Zacks Industry Rank Analysis Highlights: Archer Daniels Midland Company, Broadcom, Dean Foods, Liberty Property Trust and Myriad Genetics

Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis includes Archer Daniels Midland Company (NYSE: ADM), Broadcom (Nasdaq: BRCM), Dean Foods (NYSE: DF), Liberty Property Trust (NYSE: LRY) and Myriad Genetics (Nasdaq: MYGN).

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

This week: Enrollment Rises For Education Companies

Identifying industries with positive trends has become increasingly difficult because of the ongoing recession. Even industries with several positive estimate revisions aren't shining that brightly.

To be fair, there are some that still standout, such as Schools (http://at.zacks.com/?id=4952), but they are more of the exception than the rule. Out of the more than 200 industry groups that Zacks tracks, just 19 have more positive revisions than negative revisions during the past 4 weeks.

Even among those 19 groups, things are not quite what they seem.

For example, Medical-Biomed/Genetics (http://at.zacks.com/?id=4967) has 101 positive revisions and 100 negative revisions. Numerically positive, but nothing to write home about.

This is not to say that there aren't positive stories within this group.

Last week, Myriad Genetics (Nasdaq: MYGN) topped expectations by 10 cents with profits of 43 cents per share. It was the second quarter of profitability. Total revenues increased 48.7% to $84.4 million, driven primarily by an increase in sales and marketing efforts.

More than half of the covering brokerage analysts raised their forecasts in response, pushing the fiscal 2009 consensus earnings estimate 22 cents higher to $1.63 per share.

Other industry groups are benefiting from their small size.

Food-Flour & Grain (http://at.zacks.com/?id=5091) has just one company, Archer Daniels Midland Company (NYSE: ADM). As I stated last week, the company topped fiscal second-quarter estimates by 22 cents with profits of 91 cents per share.

More than half of the 9 covering brokerage analysts raised their forecasts in response, pushing the fiscal 2009 consensus earnings estimate 10 cents higher to $3.57 per share.

In fact, many of the food-related industry groups encompass a small number of companies. When looked at separately, it may seem like there is not a sector trend, but when the similar groups are put together, a broad picture of positive business momentum emerges.

For example, a week after ADM's bullish report, Dean Foods (NYSE: DF) surprised to the upside. The dairy company earned 46 cents per share, versus expectations for 39 cents per share. Net sales rose 5% to $3.1 billion. Commodity costs, which turned in DF's favor, helped.

Looking forward, Dean Foods expects 2009 profits of at least $1.50 per share. The consensus earnings estimate was at $1.49 before the new guidance was provided.

DF is a Zacks #2 Rank stock classified in Food-Dairy Products (http://at.zacks.com/?id=5262).

Easy To Find Industries With Negative Trends

There are many industry groups with a large number of cuts to earnings estimates. A good example is Electronics-Semiconductors (http://at.zacks.com/?id=4851). Chip companies have seen approximately 400 earnings estimates cut over the past 4 weeks.

Broadcom (Nasdaq: BRCM) is one of the biggest offenders with 22 brokerage analysts cutting their full-year forecasts recently. Though the company beat fourth-quarter expectations, it warned that demand could continue to decrease because of the recession and inventory adjustments by customers.

REIT-Equity Trust (http://at.zacks.com/?id=5263) is not faring much better, with 224 earnings estimates cut. Trusts focused on commercial properties, such as Liberty Property Trust (NYSE: LRY), are particularly vulnerable as businesses cut back operations and staffing.

LRY, which manages industrial and office properties, is seeing occupancy rates decline. Though the company reaffirmed its 2009 FFO (funds from operations) guidance of $3.00 to $3.20 per share, 4 of the 13 covering brokerage analysts cut their forecasts.

The difficulty in identifying good industries is not surprising given what is happening at the aggregate level. During the past 4 weeks, 2048 earnings estimates have been raised and 8,441 have been cut - a revisions ratio of 0.24. A year ago, 3,129 estimates were raised and 5,656 estimates were cut - a revisions ratio of 0.55. Though both ratios are bearish, this week's numbers show a sharp increase in the level of pessimism.

Investing In The Current Market

Investors should understand that the Zacks Rank is a relative indicator. It doesn't only reward companies with only positive earnings estimate revisions, but rather those with better relative revisions. In other words, if estimates are falling for most companies, a company with stable earnings estimates could conceivably be assigned a Zacks #2 Rank ("buy") or even find its way onto the coveted Zacks #1 Rank ("strong buy") List.

The purpose of the Zacks Rank is to identify those companies most likely to outperform or underperform. In a difficult environment, companies with stable outlooks will be viewed more favorably than those with worsening forecasts.

There are industries with positive earnings estimate revision trends, such as Schools, even with the ongoing economic storm. Investors need to use a high level of selectivity and pay attention to broad trends. A single group might have favorable trends, but the stocks within it will likely perform better if their sector peers are also enjoying positive business momentum.

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