Quarterly Update - July Buy them. Forget them. Beat the market.

(1)

Buy them.

Forget them.

Beat the market.

(2)

Clearly, 2010 is not 2009. Last year benefited from one of the greatest rallies in stock market history, but that has given way to much more difficult trading conditions this year. We initially saw a correction in January, but the bigger pullback, which many had been expecting, didn’t come until May. We are still in the throes of that “correction” as we end the second quarter. While not yet in official “bear” territory at a loss of 20%, it certainly feels pretty close for most stock investors.

All of our Top Ten stocks are struggling. We had big winners earlier in the year with Big Lots and DeVry, but both have given back most of their gains. Only Big Lots remains in the green, though it has retreated by over 30% from earlier in the year and is basically the poster child of what is happening in retail right now. The big retail rally we saw in 2009 and the beginning of 2010 has ended and investors with gains in these stocks are now cashing in.

But even if growth is going to slow, we still want to be in a retailer like Big Lots. Its value pricing makes it attractive to consumers. It’s not an inherently expensive stock either. It was rather cheap when we added in it January and continues to trade with attractive valuations.

When the bears come out to play, however, there are few places to hide. Our international stocks are among the hardest hit in the portfolio. While we believed Chinese and Brazilian stocks had attractive valuations in January, investors have not agreed with us and continue to punish most Chinese and Brazilian shares. This, of course, makes them even more attractive than six months ago for value hunters, but that does little good for us given our entry point in January.

In markets where the bears are roaring, it’s difficult to be a buy and hold investor. We have always run this portfolio with the intention to hold every single position for the year, come what may, unless there was a company-changing event (i.e. merger or bankruptcy). So far in 2010, there hasn’t been an event of that magnitude with our holdings. Because we’re going to hold all the positions, we have no stop losses in place for the portfolio. But, as we have said before, you should be consulting with your financial professional to determine what strategies work best for you.

Believe it or not, we are still optimistic about 2010. There is another 6 months to go and, as we’ve already seen, a lot can happen in that time. We still believe in the global growth story, especially among the BRIC countries of Brazil and China.

It’s been a rough road so far. We would be lying if we said otherwise. But we’re not throwing in the towel quite yet.

Regards,

Tracey Ryniec Editor

Top Ten Stocks for 2010

(4)

Big Lots (BIG)

Big Lots operates over 1,300 closeout retail stores in the U.S. It sells products such as food, health and beauty, home décor, mattresses and electronics.

In May, the closeout retailer reported fiscal first-quarter sales of $1.2 billion, an increase of 8.1% from the year-ago quarter. Big Lots earned $0.68 per share, a year-over-year increase of 54.6% and 1 cent above the Zacks Consensus Estimate. For the last five quarters, Big Lots has beaten the Zacks Consensus Estimate by an average of 15.3%. Additionally, management increased its guidance for fiscal year 2011 (which ends Jan 2011). Big Lots expects to earn $2.75-$2.85, up from its previous guidance of $2.65-$2.75. For the second quarter, the retailer guided to same-store sales growth of 4.0%-5.0% and EPS of $0.44-$0.49.

Analyst estimates are moving higher. In the last 30 days, the Zacks Consensus Estimate for 2011 is up 6 cents, and the 2012 Zacks Consensus Estimate is up 7 cents. Estimates have been trending higher since the beginning of 2010.

The stock endured some selling pressure in late June because of a brokerage downgrade and reports of the CEO selling shares. While we can’t speak to the brokerage downgrade, we think that selling because of the CEO’s stock sales would be a mistake. One, CEO Steve Fishman’s stock sales were planned (made known to the market ahead of time) and began in March 2010. Two, the bulk of his sales were made immediately after exercising stock options, which is where he gets most of his compensation. Last, Fishman still owns about 1.5 million shares of stock and options, which is a substantial position, suggesting he still believes in the stock.

BIG shares are trading around 11x fiscal 2011 EPS estimates and 10x 2012 EPS estimates. The stock is trading at an attractive valuation given the retailer’s strong growth and track record of beating estimates and raising guidance.

China Green Agriculture (CGA)

The Chinese economy quickly and sharply fell out of favor with investors this year, leaving us with a sizable loss in CGA. While this is a tough pill to swallow, it is hard not to like China Green’s potential looking forward.

I am not going to sugar coat the loss, but the stock is trading at only 11 times forward earnings. The PEG ratio is showing a great bargain at 0.4. On top of that, the estimate picture is starting to rebound after a hiccup in the previous quarter.

The Zacks Consensus Estimate for full-year fiscal 2010 regained the 3 cents it dropped and is back to 91 cents per share. Additionally those revisions came months before China Green reaffirmed their guidance on June 15th.

