to be a profitable strategy for risk lovers. Factors Boosting Small-Cap Funds Oil Rally Despite the disappointment in the Doha meeting, crude prices continued their rally, which emerged as one of the major reasons for the impressive performance by the U.S. benchmarks. Though the much-vaunted meeting of the major oil producing countries in Doha on production freeze failed to produce favorable results, its impact on crude was lesser than expected. Continuing decline in the U.S. rig count and oil production helped oil prices to post gains for the third straight week. Recently, Baker Hughes (NYSE: BHI ) reported that U.S. oil rig count posted its fifth straight weekly drop, declining from 351 to 343. Meanwhile, the U.S. Energy Information Administration (EIA) reported that domestic crude output fell by 24,000 barrels per day (bpd) to 8.953 million bpd for the week ended April 15. U.S. crude output declined for the sixth consecutive week. Encouraging Economic Data Moreover, some of the encouraging economic data had a positive impact on investor sentiment. The ISM manufacturing index increased from 49.5% in February to 51.8% in March, surpassing the consensus estimate of 50.8%. The ISM Services Index increased from 53.4% in February to 54.5% in March, witnessing its highest level in the last three months. Meanwhile, better-than-expected jobs addition, rise in wages and falling initial claims point to continued improvement in the labor market. While the U.S. economy generated 215,000 jobs in March and average hourly earnings increased 0.3% last month to $25.39, initial claims for the week ending April 16 continued to decrease to reach a record low since 1973. Separately, the Consumer Confidence Index advanced to 96.2 in March from 92.2 in February and was also higher than the consensus estimate of 94.9. Meanwhile, each of the 12 districts indicated moderate growth in economic activity, according to the Fed’s Beige Book. These positive economic data indicate that the U.S. economy is on a path of recovery. 6 Small-Cap Funds to Buy Though small-cap funds are believed to have a higher level of volatility compared to their large- and mid-cap counterparts, they show greater growth potential when markets see an uptrend and continued domestic economic improvement. This is because small-cap stocks are closely tied to the domestic economy and have less international exposure, making them safer bets than their large- and mid-cap counterparts in a sluggish global growth environment. Hence, risk-loving investors can pick these funds to gain from the current encouraging environment. In this scenario, we highlight two mutual funds from each of the three small-cap categories – growth, blend and value – that either have a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund. Besides having impressive one-month returns, these funds also have strong three-year annualized returns. The minimum initial investment is within $5000. Also, these funds have a low expense ratio and carry no sales load. Small-Cap Growth – One-month return of 6.9% Ivy Small Cap Growth Fund (MUTF: WSCYX ) invests a large chunk of its assets in common stocks of companies having market capitalization similar to those included in the Russell 2000 Growth Index. Currently, WSCYX carries a Zacks Mutual Fund Rank #2. The product has one-month and three-year annualized returns of 8% and 9.4%, respectively. Annual expense ratio of 1.30% is lower than the category average of 1.31%. Oppenheimer Discovery Fund (MUTF: ODIYX ) primarily focuses on acquiring common stocks of domestic companies having impressive growth prospects. Currently, ODIYX carries a Zacks Mutual Fund Rank #1. The product has one-month and three-year annualized returns of 7.2% and 9%, respectively. Annual expense ratio of 0.86% is lower than the category average of 1.31%. Small-Cap Blend – One-month return of 5.6% Fidelity Stock Selector Small Cap Fund (MUTF: FDSCX ) invests the lion’s share of its assets in common stocks of companies with market capitalization within the universe of the Russell 2000 Index or the S&P SmallCap 600 Index. Currently, FDSCX carries a Zacks Mutual Fund Rank #1. The product has one-month and three-year annualized returns of 5.5% and 8.3%, respectively. Annual expense ratio of 0.76% is lower than the category average of 1.22%. USAA Small Cap Stock Fund (MUTF: USCAX ) invests most of its assets in equity securities of domestic small-cap companies. Currently, USCAX carries a Zacks Mutual Fund Rank #2. The product has one-month and three-year annualized returns of 5.9% and 7.8%, respectively. Annual