Chicago, IL – December 15, 2009 – Zacks.com announces the list of 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: ExxonMobil Corporation (XOM), XTO Energy (XTO), Chevron Corporation (CVX), BP Plc (BP) and Royal Dutch Shell (RDS.A).

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 Monday’s Analyst Blog:

Exxon Acquiring XTO Energy

With a bullish view on natural gas prospects, the world’s largest publicly traded oil company ExxonMobil Corporation (XOM) will buy XTO Energy (XTO) in an all-stock deal worth $31 billion, excluding debt.

The transaction is valued at $41 billion, including about $10 billion in XTO debt, and is based on the Dec 11 closing share prices in both the companies. Completion of the transaction is expected in the second quarter of 2010.

Under the terms of the agreement, Exxon has agreed to issue 0.7098 common shares for each common share of XTO, representing a 25% premium to XTO shareholders. The agreement is approved by the boards of directors of both the companies.

The agreement will enhance Exxon’s position in the development of unconventional natural gas and oil resources and is subject to XTO stockholder approval and regulatory clearance.

XTO’s outstanding unconventional natural gas resource base, along with Exxon’s advanced R&D and operational capabilities, global scale and financial capacity should enable development of additional supplies of unconventional oil and gas resources. This will benefit domestic as well as international consumers.

Following this deal, Exxon will gain a major grip over North America's newest energy discoveries as it looks forward to the growth of natural gas in expanding its share of the world's largest energy market. After closing of the deal, Exxon said it will establish a new organization to manage global development and production of unconventional resources.

We believe Exxon’s decision to purchase XTO will definitely prompt its peers such as Chevron Corporation (CVX), BP Plc (BP) and Royal Dutch Shell (RDS.A) to move forward with similar deals.

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 prices 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 Leonard Zacks. As a PhD in mathematics 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 nearly a 3 to 1 margin. The best way to unlock 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 ideas 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/performance for information about the performance numbers displayed in this press release.

Follow us on Twitter: http://twitter.com/zacksresearch

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

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.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com

In a follow-up to his popular JoI article 'Bonds: Why Bother?,' Research Affiliates founder Rob Arnott partnered with the Journal of Indexes for a live webinar examining where investors should be looking for opportunity today.

As a bonus, Arnott has provided written responses to all the questions that were asked by the audience during the webinar. His answers follow below. (In some cases, for efficiency's sake, multiple similar questions on a single topic have been condensed into a single question.)

Audience Question: Given the prospect of heavy or hyper-inflation, how do you find a reasonable return that can keep pace? Do you have any expectations on how this may play itself out in the coming few years?

Rob Arnott: TIPS provide protection against inflation; as bond yields soar in the face of inflation, TIPS yields can potentially go the other way, especially from a high initial real yield. Commodities can protect us from inflation shocks, though not inflation per se-futures prices already embed inflation expectations in the forward prices. Stocks enjoy inflation pass-through, albeit with a lag. Inflation shocks will be bad for stocks, but sustained inflation will eventually be passed through. If stocks are cheap (which is true only of deep value), they can do well even in the face of inflation.

Audience Question: Discuss your view of future interest rates in the coming years and their impact on bond class prices. Which type of bonds are the worst and best to hold in a rising rate environment?

Arnott: Inflation poses a real threat to bonds. It's implausible that the monetary spigot will be "reversed" when the perceived deflation threat is eliminated, in time to avoid meaningful inflation. Bonds and stocks both offer very nearly the widest dispersion in valuations in history. So, the "deep value" side of both categories (junk/convertible bonds and deep value stocks) offer great prospects, barring a real Armageddon scenario. The safe-and-trendy end of both asset classes (Treasuries and quality growth) is richly priced; I find them utterly uninteresting.

Audience Question: How will corporate defaults in late 2009 and early 2010 affect the total returns on these investments? Are they still viable investments?

Arnott: Defaults will be huge. The key issue is not whether we'll see defaults, but whether spreads are rich enough to compensate us for that risk, for the well-diversified investor. With junk bond and convertible bond spreads wider than they were in the Great Depression, we'd have to see worse than that scenario for the investor to forfeit the whole yield spreads.

Audience Question: It is common knowledge that the current fiscal stimulus is tremendously inflationary. What is the expected effect on residential real estate values?

