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5 Rocket Stocks to Buy in June - views
BALTIMORE (Stockpickr) -- Stocks face-planted on Friday, but they're bouncing back in this morning's session thanks in part to some positive data coming out of Europe overnight.
Last week's drop in the S&P 500 won the title of the biggest 5-day span of selling for May. That's quite a feat considering the fact that all of that decline was compressed into a four-day trading week. But comments from Mario Draghi (and positive EU factory data) helped to pick stocks up from their bootstraps overnight. That should add onto U.S. stocks' propensity to bounce after Friday's selloff.
The mantra of "new month, new market" has been holding true for stocks since the calendar flipped over to 2013, so now, with stocks starting on the first trading session in June, we'll see if that continues to be the case. To take full advantage, we're turning to anew set of Rocket Stock names to beat Mr. Market.
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 202 weeks, our weekly list of five plays has outperformed the S&P 500 by 79.35%.
Without further ado, here's a look at this week's Rocket Stocks.
Oil and gas E&P EOG Resources (EOG) tops off our Rocket Stocks list this week. The $35 billion energy firm has seen its share price climb by just 7% year-to-date, paltry performance vs. the rest of the stock market -- but it's managed to beat the much-worse performance of the commodities that it trades this year, earning ample returns by comparison. EOG's energy sector outperformance this year has everything to do with its stellar execution.
EOG owns proven reserves of 1.8 billion barrels of oil equivalent spread across North America, with a smaller presence in Trinidad and Tobago, the UK, Argentina and China. Just under half of EOG's reserves come from crude oil -- the balance is made up of liquids-rich natural gas, an asset that's proven challenging for many firms as the commodity's market price skidded across multi-year low prices. But nat gas prices have rebounded in a minor way this year, a fact that's helped to buoy EOG's profitability.
As an expert in unconventional drilling situations, EOG is able to unlock profits that would typically go to specialist oil field servicers -- or be left in the ground. As less sophisticated E&Ps look to unload dried up fields, EOG's ability to pull extra oil and gas from them means that it can expand its balance sheet at a bargain price.
A strong financial position rounds out the picture in shares of this energy giant. With rising analyst sentiment in shares this week, we're betting on this Rocket Stock.
State Street (STT) may be a big bank, but it's nothing like its better-known banking peers. That's because State Street is a trust bank, which means that it focuses on asset management, custody and administration instead of retail and commercial lending. Because of that, State Street's revenues aren't earned on the spread between the rates they charge and the rates they pay; they're earned on stable fees.
That's an attractive business in an environment where interest rates are no longer a free market.
The rally in stocks is one of State Street's biggest tailwinds right now. Since the firm is paid based on the assets it has under management, expanding stock valuations mean that STT's revenues can expand in kind. So could ETFs. State Street is one of the biggest ETF sponsors in the market, issuing exchange-traded funds under the wildly popular SPDR brand; more products mean more revenues for State Street, so the increased emphasis on exotic asset classes in the ETF world bodes well for investors.
State Street made some big strides to shore up its financial condition during the financial crisis, and now, with that behind it, the firm's financials look attractive again. The firm is one of my favorite banks if only for the fact that it lacks the labyrinthine balance sheet and interest rate dependence that's harmed conventional banks' ability to earn profits in this market.
2013 is panning out to be a stellar year for shareholders of Gap (GPS). The $18 billion firm has rallied more than 30% since the first trading session in January, besting the S&P's ascent by more than double. Gap is the a specialty apparel retailer behind labels such as Old Navy, Banana Republic, Piperlime and Athleta in addition to its namesake Gap brand. In total, the company owns more than 3,000 stores spread across the world, with another 450 franchise locations in emerging markets.
That franchise model isn't particularly popular among apparel stocks, but it's proven prescient. By gaining access to high-growth markets without the need for boosting its CapEx growth, GPS can focus on its core business and still collect emerging market sales as a bonus. Gap's mass affluent target demographic is the golden goose for retailers, and Gap has been able to market to the group extremely well over the last few decades. That bodes well for the firm's financials when times are good -- and consumer spending continues to heat up in 2013.
Financially, Gap is in strong shape with more than $1.6 billion in cash to offset a $1.2 billion debt load. For a capital-intense retail name, a balance sheet with a net cash position means that it has more than enough wherewithal to handle any economic hiccups in the road.
Green Mountain Coffee Roasters
Gap's impressive rally year-to-date doesn't hold a candle to what's been happening in shares of Green Mountain Coffee Roasters (GMCR). Since the start of the year, GMCR has seen its share price climb approximately 77%. Green Mountain is one of the most heavily traded names on the Nasdaq, getting considerable attention because of the breakneck growth of its wildly successful Keurig coffee maker. The fast growth of Keurig and its single-serve K-Cups have also made GMCR a perennial short target.
Clearly, that short thesis isn't working out well for 2013.
K-Cups offer a sticky revenue stream for Green Mountain. Because they're proprietary, the firm can command premium pricing for them without too much encroachment from generic competition. Lately, GMCR has been introducing more interesting drink choices from its Keurig brewers (like hot cocoa or iced coffee) that should continue to drive sales numbers in 2013. Recent news that favored rival Starbucks (SBUX) is renewing and expanding its partnership with Green Mountain should be seen as the white flag that it is -- SBUX's rival Verismo brewer isn't destroying Keurig's share of the market.
GMCR isn't a bargain name right now -- far from it. But as long as momentum continues to shove shares higher, it makes sense to be an owner. We're riding shares of this Rocket Stock this week.
Last up is SanDisk (SNDK), the $14 billion data storage firm. SanDisk is one of the biggest firms in the flash memory market, a corner of the computer storage industry that's been ballooning in size as demand from mobile devices continues to expand quickly. 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.
That patent portfolio gives SNDK some big advantages -- it 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, lighter, 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 large net cash position helps to reduce some of the risk in shares of SNSK. The firm currently carries around 10% of its market capitalization in net cash, a major advantage over less-flush peers. While SNDK is far from a deep value name at current price levels, it's another name that's shown stellar relative strength this year.
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