expense ratio of 1.15% is lower than the category average of 1.22%. Small-Cap Value – One-month return of 5.5% American Century Small Cap Value Fund (MUTF: ASVIX ) invests heavily in securities of companies having market capitalization identical to those listed in the S&P Small Cap 600 Index or the Russell 2000 Index. Currently, ASVIX carries a Zacks Mutual Fund Rank #2. The product has one-month and three-year annualized returns of 7.4% and 8.4%, respectively. Annual expense ratio of 1.24% is lower than the category average of 1.31%. CornerCap Small-Cap Value Fund (MUTF: CSCVX ) invests a major portion of its assets in equity securities of small-cap companies located in the U.S. Currently, CSCVX carries a Zacks Mutual Fund Rank #1. The product has one-month and three-year annualized returns of 7% and 13%, respectively. Annual expense ratio of 1.30% is lower than the category average of 1.31%. Original Post

Fortinet Crushes Q1 Model; Faces Palo Alto, Cisco With Platform Bet

Fortinet ( FTNT ) topped Wall Street’s Q1 views late Tuesday and threw down a platform gauntlet with a “Security Fabric” that could challenge Palo Alto Networks ( PANW ) and Cisco Systems ( CSCO ), a Dougherty analyst said Wednesday. In afternoon trading on the stock market today , Fortinet stock was up 7.5%, at a four-month high above 33. Shares of fellow cybersecurity firm Barracuda Networks ( CUDA ), meanwhile, were up 17%, at a three-month high near 18, after that company late Tuesday posted a fiscal Q4 and fiscal 2016 beat. But Summit Research analyst Srini Nandury says Barracuda has “too many moving parts” and won’t survive a mass small- and medium-business exodus to cloud products from the likes of Microsoft ( MSFT ) and Amazon.com ’s ( AMZN ) Amazon Web Services. Fortinet Tops On Service Revenue For Q1 ended March 31, Fortinet reported $284.6 million in sales and 12 cents earnings per share minus items, up a respective 34% and 50%, vs. the year-earlier quarter, and topping the consensus for $273.4 million and 9 cents. Billings flew 30% to $330.5 million, above Fortinet’s earlier guidance for $315 million to $322 million. Dougherty analyst Catharine Trebnick credited Fortinet’s sales beat to $160 million in service sales vs. expectations for $150.3 million. Billings from FortiSandbox, which offers advanced threat protection and virtual software, jumped 270% year over year. Bundling also helped drive outperformance, Trebnick wrote in a research report. Fortinet is pushing its “Security Fabric,” which attempts to holistically combine Fortinet’s products under “a single pane of glass.” “We believe this strategy could help incrementally improve margins and would generate more sticky revenue for the company from their SaaS components,” she wrote. “It remains to be seen whether they can outperform competitors such as Palo Alto Networks and Cisco Systems.” Trebnick boosted her price target on Fortinet stock to 40 from 38 and reiterated a buy rating. For Q2, Fortinet guided to sales of $301 million to $306 million, up 27% at the midpoint, and EPS ex items of 14 cents. Billings guidance for $365 million to $370 million would be up 24% at the midpoint. The consensus of 33 analysts polled by Thomson Reuters called for $300.8 million in sales and 15 cents EPS ex items. Barracuda SMB Customers ‘Hijacked’ Barracuda topped Wall Street’s billings and sales views for the first time in four quarters, William Blair analyst Jonathan Ho noted in a report. He reiterated his market perform rating on Barracuda stock, but questioned whether the company could survive the cloud transition. “The Barracuda story looks to have fundamentally changed, with the core value proposition of delivering IT solutions at low cost and complexity to SMB customers being hijacked by public cloud providers,” he wrote. For fiscal Q4 ended Feb. 29, Barracuda reported $83.7 million in sales and 15 cents EPS minus items, up a respective 16% and 114% vs. the year-earlier period, beating the consensus for $80.9 million and 8 cents. Billings were flat at $95.8 million. The company wrapped fiscal 2016 with $320.2 million in sales, 42 cents EPS minus items and $377.5 million in billings, up 15%, 50% and 4%, respectively. Sales and EPS flew past the consensus model of 16 analysts polled by Thomson Reuters for $317.3 million and 35 cents. But fiscal Q1 is expected to decelerate markedly on a year-over-year basis. For the current quarter, Barracuda guided to $83 million to $85 million in sales, 10-11 cents EPS minus items and $94 million to $96 million in billings, up 8%, 2% and 1%, respectively, at the midpoints.