Arnott: It's not common knowledge ... there are two views out there. But I agree with those who think it'll be inflationary, perhaps massively so. Real estate will come back. But real estate is a classic lagging asset class. It can't turn while inventories are rising. Inventories can't turn while foreclosures are rising. Commercial real estate has only begun to tumble. This isn't an asset class that has any hope of turning in 2009. Wait for 2010 or later.

Audience Question: How do you feel about the typical thought that small- and mid-cap stocks tend to lead out of recessions?

Arnott: They probably will again, though large deep-value companies are also likely to lead.

Audience Question: What do you think about the oil market? Are we running out of oil worldwide, and/or what do you expect the energy market to do over the next decade? Also, what do you think of the S&P Commodity Trends Index (that will go long or short different commodities)?

Arnott: Oil is a finite resource. It'll run out. When oil was discovered, folks were fretting about the impending demise of the whale population, the source of whale oil. We'll find alternatives. But not before the economics of finding that alternative become compelling. We have ample coal and natural gas (and don't have to import them!). Nuclear, solar, wind and tides all become economically viable at various energy price levels. But we'll see $25/gallon gas in 10-20 years. At that stage, the shift to alternatives will be in full swing, without any inept, politically opportunistic government intervention.

In commodities, also, we see exceptional dispersion in values. Some are at lows not seen in a decade; others (gold) are near their all-time highs. Playing these spreads should be profitable.

Audience Question: What about munis?

Arnott: Municipal defaults will soar in the coming years. Be very selective.

Audience Question: Perhaps TIPs are priced poorly because they reflect the government's habit of miscalculating the CPI-the source of prospective principal upgrades. Please comment.

Arnott: See http://www.shadowstats.com/. The government does lie about the statistics. People see their homes, their jewelry, their collectables soar, and they think they're making money. No. The purchasing power of the dollar is tumbling. If you own the same home, jewelry or collectables as before, you're obviously no richer just because they command a higher notional price.

That said, TIPS are the cleanest way to hedge inflation risk. The true real yield is perhaps 2% lower than it seems. And, you're taxed on the yield, on the inflation and on the hidden, unacknowledged inflation. But, viewed as insurance against reflation, this yield give-up is the price we pay for that insurance. Also, note that, if real yields on TIPS are lower than they seem, the same holds true for Treasuries and other assets.

Audience Question: What's a reasonable equity risk premium?

Arnott: It varies over time. But the 5% that everyone seems to expect for stocks relative to bonds is no better than an "urban legend." A 5% excess return was achieved while stock market valuation multiples were soaring, and at no other times.

Audience Question: Is asset class correlation a moving target? And what is an efficient way to measure current correlation?

Arnott: Correlations rise with inflation and fall with deflation. By the time you measure it, it's too late to do you any good (witness last Sep/Oct!). It's best to assume that it mean-reverts toward long-term historical averages. And because low correlations generally won't hurt us but high correlations will, it's best to assume that it can be higher than we might expect.

Audience Question: It seems you're simply promoting a diversified approach to investing. How is this different than basic portfolio theory?

Arnott: There's nothing new under the sun. Questions: How many people follow a truly diversified approach? How many think of their stocks as ownership of an enterprise (à la Graham & Dodd), rather than as some assemblage of portfolio characteristics? In the 15^th century, Jacob Fugger ("Fugger the rich") put his money in shares, in loans (bonds), in property and in commodities. And he'd rebalance when the mix drifted away from one-fourth each. The shares and the real estate did well when the economy was strong; the loans and commodities did well when it was weak; the commodities and real estate did well when the government was debasing the currency; and the stocks and bonds did well when the government and the currency were sound. Old ideas have a lot of power, and keep getting rediscovered.

Audience Question: How has a simple allocation strategy that overweights the worst previous 5 years' asset classes and underweights the best ones done? I assume better than equal weighting all the asset classes.

Arnott: It's a powerful idea that few investors have the stomach to pursue. It means selling the best-loved assets and buying the most-loathed assets. It's the essence of successful "global tactical asset allocation.

Audience Question: Do you recommend purchasing individual bonds, or can the opportunities be realized through bond index fund or mutual fund options?

Arnott: I personally strongly prefer funds, as long as fees are reasonable. I don't have time to study individual bonds, and most retail investors won't have the requisite expertise. It's a cheap way to get diversification and (hopefully) someone reasonably smart picking the individual assets.

Audience Question: On a go-forward basis, what are some of the main factors that suggest an asset class is over- or underpriced?