(5)

In its mid-June release, the company said it reached its sales volume target on June 10th, 20 days before the end of the period. Given the results, sales volume growth should exceed 40% for the year, a growth rate that management expects to see in each of the next 2 years.

All of this is coming on the heels of the May earnings surprise, when CGA surpassed expectations by a penny, making it the sixth consecutive beat. For the third quarter of fiscal 2010, China Green saw a 52% jump in sales, a 60% rise in gross profit and a 37% improvement in net income.

Next year’s estimates are tapering slightly, but are still showing an expected growth rate of 25%. I won’t say the market is wrong, but how can a stock with that kind of growth be trading at such a low multiple?

We have weathered the storm, so it is important to keep looking forward now and not at the P/L. Everything looks good so keep holding CGA with confidence.

DeVry (DV)

DeVry is a for-profit education firm, serving over 110,000 undergrad and graduate students. It runs DeVry University, Advanced Academics, Ross University, Chamberlain College of Nursing, and Becker Professional Review, as well as the Keller Graduate School of Management. It has 94 locations and an online platform.

This Zacks #3 Rank (‘hold’) stock was up by more than 30% in late April. However, it has given up all those gains and is down more than 10%.

DeVry reported fiscal third-quarter results on April 22. Revenues grew 29% to $504.4 million and diluted EPS jumped 60% to $1.12, beating the Zacks Consensus by 8 cents, or 7.7%. In the last five quarters, DeVry has topped the Zacks Consensus Estimate by an average of 11.5%.

The company continues to demonstrate impressive operating leverage, which is growing sales faster than expenses. In the third quarter, DeVry’s operating profit margin expanded by 5.9% from 18.3% to 24.2%.

After the company’s third-quarter report, analysts increased their EPS estimates for fiscal 2010 and 2011. The Zacks Consensus Estimate for fiscal 2010 and fiscal 2011 are each up 9 cents in the last 60 days. Those estimates reflect EPS growth of 59% and 22%, respectively.

Despite continuing to beat expectations and strong growth estimates, the stock has dropped significantly below its 52-week high from April. The sell-off is largely due to the federal government’s increased scrutiny of postsecondary schools.

(6)

DV shares are trading at 15x fiscal 2010 estimates and 13x fiscal 2011 EPS estimates. Those P/E multiples reflect the market’s fear that the Department of Education is going to come down hard on the for-profit education companies.

Euronet Worldwide Inc. (EEFT)

Euronet Worldwide Inc. provides electronic payment services and operates a network of ATMs worldwide. Although shares struggled during the quarter, the company’s business showed some nice signs of growth from last year’s recessionary environment.

Its first-quarter results from late April included 7% revenue growth and close to 100% growth in operating income to $18.2 million. But as a company operating in a very competitive and innovative segment of the market, expectations were high, and Euronet’s earnings of 28 cents per share fell one penny short of the consensus estimate.

The company’s largest segment, ePay (formerly PrePaid), posted a respectable 1.5% gain in revenue from last year, but Euronet noted that its overall performance was impacted by the economic uncertainty in the Euro zone, where it derives a large portion of its business.

The earnings miss put some pressure on estimates, with the current year falling 16 cents to $1.19 per share. Therefore, shares are currently trading deep in value territory with a forward P/E of just 11X, which should provide additional support to shares. The next-year estimate projecting a healthy 14% earnings growth should do the same. Euronet will also continue to enjoy the benefits of a stellar balance sheet, with unrestricted cash of $189 million against total debt of $289 million, down $39 million from last year. Another factor working in Euronet’s favor is some of the recent stability in the Euro zone on the back of the EU’s $1 trillion rescue package for its members. With less economic uncertainty affecting confidence, increased consumer spending and transactions should have a positive impact on revenue.

Eaton Corp. (ETN)

Eaton Corp. operates as a power management company in the United States and internationally, providing electrical components and systems for power control and distribution.

Eaton Corp. was a bit mixed during the quarter, falling with the market in April and May before recovering very nicely with the market in June. Although the company’s share price didn’t immediately respond in the weak market, its first-quarter results from late April were excellent.

(7)

Stock Updates continued ...

Revenue for the period was up 10% from last year to $3.1 billion, with half of that gain coming on organic growth and the other half related to currency fluctuations. Earnings looked great too, coming in at 95 cents per share, 14% ahead of the Zacks Consensus Estimate. Eaton’s average earnings surprise over the last four quarters now stands at 32%.

