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5 Rocket Stocks to Buy for Earnings Season - views
BALTIMORE (Stockpickr) -- It's earnings season -- that time each quarter when investors get to drink fundamental data through a fire hose instead of a straw. And right now, the Rocket Stocks are fueling up.
For most of the year, Wall Street is kept in the dark -- until earnings season, that is. When earnings get released, they have the potential to significantly move stock prices in either direction. After all, they're one of just four chances each year to synch up investor projections and anticipation with reality.
Not all names have the same chance of a big move higher during earnings season. That's why we're turning to afresh set of Rocket Stocks to start the 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 208 weeks, our weekly list of five plays has outperformed the S&P 500 by 81.15%.
Without further ado, here's a look at this week's Rocket Stocks.
After four and a half decades of retail apparel experience, Gap (GPS) knows a thing or two about selling clothes. Today, the $21 billion firm owns Old Navy, Banana Republic, Piperlime and Athleta in addition to its namesake Gap brand. All together, that adds up to more than 3,000 stores spread across the world, with another 500 franchise locations in emerging markets.
While the risks of swaying consumer fashion preferences are one of the biggest downsides to the apparel business, Gap's core demographics are the envy of its peers. The firm has made a huge business out of courting upscale mass affluent consumers, a golden goose for most firms. Because the consumers Gap targets tend to spend more per capita than the norm, it gets more from the traffic that comes into its mall locations. While some of Gap's sub-brands skew away from that niche, it's not by far.
There's also a lot to be said for Gap's franchise model overseas. By gaining access to high-growth markets without the need for boosting its CapEx, GPS can focus on its core business in the markets it's most familiar with and still collect emerging market sales as a bonus.
Gap is in solid financial shape, with $1.6 billion in cash to offset a $1.24 billion debt load. Watch out for Aug. 22 earnings.
AvalonBay Communities (AVB) is one of the biggest residential REITs in the world, with 173 communities in its portfolio that span approximately 51,000 apartment units -- and more are on the way. That residential focus means that AVB isn't your typical REIT. Dealing with homeowners comes with its own set of risks and rewards that's markedly different from the commercial market. But that shouldn't scare investors off.
Major tailwinds have been pushing at the backs of multifamily residential unit owners. For starters, the aftershock of the Great Recession made consumers more reluctant to buy (or unable to), and it left commercial developers more reluctant to start new residential projects. Those forces helped to boost demand (and rents) at AVB's well-positioned communities. Because AvalonBay focuses its portfolio in affluent metro areas from New York to San Francisco, the firm has enjoyed strong demand and occupancy despite the housing hiccups.
On the flip side, AVB doesn't have the same characteristics that you'd find in a commercial REIT -- super long-term leases and maintenance paid for by the tenant are out of the question, for instance -- but the firm has still managed to churn out a respectable income payout. At their core, after all, REITs are essentially purpose-built income-generation vehicles. AVB's attractive positioning helps make it the best-in-breed among housing REITs. Right now, the firm pays out a 3% dividend yield.
Flash memory maker SanDisk (SNDK) is one of the biggest firms in the high-end storage niche, a market that's been ballooning in size as demand from mobile devices and low-latency enterprise installations eats up all of the supply of flash memory. SanDisk's revenue streams include retail and OEM sales as well as licensing fees earned from other memory makers that want to use SNDK's portfolio of patents.
You may already be using SanDisk's drives, even if you don't know it: the firm supplies the NAND flash memory in the iPhone 5, for example, as well as the storage media used by many different types of cameras. Better still, a robust patent portfolio means that the firm benefits from the overall growth of the NAND flash memory market, regardless of who's manufacturing the memory.
Flash has some major plusses over conventional hard disk drives; it's faster, it's lighter, it uses few moving parts, and it's impervious to bumps and shocks. Since flash memory is projected to continue to grow in popularity as pricing comes down, that's a huge advantage for SNDK. A net cash position of $1.8 billion on its balance sheet means that SNDK has plenty of dry powder available to consolidate with other firms and keep its huge position in the flash memory business in the years to come.
With rising analyst sentiment in this stock right now, we're betting on shares.
A lot has changed at apparel maker PVH (PVH) since my days working at a Van Heusen outlet store in college -- including its name. Today, the firm owns a massive portfolio of brands that includes Tommy Hilfiger, Calvin Klein, Van Heusen and IZOD. The firm's licensee portfolio ranges from Kenneth Cole New York to BCBG Max Azria.
PVH scored a major coup in 2010 when it acquired Tommy Hilfiger. The purchase (at Great Recession prices) ballooned the scale of PVH's operations, and while it wasn't exactly well received by Wall Street when it was announced, it's proven prescient in the years since. Today, Hilfiger alone makes up more than 40% of PVH's total sales -- and the company is hard at work to add new names to its book of brands.
Because PVH has considerable scale, it's able to consolidate manufacturing across multiple brands for bigger margins. One recurring cash cow for PVH is dress shirts and ties frankly, they're boring businesses, which makes them hard for rivals to wrestle from PVH. As long as this large-cap can continue to support swelling top-line growth numbers, investors should win out. The firm reports second-quarter earnings on Aug. 26.
US Airways Group
2013 has been a strong year for US Airways Group (LCC) -- shares of the mid-cap airline have rallied more than 35% since the calendar flipped over to the new year. A lot of that upside has come from the merger with AMR (AAMRQ) that was announced in February. When closed, the deal will create the largest airline in the world.
Richard Branson is attributed with saying that the best way to become a millionaire is to be a billionaire and then buy an airline. Until its recent turnaround maneuvers, US Airways was a pretty good example of that advice. But the firm has taken big strides to fill the gaps in its network and compete with better-positioned rivals -- without taking on more leverage in the process. LCC is the big winner in the merger with AMR; even though LCC is the more financially stable name at the moment, AMR's massive network and lucrative routes will make the combined company much more valuable once broken cost structures get sorted out.
The downward pressure on fuel prices in 2013 has been a boon to LCC's bottom line this year, and it's likely to remain the case -- especially as hedging helps to keep this airlines crude oil exposure mitigated. US Airways isn't without risks right now, especially as the merger gets closer, but it's trading at a discount and the combined firm will have a long runway in front of it. Watch out for earnings that'll impact shares in today's session.
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