Arnott: The simplest is to compare its yield (or in the case of bonds, the spread relative to Treasuries) with the long-term history. If the yield or spread is near historical lows, you're picking up nickels in front of a steamroller (as many investors learned too late after the skinny yields and spreads of 2006-07). If the yield or spread is near historical highs, there may be larger risks than before, but at least you're getting paid for them.

Audience Question: When do you anticipate Fundamentally Weighted bond ETFs coming to market?

Arnott: I'm not at liberty to comment. Infer what you like from this fact!

Audience Question: Just like alpha has a cost, is the cost of Fundamental Indexing in investment-grade bonds not worth the benefit? It seems that the benefit is smallest in that category. Is that because it is a more efficient market relative to emerging markets?

Arnott: Fundamental Index^® strategies are at their best in any markets where the gap between price and the (invisible) eventual fair value is largest. It's far larger in high-yield bonds and emerging markets debt.

Audience Question: Isn't one of the risks of Fundamental Weighting in indexes that these measures such as price-to-sales are not forward-looking, but backward-looking? Do we really believe GM will generate as much sales in the next 10 years as it has in the last 10 years?

Arnott: Of course. But future expectations are already in the price. The point of Fundamental Index strategies is to take price out of the weighting decision, so that we don't own more of an asset just because it's expensive.

The fundamental weight is perhaps best seen as a sensible anchor for rebalancing, for contra-trading against the market's constantly shifting expectations, fads, bubbles and crashes. It's not the same thing as fair value weighting (which works really well, if only we could know the fair value! Look for my article in the upcoming summer JPM on the subject).

Cap weighting mirrors the composition of the stock market, with all its excesses and errors. Fundamental Indexing mirrors the composition of the economy, by weighting companies on their recent financial footprint in that economy, and so contra-trades against the excesses and errors of the market. It's not that it doesn't have errors ... it's that the errors are not the same ones that are in the price, so they have some chance of cancelling, rather than dragging us into overweighting the overvalued and underweighting the undervalued.

Audience Question: Many financials now have negative earnings and even negative book value. Do you treat them as value or growth?

Arnott: They're value. Deep value. Price relative to historical smoothed sales, profits, dividends and book values are all very low. For a good reason! But, again, RAFI^® makes its money by contra-trading against market excesses.

Audience Question: What is the "real stock price index?"

Arnott: S&P 500 Index level / CPI level

Audience Question: [Are the statistics in the presentation measuring] nominal stock index returns AFTER inflation? Inflation for THAT period? No reinvestment? Stocks don't include dividends at all? Please state or clarify assumptions.

Arnott: Stocks have three components to return: dividends, inflation and real price growth. For the exhibits that compare stock and bond returns, we are looking at total return of both, and taking the ratio of the cumulative wealth of the stock market investor relative to the Treasury Bond investor. For the exhibits that focus on stock price returns, we're focusing only on the last of these. So, we're taking out inflation (which isn't really a "return" on our investments!) and dividends.

I believe I mentioned a number of times that, during these protracted spans where real stock price levels were flat, investors were really only earning their dividends ... with nothing from real growth. This is one reason that dividend yields matter so very much. A yield of 3% (today) is vastly more interesting than a yield of 1% (in 2000) and vastly less interesting than a yield of 6% (in mid-1982).

At a 3% yield for stocks and for 10-year Treasuries, I am not proposing that we should replace "stocks for the long run" with "bonds for the long run"! On the other hand, I do not see a 3% stock market yield as a screaming bargain, either. In my view, there are bargains galore, today, but not in growth stocks or in Treasury bonds.

Monro Muffler Brake Inc. (MNRO) raised full-year 2009 guidance on Mar 24 and provided a first look at fiscal 2010 which projects same store sales growth in the range of 4% to 7%.

Since the guidance news, the stock has been on a tear, recently hitting new 52-week highs.

Monro Muffler specializes in undercar repair and tire services at stores under the names Monro Muffler Brake and Service, Mr. Tire and Tread Quarters Discount Tires. It operates 711 stores and has 14 dealer locations in 18 mid-eastern states.

2009 Guidance and Fourth Quarter Forecast Raised

Bucking the economic trends, Monro Muffler had a good fourth quarter as same store sales rose about 10%. The company raised fourth quarter guidance to the range of 12 cents to 15 cents, up from the previous guidance of 9 cents to 14 cents.