5 Key Takeaways From Apple’s Unsettling Q2 Earnings Report

Apple ’s ( AAPL ) fiscal second-quarter earnings report was a real downer. Every major metric was down for the former growth company, including revenue, earnings, gross margin, iPhone sales, iPad sales and Mac sales. Also down is Apple stock, which tumbled as much as 8.3% Wednesday after the company’s unsettling Q2 report late Tuesday. Apple stock was down more than 6%, below 98, in afternoon trading in the stock market today . Shares dived through their 50-day moving average price line, a key support level. IBD’s Take: How healthy is Apple stock? Find out at IBD Stock Checkup Apple earned $1.90 a share, down 18% year over year, on sales of $50.56 billion, down 13%, in its fiscal Q2 ended March 26. Analysts on average expected Apple to earn $2 a share on sales of $51.97 billion. For the current Q3, Apple is targeting sales of $42 billion, well below Wall Street’s forecast of $47.32 billion. In Q3 2015, Apple reported revenue of $49.6 billion. Apple’s gross profit margin dipped to 39.4% in Q2 vs. 40.8% a year earlier. Apple expects its gross margin to decline again this quarter, to 37.5%-38%. At least 12 financial analysts cut their price targets on Apple stock following the earnings news. One analyst, Oppenheimer’s Andrew Uerkwitz, lowered his rating on Apple stock to perform from outperform. Here are five key takeaways from Apple’s fiscal Q2 report: 1. iPhone Sales Forecasts Fall Apple topped estimates for iPhone sales in the March quarter, but still saw its first-ever year-over-year decline in units. It sold 51.19 million iPhones in fiscal Q2, down 16%. Wall Street was looking for Apple to sell about 50 million iPhones. But Apple signaled a similar percentage decline in iPhone sales for the June quarter. The company plans to lower iPhone sales channel inventory by $2 billion, or about 3 million units, in fiscal Q3. Apple’s Q3 guidance implies iPhone sales of about 38 million units vs. consensus estimates for 44.1 million, Canaccord Genuity analyst Michael Walkley said. In Q3 2015, Apple sold 47.5 million iPhones. “We believe overall weaker-than-expected iPhone demand, continued U.S. dollar strength and customers waiting to upgrade to iPhone 7 contributed to the weak guidance,” Walkley said in a research report. Bernstein analyst Toni Sacconaghi said the iPhone guidance is “sobering,” given that Apple just launched a lower-cost smartphone, the iPhone SE, which the company says is seeing “very strong” demand. The iPhone SE, which starts at $399, could be cannibalizing sales of Apple’s premium smartphones, namely the flagship iPhone 6S series. The SE features top-of-the-line components, but a smaller, 4-inch display. Oppenheimer’s Uerkwitz says iPhone sales will remain weak until the launch of the rumored iPhone 8 in late 2017. He says the upcoming iPhone 7 won’t offer enough compelling features to spur upgrades. The iPhone 8 is likely to feature an OLED display, new camera designs and support for mobile virtual reality headsets. Apple CEO Tim Cook said iPhone sales remain “healthy and strong.” Apple’s iPhone business accounted for 65% of the company’s total revenue in Q2. Apple continues to see a high level of people switching from Android smartphones, he said on the firm’s earnings conference call with analysts. He added that Apple is attracting many first-time smartphone buyers and people upgrading from older iPhones. Lower iPhone sales are the result of macroeconomic issues and difficult comparisons to the “extraordinary” iPhone 6 cycle, which met a pent-up demand for larger-screen iPhones, Cook said. 2. India Next Big Smartphone Market Apple sees big opportunities for iPhone sales in India, Cook said. But the populous country has lagged in its deployment of faster wireless networks, namely LTE. India’s LTE rollout began in earnest only this year. “We’ll begin to see some really good