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5 Rocket Stocks to Buy for Earnings Season - views
The broad market has been stuck in a "no man's land" of sorts after the S&P 500 and the Dow violated the trendlines that had been propping stocks up since November. Earnings season could be just the antidote to reset us back to more directional trading. Already, corporate earnings have ratcheted their way to new record highs in 2013 -- but as analysts on Wall Street dampen their expectations for the quarter, the possibility of big earnings surprises is certainly on the table.
That could help jump-start another leg to this extended rally in stocks.
To take full advantage of all the extra eyes on the market this week, we're turning to anew set of Rocket Stocks.
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 207 weeks, our weekly list of five plays has outperformed the S&P 500 by 80.72%.
Without further ado, here's a look at this week's Rocket Stocks.
First up is Schlumberger (SLB), the $98 billion oil service provider. Schlumberger is one of the biggest stocks in the energy sector, with more than 118,000 employees providing everything from drilling services to seismic surveys to artificial lifting. The firm's customers range from small independent exploration and production firms to the biggest oil and gas supermajors in the world.
In short, oil firms turn to Schlumberger because the tasks they need to accomplish are too nuanced or proprietary to pull off in-house. Instead of spending the effort and costs to handle their own drilling, for example, it makes much more sense for an oil production firm to contract the work out to SLB and its massive array of specialized technology. So as long as Schlumberger continues to pour cash into R&D for drilling technology and software, the firm should continue to score lucrative contracts.
Schlumberger's job is to go where the oil and gas are. The firm has operations in 85 countries, a fact that provides considerable international diversification. Right now, many of SLB's most attractive markets aren't oil-rich Middle Eastern countries -- they're places like Russia and Latin America where national oil firms are working to ramp up their capacities atop resource-rich land. Stay tuned; SLB announces its earnings on July 19.
United Technologies (UTX) is an industrial conglomerate that owns a handful of construction, aviation and security products, ranging from Carrier air conditioners to Sikorsky helicopters. At first glance, there doesn't seem to be much connecting those disparate products, but the firm has been hard at work finding connecting threads to cut costs and boost sales.
Certainly, one major similarity between UTX's businesses is that they're extremely cyclical and capital intense. Many key businesses, like Otis Elevators and Carrier, are heavily tied to commercial building -- an industry that's been back on track in recent years. While money remains extremely cheap, UTX has a little added shot in the arm.
Lately, United Technologies has been investing more money in its aerospace businesses. The acquisition of Goodrich last year dramatically boosted the firm's total exposure to aircraft building (and ramped UTX's debt up in the process). So far, it looks like management timed the cycle well: as next-gen airliners continue to lure customers with the promise of game-changing efficiency, UTX should continue to grow its top line in 2013.
With rising analyst sentiment in shares, we're betting on this Rocket Stock this week.
It's been a pretty tepid year for Intuitive Surgical (ISRG); shares of the robotic surgical system maker have climbed less than 3% since the calendar flipped over to 2013. But that sluggish price action hasn't reflected the fundamental strength that's been taking shape in shares of the firm. This stock's sales and profits continue to stair-step higher. And that's a very good thing for investors this year.
ISRG makes robotic surgical systems for hospitals that want to be able to perform less-invasive surgeries than would be possible if done by a surgeon's hand. The firm's da Vinci system is currently deployed in more than 2,500 hospitals around the globe -- and that huge installed base comes with some big benefits. The da Vinci system is effectively the only established robotic surgery tool out there. As a growing number of surgeons get trained on the da Vinci system, switching costs of adopting a new platform start to get quite high, giving ISRG a sticky customer base and a big competitive advantage.
That's parlayed over to sales too. Since ISRG earns revenues by selling surgical systems and the instruments they use, more machines and more surgeries mean more consumable sales. The lackluster price action this year has made this stock look a whole lot cheaper than it was a year ago -- and that bargain could get bigger when ISRG reports earnings on July 18.
Ford Motor (F), on the other hand, has turned out some stellar price action in 2013 -- and it still sports a bargain price tag. Year-to-date, Ford has rallied 29%, besting the S&P's otherwise impressive run by a factor of two. Strong auto sales should provide a strong tailwind for Ford in the second half of the year.
Ford remains the best-in-breed Detroit automaker, if only for the fact that it's the only one that emerged from the Great Recession without having gone through a bankruptcy to stay afloat. The firm's investment-grade credit rating means that Ford retains cheap access to cash -- but it also serves as a sign of just how far Ford has come. The firm's renaissance isn't just financial. Ford took the hint from consumers, dramatically improving quality and product lineups with a series of redesigned and well-received models.
There are still a couple of black clouds over Ford. The biggest is the Eurozone, a region that currently contributes around 20% of total sales. As economic concerns continue to grab the headlines in the EU, Ford has some risks ahead. Another challenge comes from union negotiations; a return to the unsustainable payouts from the pre-recession days would be catastrophic for profits. But a happier middle ground is more likely with union leaders at this point.
Ford's revamped lineup (including actually giving its Lincoln badge an identity in the marketplace) should continue to drive profits this year. The firm announces its earnings numbers on July 22.
With the S&P's uptrend still broken, it makes sense to add a defensive name to the mix. We've got that with Dollar Tree (DLTR). Dollar Tree is the largest "dollar store" chain in the U.S., boasting more than 4,200 stores in 48 states and Washington D.C. The firm's deep bargain offerings have attracted a whole new set of shoppers in the wake of the recession -- and prolonged high unemployment levels are keeping sales high at the chain.
Consumer household debt has dropped dramatically since 2007 -- and it's not at multi-decade lows. That's indicative of the change in mindset for Americans when it comes to spending patterns. And as Americans pinch their pennies a little harder, Dollar Tree has been the chief beneficiary of the trend. The firm's "everything for $1" model sounds like it comes with thin margins, but in fact, DLTR boasts pretty substantial levels of profitability for the retail sector. Thanks to an upgraded point of sale system that accepts credit cards and EBT payments, the firm has made it easier than ever for shoppers to spend money within its walls -- and they're sticking around.
But the $1 model is built around rough economic seas -- a memory that won't last forever. To avoid consumers trading up and out of Dollar Tree stores, the firm has launched a multi-price point Deal$ chain that offers more merchandising flexibility for the firm. Dollar Tree reports its second quarter numbers in late August, but we're betting on shares of this Rocket Stock now.
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, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.
Follow Jonas on Twitter @JonasElmerraji
Follow Jonas on Twitter @JonasElmerraji