The company’s Truck segment was its biggest gainer, up 55% from last year to $453 million. The Auto Segment was close behind with a 39% increase to $374 million. The outlook for these segments is positive too, with the company saying it expects global automotive markets to grow by 15% on the year.

Another positive take away from the quarter was the company’s announcement that it had signed a 5-year contract with the U.S Air Force valued at $569 million that will be split with one other partner contractor.

Analysts were quick to raise guidance on the news, with the current year up a substantial 63 cents in the last two months to $4.68. The next-year estimate is pegged at $5.85, a bullish 25% growth projection.

Petroleo Brasileiro (PBR)

Commonly known as Petrobras, a state-run oil company from Brazil. Petrobras is fully integrated and operates in all phases: beginning with exploration, production and refining all the way to transportation and retailing.

We initially added PBR because of its exposure to Brazil, a solid emerging market, as well as its energy exposure. However, the global recovery has not taken hold as quickly as we anticipated. As a result analysts have slowly been lowering their earnings estimates.

Despite the lack of enthusiasm, there are still very good reasons to be bullish on Petrobras. The company continues to develop deep water projects, which could see an improving cost structure. Due to the ongoing disaster in the Gulf of Mexico, and the ensuing restrictions by the U.S. government, more deep sea rigs are willing to move to Brazil and could be cheaper for companies like Petrobras.

Rig operators can not afford to keep their units idle for too long and if the moratorium on deep-sea drilling in the U.S. looks to continue for an extended period of time, many will need to move elsewhere.

As for the company’s upcoming financing issues, we feel that while it may be a short-term drag, the long-short-term outlook is positive. Petrobras will be selling $25 billion in shares next month. While this will dilute earnings initially, the funds will allow them to develop its “presalt” fields.

(8)

The valuations for PBR also remain attractive, despite the slipping consensus estimate. Shares are trading at less than 10 times forward earnings, and earnings are expected to climb 18% this year and another 16% in 2011.

Praxair (PX)

Praxair produces and distributes industrial gases such as oxygen, nitrogen, carbon dioxide, hydrogen and acetylene. It is the largest industrial gas supplier in North America, where the company derives nearly 60% of its revenue.

Praxair reported first-quarter results on April 28. The company had sales of $2.43 billion, an increase of 14.4% from last year. The company reported earnings per share of $1.09, matching the Zacks Consensus Estimate.

Management’s guidance for the second quarter was earnings of $1.10-$1.15 per share. For 2010, the company expects EPS of $4.50-$4.65, up from its previous guidance of $4.43-$4.63. The company’s guidance was in-line with the Zacks Consensus Estimates for Q2 and 2010. As such, the Zacks Consensus Estimates for 2010 and 2011 have remained essentially unchanged for the first six months of 2010.

While Praxair hasn’t delivered blow-out earnings or issued higher guidance, there are still reasons to remain bullish on the stock.

One, Praxair is focused on growth areas, including hydrogen for higher fuel standards, processing heavy sour crude oil, coal gasification and water treatment, as well as international expansion.

Second, Praxair’s cost controls are improving its profit margins. In the first quarter, Praxair’s operating expense as a percentage of sales was 12.1%. That was 40 basis points lower than 12.5% in the first quarter of 2009. The company should be able to maintain its cost savings even after its revenue growth resumes, leading to faster earnings growth.

Third, the company stacks up well against its industry peers. Praxair’s trailing twelve-month return on equity is 23.9%, above the industry average of 12.1%. Its net profit margin is 13.8%, well above the industry’s 4.2% average.

Lastly, PX shares are trading at about 18x 2010 consensus estimates and 15x 2011 consensus estimates. Those are reasonable P/E multiples in light of where we are at in the business cycle.

(9)

RehabCare Group, Inc. (RHB)

RehabCare Group Inc. provides rehabilitation management services in hospitals, nursing facilities and other long-term care facilities in the United States. The company was able to recover nicely from a tough first quarter on the back of its better-than-expected second-quarter results from early May.

Revenue for the period was up 62% from last year, with a large portion of that gain related to Rehabcare’s acquisition of Triumph Healthcare. Earnings also looked great, coming in at 61 cents per share, 22% ahead of the Zacks Consensus Estimate. The solid outperformance pushed the company’s average earnings surprise to 9% over the last four quarters.

CEO John Short noted that Rehabcare saw some nice momentum in its business after a tough start to the quarter. He also touched on how healthcare reform is affecting its business, saying that “while the full effect of healthcare reform legislation remains to be seen, we are pleased with its short-term benefits and we are well positioned for many of its long-term initiatives.”

The optimism set the stage for analysts to raise estimates.

