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The Zacks Analyst Blog Highlights: AK Steel, Caterpillar, Cummins, Dow

Chemical, United Health and Valero

On Tuesday May 17, 2011, 7:16 am

For Immediate Release

Chicago, IL May 17, 2011 Zacks.com announces the list o f stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news

and events impacting stocks and the financial markets. Stocks recently featured in the blog include: AK Steel (NYSE: AKS - News), Caterpillar (NYSE: CAT - News),

Cummins (NYSE: CMI - News), Dow Chemical (NYSE: DOW - News), United Health (NYSE: UNH - News) and Valero (NYSE: VLO - News).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Mondays Analyst Blog:

Earnings vs. Macro Factors

Earnings are, and are going to remain, the single most important thing for the stock market. Interest rates are an important -- but distant -- second.

That does not mean that all is smooth sailing ahead. We are now at the softest part of the year (historically). There is a fair amount of truth to the old adage Sell in May, but

remember to return by November.

The fight over raising the debt ceiling is now underway. If it looks like it will not happen, watch out. The Government of the United States defaulting on its debt is likely to have

a somewhat larger impact on the markets and the economy than the impact of Lehman Brothers defaulting on its debts.

However, when push comes to shove, I find it hard to believe that Congress would let that happen. While not the most likely case, the chance of no increase by the time the

ceiling is hit is a very real possibility. Given the disastrous potential consequences, taking out some insurance in the form of deep out-of-the-money puts would make a lot of

sense at this point.

We are already feeling t he impact from lower government spending. First quarter GDP growth came in at j ust 1.8%, down from 3.1% in the fourth quarter. Total government

spending was a drag of 1.09 points, up from being a 0.34 point drag in the fourth quarter. In other words, 75 of the total 130 basis point growth slowdown (57.8%) was due to

increased austerity in Government spending.

Job creation remains sluggish, but had been starting to show signs of picking up. We created 268,000 jobs in the private sector in April, up from 231,000 in March, and

260,000 in February, but that is after a big upward revision to the February numbers. However, governments laid off a total of 24,000 people for the month, on top of 10,000

pink slips the month before.

Recently, though, the trend in Initial Claims for Unemployment has taken a nasty turn for the worse, with the four-week moving average moving back above the 400,000 level.

While we got some relief this week, with a drop of 43,000 new claims, we need to see that number continue to decline. Those numbers were not reflected in the April jobs

report, but they are not a good omen for the May report.

Unemployment Rate

The unemployment rate bounced back up to 9.0%. This was not due to, as many assume, people coming back into the labor force. It was due to the fact that the

unemployment rate is derived from a separate survey from the one that measures the number of jobs gained or lost. The civilian participation rate has been stuck at the same

low 64.2% level since January.

Given that the unemployment rate has been higher than that in just 6.17% of the months since 1960, one might expect that bringing down unemployment would be top of the

agenda at both the Fed and on Capitol Hill. However, at Bernankes recent press conference, the focus was mostly on inflation. The rate of headline inflation has been

moving higher, but it is only up 3.2% over the last year. That is lower than what we have experienced for most of the last 40 years.

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Furthermore, commodity prices have just fallen sharply, so we might start to see some reli ef very soon. Core inflation remains very low, up just 1.3% over the last year. This

fear of phantom inflation is keeping further monetary easing off the table for bringing down unemployment.

International Concerns Remain

The international situation clearly has the potential to abort the recovery as well. The disaster in Japan will clearly slow its economy dramatically in the first quarter, although

much of that growth will be made up later in the year as the reconstruction process gets underway. Many U.S.-made products have parts which are made in Japan, and that

is likely to disrupt production here.

Still, there appeared to be no impact on Industrial Production in March as manufacturing output climbed 0.7%. The turmoil in the Middle East is not going away, and that is

likely to keep oil prices both high and volatile. High oil prices will also act as a depressing force on the economy.

The debt crisis in Europe is not going away with Portugal now also getting bailed out, even as the ECB makes life tougher on the PIIGS by raising rates. Rates for the Greek,

Irish and Portuguese debt a re substantially higher than when the crisis first started. The austerity campaigns have weakened those economies and undermined tax revenues,

and so the bailouts have not made the situation much better.

Here at home, the housing situation has not been showing many signs of improvement, and I doubt we will see much in the housing-related numbers due out this week. Note

that the Construction sector is the weakest in terms of both surprises and estimate revisions.

Remaining Bullish Overhead

On balance I remain bullish, and I think we will end the year with the S&P 500 north of 1400, but that does not mean we will have a smooth ride between here and there.

Strong earnings are trumping a dicey international situation, and the drama in DC. However, be prepared to move to the exits (or have some put protection in place) if it lookslike the debt ceiling will not be raised.

As far as individual stock picks are concerned, look for the combination of a Zacks #1 Rank, with moderate P/Es and a reasonable dividend yield. The current issue of

Earnings Trends has a l ist of the firms with the largest positive revisions for this year.

The best hunting ground for such firms seems to be in the Industrial, Materials and Energy sectors, but things are not limited to them. Some of the names to consider among

the S&P 500 include AK Steel (NYSE: AKS - News), Caterpillar (NYSE: CAT - News), Cummins (NYSE: CMI - News), Dow Chemical (NYSE: DOW - News), United

Health (NYSE: UNH - News) and Valero (NYSE: VLO - News).

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5515.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that

affect company profits and stock performance. Recommendations and target p rices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today:

http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leon Zacks. As a PhD from MIT Len knew he could find patterns in stock market

data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which

continues to outperform the market by nearl y a 3 to 1 margin. The best way to un lock the profitable stock recommendations and market insights of Zacks Investment

Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable i deas GUARANTEED to be worth your time! Register for

your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

Visit http://www.zacks.com/performancefor information about the 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 making any investments. Nothing herein

should be construed as an offer or solicitation to buy or sell any security.

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