Zacks.com featured expert Kevin Matras highlights: Energy Transfer Partners, DXP Enterprises and Silver Wheaton Corporation.

CHICAGO -- Kevin Matras talks about diversification and the importance of an equally dollar weighted portfolio. Stocks in this week's article are Energy Transfer Partners, LP (NYSE:ETP), DXP Enterprises, Inc. (NASDAQ:DXPE) and Silver Wheaton Corporation (AMEX:SLW). Click here for the full story exclusively on Zacks.com: http://at.zacks.com/?id=109

Screen of the Week written by Kevin Matras of Zacks Investment Research:

Being in the right Sectors and Industries at the right time is what every investor wants. But having too much of any good thing can work against you when those groups inevitably turn around.

A diversified portfolio is critical for reducing unsystematic risk (sometimes referred to as unsystemic risk). (Whereas systemic risk is the risk attributed to the whole of the market itself, unsystematic risk is the risk to your portfolio due to one stock or a group of related stocks. Systemic risk (also know as market risk), can't really be diversified away. But unsystematic risk (also known as specific risk), can be lessened with proper diversification and proper stock weighting.

If you want to make sure you're diversified over enough groups, you can specifically screen for that.

Here's a screen to start you off. (Incidentally, this screen backtested quite well last year (and so far this year too) with an average annualized gross return of 61.8% and an average win ratio of 73%. (I ran a series of tests over the last 16 months (1/2005 through 4/21/06), using a four-week rebalancing period and starting each run on different start dates so each test would be rebalanced over a different set of four-week periods. This was done to eliminate coincidence and verify robustness.) The average compounded gross return (from 1/2005 through 4/21/06) is 78.9%.

Parameters

I screened for the top five Sectors and then picked the top two stocks in each one of those Sectors for a total of 10 stocks. But first, I wanted to qualify the 'Universe' with the following parameters;

Zacks Rank less than or equal to 2

(The Zacks Rank (which is considered by many to be the best rating system out there), looks at upward earnings estimates revisions (amongst other things), and will get us into companies whose forecasted earnings are getting stronger.)

Price greater than or equal to 5

(All of the stocks have to be trading at a minimum of $5 or higher. Most money managers won't touch anything under $5.)

Volume greater than or equal to 50,000

(The average 20-day share volume has to be at least 50,000 shares traded on a daily basis or more. In short, it has to be tradable.)

ROE greater than or equal to Median ROE for the Relevant Sector

(Every Sector has its own 'high' or 'low' ROE values. A low ROE for one Sector might be very high for another. And since we're ultimately trying to find the best stocks within the best Sectors; finding stocks that have ROE's greater than the median ROE for their relevant Sector makes sense.)

Once our Universe is defined, I look for the best Sectors.

% Change in F(1) Earn. Est. Rev. -- 12 Wks: Top 5 Sectors

(expressed as % Change F(1) Est. - 12 Weeks TopSectM#5)

(I'm looking for the Top Five Sectors based on the Median F(1) Earnings Estimate Revisions over the last 12 Weeks. Companies with upward earnings estimate revisions have a tendency to see even more upward earnings estimate revisions, and this helps paint a solid picture moving forward.)

Then I look for the top two stocks within each of the five best Sectors.

% Change in F(1) Earn. Est. Rev. -- 12 Wks: Top 2 Stocks in each

(expressed as % Change F(1) Est. - 12 Weeks Top#InSect2)

(Lastly, I'm looking for the Top Two Stocks in each of the Top Five Sectors based on the highest F(1) Earnings Estimate Revisions over the last 12 Weeks.)

This leaves me with a nicely diversified 10-stock portfolio every time I run the screen.

Here are a few of the stocks that made it to this week's list (for the week of May 1, 2006:

ETP     Energy Transfer Partners, LP      (Oils-Energy Sector)
DXPE    DXP Enterprises, Inc.             (Industrial Products Sector)
SLW     Silver Wheaton Corp.              (Basic Materials Sector)

With the Research Wizard you can also determine on your own how you want to rank the Sectors and what the best stocks are. Do you want to rank the Sectors based on their Three-Month % Price Change? -- you can. Maybe on their EPS Growth Rates, or Net Margin Increase, etc. It's up to you. And then make sure to backtest it to see how it works.

Sign up now for your two-week free trial to the Research Wizard and get the rest of the stocks on this list and see what other Sectors came through this screen. Or build your own screens and then test them. Get started now and make better decisions today.

http://at.zacks.com/?id=111

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

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