networks coming on in India,” Cook said. “That will unleash the power and capability of the iPhone in a way that an older network, a 2.5G or even some 3G networks, would not do.” Another hurdle that Apple faces in India is retail distribution. In India, mobile phones are sold in many small shops, not through wireless carriers like in the U.S. “I view India as where China was maybe seven to 10 years ago,” Cook said. “I think there’s a really great opportunity there.” IPhone sales in India grew 56% in Q2. Meanwhile, iPhone sales in China stalled last quarter. Apple’s total revenue from Greater China, including Taiwan and Hong Kong, tumbled 26% to $12.49 billion in Q2. 3. Services Now Apple’s No. 2 Business Apple’s service unit, which includes the App Store, Apple Music, Apple Pay and iCloud, saw sales rise 20% to $5.99 billion in Q2. It is now the company’s second-largest business segment after the iPhone, topping the declining iPad and Mac businesses. Apple’s App Store revenue was up 35% to an all-time record. Apple Music grew to over 13 million paying subscribers. “We feel really great about the early success of Apple’s first subscription business, and our music revenue (including iTunes) has now hit an inflection point after many quarters of decline,” Cook said. Services represented 12% of Apple’s total revenue last quarter. Apple’s services have much higher margins than the company average, Piper Jaffray analyst Gene Munster said in a report, “likely 60% or higher at the gross level and in the high-40% range moving to 50% at the operating level.” The main function of Apple’s services, however, is to drive hardware sales, UBS analyst Steven Milunovich pointed out in a report. “Services’ main function is to create the ecosystem that allows Apple to charge premium hardware prices,” Milunovich said. 4. Apple’s Declining Gross Margins A Concern Profit margins are “the Achilles’ heel” of Apple stock, BTIG analyst Walter Piecyk said in a report. The maturing smartphone market and the launch of the lower-margin iPhone SE could pressure already declining gross margins. “Bulls would argue that nothing in the consumer electronics history has been like the iPhone and that margin will sustain,” he said. “If investors start doubting that, it could be an incremental problem for the stock.” At the midpoint of its guidance, Apple expects its gross margin to decline to 37.8% in the current quarter, from 39.7% in the year-earlier period. 5. R&D Spending Up As Apple Plans For Next Big Thing Apple is investing heavily in research and development for future products. The company’s R&D spending is likely to rise 21% to $10.3 billion in calendar 2016, Piper Jaffray’s Munster said. “We believe Apple is experimenting with a car (Project Titan) as well with virtual and mixed reality,” Munster said. “While we believe VR/MR is the future of screens, it will likely be directly cannibalistic to iPhone. Therefore, the best candidate to significantly move the needle from where we are today over the next decade is the car, but we note that neither project is likely to change the question about long-term growth over the next few quarters.” With Apple posting its first year-over-year decline in sales since 2003 in Q2, the pressure is on Cook to find a new sales driver, FBN Securities analyst Shebly Seyrafi said in a note. “We are concerned that, over four years since assuming the CEO position in late 2011, CEO Tim Cook has not delivered any real transformative products,” Seyrafi said. The Apple Watch, introduced a year ago, isn’t inspiring much confidence, he said. “There is speculation about Apple working on a car due in the fiscal 2019-2020 time frame and on Apple developing a virtual reality product, but the car entry would be years away and it would not at all be clear if Apple would succeed here (especially considering Tesla ’s ( TSLA ) recent success with its Model 3),” Seyrafi said.