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5 Rocket Stocks to Buy for December - views
BALTIMORE (Stockpickr) -- Stocks are pointing higher to start the week again, building on last week’s colossal 7.39% rally. That puts the S&P 500 right at breakeven for 2011, a significant psychological price level that could add fuel to the buying fire that’s come into play since Thanksgiving.
There are still some big barriers for stocks to overcome if 2011 is going to push into the black for most investors. According to data compiled by Morningstar, the average domestic stock fund’s performance is still in the red this year, dragged down by inopportune trading and management fees.
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That means that even if the S&P 500 can hold its head above water for the next few weeks, Main Street investors could still close the calendar year with portfolio losses. And let’s not forget that lingering uncertainty in the eurozone and Washington could still derail any upward momentum.
For now, the bullish pressure on the market is worth taking advantage of -- to do that, we’ll turn to a new set of Rocket Stock names this week…
For the uninitiated, “Rocket Stocks” are our list of companies with short-term gain catalysts and longer-term growth potential. To find them, I run a weekly quantitative screen that seeks out stocks with a combination of analyst upgrades and positive earnings surprises to identify rising analyst expectations, a bullish signal for stocks in any market. After all, where analysts’ expectations are increasing, institutional cash often follows.
In the last 131 weeks, our weekly list of five plays has outperformed the S&P 500 by 79.86%. With that, here’s a look at this week’s Rocket Stocks.
United Parcel Service
One of the bigger economic surprises from last week came in the form of better-than-expected consumer confidence data, a shift in sentiment that bodes well for United Parcel Service (UPS). As the largest parcel delivery company in the world, UPS delivers more than 15 million packages each day to customers in 220 countries. That scale is one of the biggest reasons why UPS is able to deliver consistent profitability for investors in this environment.
UPS operates in what’s effectively a package shipping duopoly, sharing the market with FedEx (FDX) here at home, as well as a few added players (namely DHL) internationally. While competition is fierce, UPS generates higher margins than its peers thanks to a service mix that’s weighted heavily toward higher-margin express shipping . That helps the company stand apart from FedEx, whose business is more driven by less profitable domestic ground shipping.
Shipping is an extremely capital-intense business. For a carrier to compete, it has to be willing to sink billions into building a network that spans all potential destinations, replete with the aircraft, trucks, and delivery vans to get them there. As economic activity starts to show signs of growth again, this shipper should be an early beneficiary.
It’s been a phenomenal year for Intuitive Surgical (ISRG); shares of the $17 billion surgical system maker have climbed more than 68% year-to-date, making it one of the 10 best-performing S&P 500 stocks heading into 2012. Now the question is whether the company can keep up that level of relative strength up as we approach 2012.
Intuitive manufactures a robotic system for minimally invasive surgeries called the da Vinci Surgical System. Da Vinci has been a popular option for surgeons who are looking for ways to perform surgeries that are less damaging to patients than traditional methods, and with an installed base of around 2,000 systems sold, Intuitive has the scale to maintain its dominance on the market.
Because Intuitive sells the systems as well as disposable surgical equipment that’s compatible with the da Vinci System, the company has been growing its recurring revenue base in recent years. That’s an attractive feature if capital spending on medical equipment slows in the next few years.
The success Intuitive has seen in the last few years has attracted the attention of new competitors. While rivals are still behind Intuitive’s technology curve, they could potentially challenge the firm’s positioning if it’s unable to keep innovating. A hefty cash position and no debt should provide ample capital to fund R&D going forward.
Intuitive is one of TheStreet Ratings' top-rated health care equipment stocks.
While mass media company CBS (CBS) is best known for its eponymous TV network, the firm also owns cable and radio networks, a large billboard advertising business and a book publishing arm. As America’s most-watched network in 2011, CBS has considerable experience monetizing its viewers in a challenging market for ad sellers -- and it’s proven adept at leveraging its massive content portfolio for distribution outside of network TV.
CBS owns Showtime, a premium cable network that collects subscription fees from viewers. While smaller than standard-bearer HBO, Showtime has seen success in its original programming in recent years. Because HBO’s been so successful at getting subscribers to pay extra for its content, Showtime is actually in a better position to convince viewers to subscribe to its channel as well. The paid TV business offers CBS one of the most attractive growth avenues right now, even if it’s not as scalable as the company would hope.
Long-term, increased advertising rates are the most direct way for CBS investors to see increased profits. Because both the network TV and outdoor advertising segments are directly impacted by the rates CBS can collect for ads, it’s going to be crucial for rates to rebound in a meaningful way. With rising analyst sentiment on track for this stock right now, we’re betting on shares this week.
Also betting on CBS recently is David Einhorn's Greenlight Capital, which initiated a new 5 million-share position in the stock in the third quarter. The stock also shows up in Ken Heebner's Capital Growth Management portfolio.
Visa (V) is the largest payment network by far, with a logo that’s on around 60% of the credit and debit cards in the world’s wallets. Because payment networks have exceptionally high barriers to entry, Visa’s scale is a massive advantage over would-be rivals. Nearly universal acceptance among retailers drives customers to its cards, which in turn drives consumers to seek out Visa on their cards.
One of the most attractive elements of Visa’s business is its lack of exposure to credit risks. Visa is just the processor, not the lender, on credit accounts. That means that Visa benefits from the dollar volume of transactions that a customer charges, but the firm doesn’t directly lose if that same customer defaults on his account.
Visa was also one of the first payment networks to embrace debit cards, a move that’s provided the firm with a small advantage over competitors such as MasterCard (MA), who are still playing catch up.
In general, the trend in payments is moving toward electronic versus physical (cash and checks). As that trend continues, all payment processing networks should benefit from the increased dollar volume.
Apparel retailer Gap (GPS) is the parent company of a strong portfolio of brands, made up of Gap, Old Navy, Banana Republic, Piperlime and Athleta. Because Gap owns names that span the price and style spectrums, it’s better able to spot trends that it can bring across its other labels, and it’s better suited to weather soft spending environments.
In recent years, Gap has been working on shoring up its margins by shuttering underperforming stores and franchising international locations to investors who are willing to take on the risks of new markets. It’s a smart strategy because it gives Gap an opportunity to refine the oversaturated U.S. market while dipping its toe into international markets that are unlike the U.S. As Gap expands its presence in places like the Middle East and Asia, it should be able to eke out meaningful growth.
We’re betting on shares this week on the heels of bullish analyst sentiment.
To see all of this week’s Rocket Stocks in action, 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.