CHICAGO, Jul 03, 2008 (BUSINESS WIRE) -- Zacks.com releases the latest Zacks Industry Rank. Stocks featured
in this week's analysis includes as by Cabot Oil & Gas (NYSE: COG),
Oracle (Nasdaq: ORCL), Research in Motion (Nasdaq: RIMM), SAP (NYSE:
SAP) and Washington Mutual (NYSE: WM). To see the Zacks Industry Rank
and the trend in earnings estimates revisions for more than 200
industry groups, visit http://at.zacks.com/?id=3154.

Zacks Industry Rank Analysis is written by Charles Rotblut, CFA,
Senior Market Analyst for Zacks.com.

Incorrect forecasts by brokerage analysts are contributing to the
current downturn in the equity markets.

Energy, finance and technology are the three biggest components of
the large-cap index, and analysts have been constantly revising their
estimates on oil and banking companies. Last week's miss by Research
in Motion (Nasdaq: RIMM) and cautious guidance by Oracle (Nasdaq:
ORCL) raised the possibility of technology earnings being a bit light
in the second-half of the year.

The Oil Gush Keeps Getting Higher

Exploration and production companies continue to account for a
disproportionate number of positive earnings estimate revisions, and
if the International Energy Agency's (IEA) pronouncement proves to be
correct, profits could continue rising for several years.

Regular readers of this column know that I've been pounding the
table on companies within the upstream side of the oil business for
quite some time, due to the trends in earnings estimate revisions.

Consider these statistics:

-- Companies within the Oil & Gas-U.S Exploration and Production
group have received 5x more positive estimate revisions than
the analyst coverage would dictate(1).

-- Out of the 220 stocks on the Zacks #1 Rank ("Strong Buy")
List, more than 10% are classified in Oil & Gas-U.S
Exploration and Production (http://at.zacks.com/?id=4707).

The reason for the bullishness is that oil continues to command
prices far above what analysts expected, even relative to their
revised forecasts. As crude becomes more expensive, oil E&P companies
like Cabot Oil & Gas (NYSE: COG) are able to earn more money.

According to the IEA, the bullish cycle for these companies could
continue for several years. Yesterday, the agency's executive
director, Nobuo Tanaka, predicted that "supply constraints, refinery
limitations and continued demand growth in key emerging markets will
maintain pressure in the market over the medium term".

Tanaka believes that current and planned infrastructure will not
be enough to offset the rising demand from emerging markets. As a
result, oil will remain expensive with any decline over the next 1-12
months being followed by a rebound.

What Is On The Banks Books?

Just as brokerage analysts have continuously been wrong about
forecasting oil company profits, they have also been wrong about
predicting just how much bad debt banks are going to write off this
year. As a result, national and regional banks account for more than
double the number of downward earnings estimate revisions they should
otherwise command.

The fallout from the housing slump and adjustable rate mortgage
resets is being compounded by a sluggish economy and rising energy
prices. Banks are shooting themselves in the foot by lacking the
proper staff to handle short sales and renegotiate terms with current
borrowers.

Then there are the tightening credit standards. Home equity lines
are being cut, which curtails a source of revenues. Mortgages are
harder to get, which means lower origination fees. Credit card limits
are being cut and interest rates are being raised simply because of
what a consumer purchased with his credit card. (A story on NPR's
Marketplace last night warned that buying retread tires could cause a
card issuer view to a consumer as having a higher risk profile.) Very
few companies view not doing business as a profitable strategy, but
that is essentially the path many banks are on.

The result is a complex problem that is unlikely to face a
resolution until next year.

To be fair, many banks view risk-adverse strategies as a
short-term necessity. The majority of banks and thrifts don't know the
extent of the write-offs they will be forced to take over the 6-12
months. As a result, it has been impossible for the brokerage analysts
covering companies such as Washington Mutual (NYSE: WM) to project
earnings with any accuracy.

Those who followed the Zacks Rank and paid attention to the
downward revisions in earnings estimates would have avoided the large
drops posted by financial stocks - and would continue to be weary of
those now.

Where Is Technology Headed?

The third main component - technology - has been a mixed bag.
Mobile computing, data storage and overseas business have been sources
of growth. Semiconductors have struggled with an overall lack of
pricing power, though the actual impact has been somewhat company
specific.

The trend towards mobile computing and previous surprises created
the expectation that Research in Motion would be beat fiscal
first-quarter forecasts handily; instead the company missed. Given a
warning from Sony Ericsson about weakening demand for mid- to high-end
handsets, this may be an issue solely related to handsets. The new,
lower priced iPhone could be stealing some market share and many
individuals may be deciding that their current phone works just fine.
Given that music, video and texting capabilities have been available
on many mobile phones for quite some time, the extra benefit of a new
phone is questionable.

Oracle presented a conundrum, however. The company's fiscal
first-quarter guidance was fractionally below what some were
expecting. Though the consensus estimate has stayed unchanged at 26
cents per share, four brokerage analysts trimmed their projections
within the past seven days.

The worry is that if ORCL is cautious, will other tech firms be
cautious as well? Current trends in earnings estimates are
inconclusive. Full-year forecasts for other large-cap tech companies
like SAP (NYSE: SAP) are unchanged. For the entire technology sector,
there are slightly more positive revisions than negative revisions,
but the margin is not big (283 estimates revised up versus 222
estimates revised down).

We typically do not see many estimate revisions this time of year,
so it would not be valid to characterize the lack of revisions as
signaling uncertainty on the part of brokerage analysts. For traders
looking for confirmation of a trend, however, the silence is deafening
in the current market environment.

Investors need to view the silence for what it is, a non-event. A
Zacks #3 Rank simply implies a stock should perform inline with the
broader market over the short-term. Long-term investors will need to
continue to monitor their stocks, but should not alter their weighting
in technology without seeing further information first. This said,
never hold onto an investment if doing so keeps you up at night.

The interactive Zacks Industry Rank List allows you to see all of
the companies, and their Zacks Rank, within more than 200 industries.
See the list at http://at.zacks.com/?id=3208.

About Zacks Industry Rank and the Zacks Rank

Zacks Industry Rank is calculated by averaging the Zacks Rank for
all covered companies within a given industry. The Zacks Rank is
assigned to approximately 4400 stocks and ranges from #1 ("Strong
Buy") to #5 ("Strong Sell"). Both the Zacks Industry Rank and the
Zacks Rank are quantitative indicators designed to cover periods of
1-3 months.

Since 1988, the Zacks Rank has proven that "Earnings estimate
revisions are the most powerful force impacting stock prices." Since
inception in 1988, #1 Rank stocks have generated an average annual
return of +30%. During the 2000-2002 bear market, Zacks #1 Rank stocks
gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the
Zacks Rank system has just as many Strong Sell recommendations (Rank
#5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5
stocks have underperformed the S&P 500 by 270% annually (+3% versus
+11%). Thus, the Zacks Rank system allows investors to truly manage
portfolio trading effectively.

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performance numbers displayed in this press release.

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Disclaimer: Past performance does not guarantee future results.
Investors should always research companies and securities before
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SOURCE: Zacks.com

Zacks.com
Contact: Charles Rotblut, CFA
Phone: 312-265-9352
Email: pr@zacks.com
Visit: www.Zacks.com

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