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5 Rocket Stocks to Buy for July - views
BALTIMORE (Stockpickr) -- Stocks are kicking off July with a shortened trading month -- markets close early on Wednesday and all day on Thursday for the July 4 holiday. One result of that bifurcated schedule is lower trading volumes in the latter half of the week. You can bet that traders will be taking Friday off en masse.
And that's especially interesting because of where stocks are sitting right now.
As I write, the S&P 500 is making yet another (so far unsuccessful) attempt at closing recapturing the uptrend that was in force for most of 2013. In other words, investors are going on vacation at a technically significant time for stocks. That should make for some interesting price action this week.
To hedge our bets, we're turning to a new set of Rocket Stocks for 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 206 weeks, our weekly list of five plays has outperformed the S&P 500 by 79.52%.
Without further ado, here's a look at this week's Rocket Stocks.
If 2013 has been a great year for stocks in general, it's been a phenomenal year for Cisco Systems (CSCO). Shares of the $130 billion IP networking giant have rallied 24% year-to-date, beating the broad market's impressive ascent by 10%.
Cisco is the world's biggest manufacturer of data networking equipment and software, a niche that's benefitted in a big way from the rising tide of data demands in consumer products. Now Cisco looks well positioned for the second half of 2013.
Cisco has the biggest installed base in the business, a size advantage that comes with some big tailwinds. Because Cisco's routers, hubs and switches proliferate firms' datacenters across the world, it's significantly cheaper for those firms to grow their infrastructure by plugging in additional Cisco components. That adds considerable stickiness for Cisco in spite of rising competition from rivals. While growing data consumption should be a boon to the whole IP infrastructure industry in the years ahead, Cisco's positioning all but guarantees the firm a bigger benefit.
A refocused business approach in the last few years has left investors with a more enterprise-centric firm -- Cisco shuttered its flailing consumer products business (with the exception of networking gear) in the wake of the Great Recession. While hefty cash generation may tempt management to make questionable investments, that's a good problem to have.
As I write, around a quarter of Cisco's market capitalization is paid for in cash, which gives the firm a cash-adjusted P/E ratio of just 10. In short, Cisco looks cheap in spite of it's rally this year.
American Express (AXP) may not be the biggest payment network on earth, but it's certainly one of the most attractive from an investment standpoint. The $83 billion financial firm has spent the last 163 years building up one of the most storied brands in the world -- and its flagship charge card products remain extremely attractive six decades after the first green card was issued.
AmEx is the bane of many of its merchants. The firm is known for charging the highest fees of any card network, but merchants continue to pay those fees because of the dollar volume that the firm's network generates. American Express isn't the largest payment network, but its per-capita spending dwarfs the numbers generates on Visa (V) or MasterCard (MA). The firm's spend-centric model means that it's less incentivized by the high card balances that got other lenders in trouble in 2008, and newer partnerships with third-party issuers mean that it should stay that way.
The huge swath of consumer data that American Express retains on its cardholders is another important asset that it's only just starting to monetize in a meaningful way. As marketers focus increasing resources on targeted ads, AmEx's database gains more and more value. In the meantime, a skew towards more affluent consumers in its membership rolls should mean a bigger impact from consumer spending increases this year.
There isn't much that's sexy about Union Pacific (UNP) -- until you look at the railroad's price action, that is. Shares of the freight transportation giant have rallied more than 23% so far this year. And the fundamental performance at UNP doesn't show any signs of losing steam in the second half of the year.
Union Pacific is the largest railroad in North America, with more than 32,000 miles of track that links 23 states, Canada and Mexico. And even though railroads strike most consumers as an antiquated means of transportation, the fact is that modern U.S. rail transports is an exceptionally efficient means of moving massive volumes of freight across the country. Compared with trucks, rail shipping generally costs around one-fourth as much per ton shipped, which makes trains a critically important part of the nation's transport infrastructure as oil prices tick higher.
UNP has made operational leaps and bounds in the last five years or so. It improved its internal efficiency numbers dramatically in the years following the recession, carving out higher profit margins just as volatility in fuel prices spurred increased rail transport volumes. Now, as UNP benefits from the heated economic engine in the U.S., it's posting record numbers again.
With rising analyst sentiment in UNP this week, we're betting on shares.
LinkedIn (LNKD) stands out as the IPO success story of 2011. Since going public, the professional social network has more than doubled in price, avoiding the unceremonious drops in other social media names such Facebook (FB). LinkedIn's advantage comes from a simple reality: It's only social network that's actually monetized helping users do what they want to do.
LinkedIn's eponymous Web site connects more than 215 million users with colleagues who can help them land jobs, fill them or figure out business problems. While other social media firms earn revenue by distracting their users from what they're trying to do (and getting them to click on ads while stalking their friends, for instance), LNKD makes money by helping users with the exact task they're trying to accomplish: find a job, network or hire someone. That seems like a small distinction, but it's critical to LinkedIn's ability to make money off of each user.
The shaky jobs market of the last few years has actually been a positive factor for LinkedIn, spurring more users to log onto the firm's website to hunt for jobs or candidates. That, in turn, has helped to drive revenues at LinkedIn. There's no question that shares of LNKD are expensive at their current valuation. Still, with this stock's breakneck growth and momentum in its price action, it makes sense to bet on shares this week.
Americans love their pets -- and that's been the secret to PetSmart's (PETM) success.
PetSmart is one of the largest pet supply retailers in the country, with 1,250 large-format stores across the country. The firm sells everything from pet food to supplies and toys to smaller pets in its locations; it also provides grooming, training, and veterinary services inside its stores. More than half of PetSmart's sales come from consumables such as food, treats and cat litter. As a result, the firm has hefty recurring revenue generation. PETM also has a big advantage in its store size. While most grocery stores stock pet supplies, they can't offer the selection at a big box store that's only focused on pets. That keeps traffic coming into PetSmart.
How much Americans love their pets is another important trend for PetSmart. Consumers have been consistently increasing their spending on pets each year for decades. As pets get treated more and more like full-fledged family members, that trend is very unlikely to reverse. Expect that spending trend to continue to be a solid catalyst for PETM in 2013.
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