Fiscal 2009 guidance was therefore also raised to the range of $1.17 to $1.20, up from $1.14 to $1.19. The company made $1.00 per share in fiscal 2008.

Monro forecasts fiscal 2010 earnings in the range of $1.30 to $1.45. The estimate includes expected gross margin improvement due to declining oil and tire costs.

"As we move toward the next fiscal year, we remain cautiously optimistic, despite macro factors, and expect continued positive momentum and improved operating leverage driven by strong comparable store sales growth and margin expansion," said Robert G. Gross, Chairman and CEO.

Value Fundamentals

Monro is now a Zacks #2 rank (buy) stock. It is slightly more expensive than when we last reviewed it on Nov 21, 2008 due to the run-up in the share price. The stock is now trading with a forward P/E of 16.21 compared to 13.2x earnings back in November.

Its price-to-book ratio is still within value parameters at 2.62. The company has a solid 1-year return on equity (ROE) of 12.73%. It also pays a dividend with a current yield of 0.90%.

Read the Nov 21, 2008 analysis.

Update to Previous Value Zacks Rank Buy Stocks

Sanofi-Aventis SA (SNY), the large French drug company, has seen its stock zigzag in 2009 as the big pharma sector is experiencing mergers and acquisitions. SNY is a good value play, trading at only 6.8x forward earnings. Read the Apr 7 analysis.

Delek US Holdings, Inc. (DK), an independent refiner, is bullish about 2009 even as the energy market remains volatile. DK has a PEG ratio of 0.95. Read the Apr 8 analysis.

Ultrapetrol Bahamas Limited (ULTR), the South American focused shipper, reported a record 2008 as its river transportation business continued to grow. The company has surprised on estimates 4 quarters in a row by an average of 77.04%. Read the Apr 9 analysis.

Zacks Investment Research

Standard & Poor's has launched the first in a series of global low carbon indexes, which could eventually lead to a third exchange-traded product being made available to U.S. investors focusing on that corner of the alternative energy market.  

The S&P U.S. Carbon Efficient Index will measure the performance of large cap U.S. companies with relatively low carbon emissions, while seeking to closely track the return of the S&P 500.

The new S&P benchmark will have some competition. Last year, Merrill Lynch launched its own MLCX Global CO₂ Emissions Index. At the time, index officials said they hoped to base an ETF off the product.  

The S&P U.S. Carbon Efficient Index is different from both the Merrill Lynch product and the exchange-traded products now out. The AirShares EU Carbon Allowances Fund (NYSE Arca: ASO) is actually a commodity pool that tracks a basket of exchange-traded futures contracts for European Union Allowances (EUAs). Each contract provides for delivery of 1,000 EUAs at a specified price.

Since the commodities involved aren't physically deliverable, ASO can't be considered an ETF. But it acts like many exchange-traded commodities products that are popular in Europe. It's also important to note ASO represents a pool of futures contracts rather than notes.

That's significant since another type of fund, referred to as an exchange-traded note, is already on the market. In late June, Barclays Capital gained first-mover status into the U.S. exchange-traded products market for carbon emissions with its iPath Global Carbon ETN (NYSE Arca: GRN).

Carbon emission credits are traded by companies who get tax breaks and other incentives for lowering pollutants into the air. These standards are designed to set limits on the amount of a pollutant that can be released into the atmosphere and allocates credits among companies creating emissions. Those that do not use all their emissions credits can sell them to companies that need them.

By some estimates, the global carbon market is worth more than $50 billion a year.

The new S&P index includes constituents of the S&P 500 that have a relatively low carbon footprint, as calculated by Trucost Plc. Trucost, the environmental data organization quantifies the environmental impact of more than 4,500 companies across different sectors and geographies.

Trucost calculates the carbon intensity of companies in the S&P U.S. Carbon Efficient Index by researching and standardizing publicly disclosed information and engaging directly with companies to verify its calculations on an annual basis, according to S&P. 

(Carbon Footprint is calculated as the company's annual greenhouse gas emissions assessment, expressed as tons of carbon dioxide equivalent, divided by annual revenue.)

The Index is rebalanced quarterly at which point the stocks in the S&P 500 are ranked by their carbon footprint. The 100 equities with the highest scores and whose aggregate exclusion does not reduce any individual sector weight of the S&P 500 by more than 50%, are removed. 

Interestingly enough, S&P says the average annual carbon footprint of the S&P U.S. Carbon Efficient Index was 48% lower than that of the S&P 500.