The current-year estimate added 10 cents on the news to $2.60 per share, while the next-year estimate added 2 cents, climbing to $2.97, a solid 14% growth projection. Rising estimates and a steady share price have sweetened the valuation picture, where shares trade with a forward P/E of 10.7X, a nice discount to its peers’ 12.67X.

Synaptics (SYNA)

Synaptics develops and supplies custom-designed human interface solutions that enable people to interact with various mobile computing, communications, entertainment and other electronic devices.

On April 22, Synaptics reported fiscal third-quarter net revenue of $116.2 million, up 15.5% from Q309. The company also reported EPS of $0.28, beating the Zacks Consensus Estimate by 4 cents.

Management’s guidance was also better than expected. For the fiscal fourth quarter, SYNA guided to sales of $136 million to $146 million and pro forma EPS of $0.57-$0.67.

After the company’s better-than-expected fiscal Q3 results and guidance, analysts following SYNA shares upped their estimates for fiscal 2010 and fiscal 2011. The fiscal Q3 consensus estimate climbed 8 cents. The Zacks Consensus Estimate for fiscal 2010

(10)

increased 8 cents, while the Zacks Consensus Estimate for fiscal 2011 increased 14 cents.

SYNA is trading at 21x fiscal 2010 consensus EPS estimates and 18x fiscal 2011 consensus EPS estimates.

Trina Solar (TSL)

This Chinese solar company continues to trade at mind-boggling valuations after selling off through the first half of 2010. Analysts have been split on their revisions over the past month, but the average estimates are stabilizing and showing solid growth rates. Analysts are expecting earnings growth of 22% this year and another 5% in 2011. Additionally, the projected growth rate is coming at a deep discount as the PEG ratio is only 0.4 times. The forward P/E ratio is coming in just under 9 times.

While much of this value is coming at our expense, given this year’s selling, we still like the long-term outlook for the company. If estimates at least trend sideways, investors can not ignore the valuations for long.

Brokers are still in love with TSL as well. Of the 16 analysts that submit recommendations to Zacks, 13 have a “Strong Buy” and just 1 has a rating lower than “Hold”.

On June 9th, Trina announced a deal to Southern California Edison to provide 45 megawatts of PV modules. Shares have been rising steadily on the news. Adding to the recent bounce is the strengthening euro.

Much of Trina’s sales are to Europe. As a result the regional financial woes spilled over to TSL as the continent’s outlook became less and less clear. As the conditions in Europe solidify, shares of TSL should see some benefit.

Despite the excellent earnings outlook and optimism from analysts, TSL remains among the biggest losers in the portfolio. The stock is a Zacks #3 Rank (‘hold’); and holding is exactly what we are doing. There is no sense in selling at the bottom, especially when the estimates continue to point higher and the stock has surged into the end of the quarter.

(11)

Zacks.com is the one place dedicated to helping individual investors profit from the pros with resources like:

Zacks.com

This is our free web site that offers the following powerful features.

Zacks Profit from the Pros.

h Delivered five times a week – every trading day – this email provides the easiest way for you to get a wealth of independent research and stock ideas. You’ll receive expert commentary, top stock picks, winning stock screens, and more. If you received this special report, then you are already set up as a Profit from the Pros subscriber. Now stay tuned to your inbox to receive these critical updates. See the current issue.

Portfolio Tracker.

h Manage your portfolio on Zacks.com, and we’ll send you daily alerts of any changes affecting your stocks. Sign up.

Profit Tracks.

h Use these proven stock screens to find winning stocks poised to beat the market. Choose from nine different screening strategies based on your investing style and risk tolerance. Profit Tracks rotate between free and premium with a minimum three free tracks every week. Learn more...

Screening.

h Access more stock screening capabilities with our pre-defined screens and custom screener. Learn more...

Analyst Blogs.

h Get the latest news and analysis on key stocks, industries, and the markets with our Analyst Blogs. See the latest blog.

Industry.

h See what industries are hot or not. Keep your eye out to know industry developments and how they affect your stocks.

Zacks Premium

Our premier subscription service that provides Zacks proprietary research. It’s the same research that leading Wall Street brokerage firms pay millions of dollars for each year – but at a low price just for individual investors.

Zacks Rank.

h This is the cornerstone and foundation of all of Zacks independent research. With an uncanny ability to predict stocks likely to beat the market within 90 days, the Zacks #1 ranked stocks (Strong Buys) boast a 28% average annual return since 1988. Conversely, the Zacks #5 ranked stocks (Strong Sells) have been outpaced by the S&P 500 by 90% in that same time. Learn more...

