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BALTIMORE (Stockpickr) -- With this week looking to head off to a rough start, it’s going to be important for investors to focus on quality stocks right now. Much of the bearish sentiments are coming as a result of the earthquake and ensuing tsunami that struck Japan on Friday -- natural disasters can take a serious toll on market confidence, particularly given Japan’s economic similarity and exposure to the U.S. While the ultimate cost -- both human and economic -- will likely remain unknown for a while, speculations are likely to temper the financial markets for the near future.
When money’s on the line, it’s crucial to get defensive with stocks that can withstand sentiment knocks. To find those, we turn to our weekly Rocket Stocks list. For the uninitiated, our weekly Rocket Stocks list consists of companies with short-term gain catalysts and longer-term growth potential. In the last 94 weeks, our Rocket Stocks have beaten the S&P 500 by 76.47%.
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As usual this week, we'll continue our trend of looking at stocks with rising analyst expectations. On Wall Street, expectations can mean everything -- and stocks with rising expectations often benefit from increased buying pressures from institutions and retail investors alike. To find them, I run a quantitative screen that seeks out stocks with a combination of analyst upgrades and positive earnings surprises.
Without further ado, here's a look at this week's potential plays.
Data storage firms have been enjoying a bull market of late, thanks to storage and throughput needs of enterprise customers that have risen dramatically. That increased demand has spurred consolidations in the industry, as computer manufacturers under margin pressures try to build a leading position in the storage business. But pure plays have significant advantages in this market, which is why we’re taking a look at EMC (EMC) this week.
EMC is one of the biggest players in the network storage business, providing hardware, software, and services for firms looking to expand their data storage capabilities. Already 2011 is proving to be a strong year for EMC. Shares of the company have rallied more than 16% year-to-date, a number that’s highly indicative of the sales boosts that the industry is seeing. With innovation in this firm’s pocket, those sales numbers should continue to spark growth in share prices.
Unlike many of the PC-makers that have entered the fray in recent years, EMC’s focus lies on the proprietary infrastructure that powers its hardware -- not the hardware itself. That emphasis gives the company a decent economic moat and spares it from offering a commoditized product that’ll see margin squeeze in step with the PC business. With a cash-flush balance sheet, EMC should be well prepared to spend its way to develop or acquire the next generation technologies it needs to stay ahead of the curve. With demand and trend in shareholders’ favor, we’re betting on shares for the week.
As of the most-recent preiod, EMC comprises 2.7% of the portfolio at Bill Miller's Legg Mason Capital Management and 1.4% of Primecap Management's portfolio.
Increasing consumer spending figures have been a catalyst for more than a few of the Rocket Stocks we’ve looked at in 2011. We’ve long anticipated that as consumers worldwide loosen the death-grip on their purse strings, aggregate demand for goods will quickly outpace Wall Street’s glum forecasts. One of the firms best-positioned to benefit is MasterCard (MA).
That’s because, like other credit card firms, MasterCard gets a generous cut of every transaction that crosses its global payment network -- one that includes its namesake brand in addition to Maestro and Cirrus. To be sure, I think that there are other attractive options right now in the payment business. Visa (V) and American Express (AXP) each have attributes that make them worthy of a second look in 2011, but our sentiment screen suggests Wall Street’s more focused on MasterCard right now, so we’ll follow suit.
MasterCard currently boasts a market share of around 31%, a strong position that’s been solidified with a marketing campaign and fee concessions that have made this payment network nearly universally accepted. While government pressures on the banking industry threaten to decrease the firm’s fee revenue, the company’s high margins and lack of exposure to consumer debt should at least somewhat insulate its income statement. As long as the uptick in spending continues, investors should expect similar results in their portfolios.
As of the most-recent period, MasterCard comprises 5% of the portfolio at Julian Robertson's Tiger Management. MasterCard showed up on a recent list of 40 value stocks with price momentum.
Starbucks (SBUX) is by far the largest coffeehouse chain in the world, with nearly 17,000 stores in 50 countries -- and right now, investor exuberance could mean elevated share prices in the near term. In the last two decades, Starbucks essentially created the premium coffee trend, which has since become a multi-billion-dollar industry in and of itself. But retail only has so much room to run; instead, the company has been leveraging its massive brand to dominate the grocery market as well.
Last week, the company announced a deal with Green Mountain Coffee Roasters (GMCR) that would make Starbucks the former’s exclusive super-premium coffee provider for its Keurig coffee makers. Keurig, GMCR’s single-cup breweing product, has seen prodigious growth in the last several years, and the decision should provide material growth for both stocks. For Starbucks, the GMCR deal represents a new growth channel for a stock that investors had already become weary of thanks to a nearly saturated retail market. It also builds on the growth of SBUX’s other successful grocery offerings, including VIA instant coffee and traditional coffee beans.
Starbucks has long proven that the premium coffee business is more than just a passing fad for consumers -- it’s here to stay for the long-term. But as consumers continue to look at more economical alternatives to $4 cups of coffee, Starbucks should be able to see growth in the grocery channel.
For more stocks that made this week’s cut, check out the Rocket Stocks portfolio at Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.