(12)

Zacks Equity Research and Recommendations.

h Gain proven long-term

recommendations and in-depth research with proven cumulative return of 482% since 2003, handily beating the market. Learn more...

Custom Screening and Email Alerts with the Zacks Rank.

h Use your favorite

screens but add the power of the Zacks Rank. Learn immediately when the Zacks Rank of your portfolio’s stocks changes so you can take quick action. It’s only available and all included in Zacks Premium. Learn more...

Zacks Elite

If you understand the power of the Zacks Rank and earnings estimate revisions but want an expert to help you select the best stocks on the list, then look no further Zacks’ exclusive Timely Buys List provides you with hand-selected Zacks #1 recommendations to outperform the market over the next one to three months. This portfolio has posted gains of 649% since inception in 1996 (525% better than the S&P 500.)

To Learn more about ZacksElite, click here.

Research Wizard

Research Wizard is a powerful screening and backtesting tool for investors of all skill levels. Built in screens with proven market-beating results make it easy to get started. Plus, experienced screeners will be amazed by the depth of information and tools at their disposal. Learn more...

Zacks Method for Trading

This program empowers you to “do-it-yourself,” trading stocks more confidently and profitably. There are no classes, workshops, or seminars. Step-by-step, at home, you’ll master the full force of Zacks Rank—a system that has outgained the S&P 500 for 20 out of 22 years, very nearly tripling it with an average annual gain of +28%. Learn more...

Chart Patterns Trader

Stock screening and chart patterns expert, Kevin Matras, combs through the best Zacks stock-picking strategies to find stocks with charts showing they are ready to skyrocket. His secret is to combine the fundamental power of Zacks Rank with pinpoint technical timing so you know exactly when to make your move.

Learn precisely when to buy and sell.

(13)

Double Your Money

Double Your Money Trader is Zacks answer to the recession. Directed by Zacks.com chief Steve Reitmeister, this plan uses the power of the Zacks Rank, combined with value trading and a dash of market timing, to generate profits no matter what the market has to offer. Learn more...

Growth Trader

Growth Trader identifies companies whose explosive earnings growth is not yet reflected in the stock price - promising market-beating gains once Wall Street catches on. Learn more...

Momentum Trader

New momentum strategy blends Zacks Rank fundamental with technical analysis to find almost unstoppable stocks. Institutions are just beginning to pour money into these surging companies, and backtesting shows such stocks gain even when the market loses. Learn more...

Options Trader

Kevin Matras infuses options trading with the +28% yearly gain power of the Zacks Rank plus his own market-beating stock screens. This creates the potential for steady and substantial returns using only a fraction of the money you would have risked on regular stock purchases. Learn more...

Small Cap Trader

A research breakthrough identified the small fraction of Zacks #1 Rank stocks that nearly DOUBLES the performance of those Strong Buys as a whole. Only a few investors can be admitted to Zacks’ most exclusive service, and share these relatively low-volume stock picks. Learn more...

Strategic Investor

Different from all the others, Zacks newest investor service combines value investing principles with a splash of aggressive growth. Guided by Zacks Chief Equity Strategist Dirk van Dijk, Strategic Investor detects the big long-term profit trends and rides them with specific buy/sell recommendations. It’s designed for the long haul and helps you exploit the trends for a powerful long-term advantage over other investors, no matter what the market does. Learn more...

Surprise Trader

Zacks Surprise Trader allows active traders to profit from earnings surprises. This

(14)

strategy turns a series of small gains on short-term trades into market-beating annual profits. It uses two proven Zacks research tools, the Zacks Rank & Price Response Indicator, to generate an exclusive list of highly coveted stocks.

Learn more about Surprise Trader and how active traders can build consistent, small profits into large annual gains: click here.

Value Trader

Zacks Value Trader was built around 8 key factors including value investor favorites like low p/e and price-to-book ratios. This successful service provides something that other value stock picking strategies lack – TIMELINESS.

What if you could trigger your buy just as the market begins to recognize a stock’s real worth? You’d hold shares of a company at the perfect time for its price to move upward. That’s the magic of Value Trader. Learn more...

Other Zacks Resources continued ...

The return numbers presented assume no transaction costs. Details of how Zacks calculates performance for the Zacks Rank Portfolios and strategies is available at: http://www.zacks.com/performance.

(15)

If you have any questions about Zacks Top 10 Stocks, please contact customer support at: Phone: 800.767.3771, ext. 339. Outside the U.S.? Call 312.630.9880, ext. 339.

Email: top10@zacks.com.

You can also reach us by mail at: Zacks Investment Research Attn: Zacks Top 10 Stocks 111 N. Canal St., Suite 1101 Chicago, Illinois 60606