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5 Rocket Stocks to Buy in November - 18814 views
BALTIMORE (Stockpickr) -- Stocks are looking relatively flat at the outset this morning, despite more positive news from Europe. The impact of the eurozone on U.S. equity prices has been a major wakeup call for stateside investors -- it’s a reminder that major U.S. companies are tied to the economies across the pond.
It should come as no surprise, then, that volatility will continue to knock stocks around as long as the Greek (and other PIIGS) debt crisis remains unresolved.
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Going into this week, all three major indices are sitting right around breakeven (again) for 2011; that makes November’s price action all the more crucial. You can bet that investors will be watching closely to see whether we get a repeat performance of October’s 10.8% rally. To take full advantage of that positioning, it’s worth taking a look at five new Rocket Stock names.
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 128 weeks, our weekly list of five plays has outperformed the S&P 500 by 80.57%. This week, we’ll aim to continue beating the market with another set of names.
With that, here’s a look at this week’s Rocket Stocks.
$164 billion tech giant Oracle (ORCL), one of TheStreet Ratings' top-rated software stocks, is having a fairly flat year for shares in 2011, despite the firm’s stronghold on the enterprise software market right now. Year-to-date, shares of ORCL have gained 4% on the year -- still a tenuous gain.
Oracle is the league leader in database software, with nearly 45% of the coveted database software market using its solutions. That dominance is creating some significant cross-selling opportunities this year.
One of the biggest is support for its database products, which also happens to be the most profitable segments Oracle has. Together with software updates, support provides two large recurring sales streams; at present, they account for almost half of revenue.
Oracle has been building up its presence in the cloud, looking to offer a business and enterprise version of Apple’s (AAPL) consumer iCloud service. Enterprise clients want access to their applications and databases wherever they are, and Oracle’s public cloud is a logical step.
Financially, Oracle is in solid shape, with around $16 billion in net cash and net margins above 20%. That wherewithal should be useful considering Oracle’s acquisition-centric growth strategy. With analyst sentiment on the upswing, we’re betting on shares this week.
As long as we’re talking about financial health, it makes sense to bring up management consulting firm Accenture (ACN), one of TheStreet Rating's top-rated IT services stocks, which sports more than $5.7 billion in cash and no debt. Those huge coffers are thanks to Accenture’s attractive operations -- the firm serves more than 75% of the Fortune 500, with more than 220,000 employees worldwide.
Accenture’s bread and butter is in helping clients with the tools to increase profitability, deploy new technology and compete more effectively. While Wall Street has speculated about a major potential shortfall in “discretionary” expenses such as Accenture’s engagement fees, it’s an argument that’s never truly panned out. That’s largely because Accenture is able to point to specific contributions when it’s time to renew a consulting contract, justifying its existence and creating a high retention rate even now.
Shareholder returns have long been a high priority for management, as evidenced by a 2.3% dividend yield and a solid history of share buybacks. High margins and consistent sales growth should continue to fuel both going forward.
Adobe Systems (ADBE) is the biggest name in the digital content creation business, with legendary products such as Photoshop, Illustrator and Dreamweaver under its belt. The firm has entrenched itself with those big-ticket titles, resulting in exceptionally high customer stickiness and massive barriers to entry for any new competitors. If management can divert its attention from its distribution offerings and focus solely on content creation tools, Adobe will be better off.
Distribution formats such as Acrobat and Flash are also flying under Adobe’s banner, but their moats are far narrower. The increased popularity of open formats will likely help erode their share of the market in the next few years. In their place, Adobe should be pushing for its enterprise solutions -- such as its Omniture Web analytics suite and LiveCycle, a business process management tool.
A new subscription model for the firm’s tried content creation offerings is also interesting, but pricing is questionable right now. Although the lowered upfront cost could help handle Adobe’s piracy problems, paying $35 per month for Photoshop CS5 quickly becomes less attractive than shelling out the $199 to own the software outright. If Adobe can make subscription terms more attractive, it could stave off pirates without cannibalizing traditional sales.
With rising analyst sentiment in shares of Adobe right now, we’re betting on shares this week.
Stanley Black & Decker
Following the firm’s major merger in 2010, Stanley Black & Decker (SWK) is a very different company. SWK manufactures tools for DIY, construction and industrial customers, and provides security products and services for retail through institutional customers.
While the newly integrated Stanley and Black & Decker are still not a single cohesive company (merger charges are still hitting the bottom line), investors should expect some major cost savings once they are -- estimated at around $450 million by the end of next year. As the biggest maker of power tools in the world, the firm also has some attractive growth opportunities ahead of it. While the bursting of the housing bubble hit stocks with construction exposure hardest, SWK stands to benefit from an upswing in the DIY segment.
As appealing as that domestic growth looks right now, Stanley has the chance to make even more meaningful growth overseas. At present, sales to emerging market countries represent a tiny fraction of the top line. If management can take even a tiny international market share, it could completely transform this firm’s scale in the next few years.
Above all, SWK actually managed to close its merger in solid financial shape, which should help to quell investor concerns about a protracted adjustment period coming at a time when retail demand is soft.
2011 has been a banner year for Weight Watchers (WTW), one of TheStreet Ratings' top-rated consumer services stocks and the biggest name in the $55 billion weight loss industry. Shares of the firm have more than doubled from their January prices -- and now, this stock is positioned for more growth.
The weight loss industry is incredibly fragmented, which is part of the reason why Weight Watchers has found so much success. More than 1.8 million people attend the firm’s meetings each week, providing encouragement to customers and increasing the likelihood that they’ll stick around with the firm’s products.
While an increased online presence will likely to well for Weight Watchers’ top line, investors should expect at least some margin deterioration as retention wanes slightly and customer acquisition costs increase.
One major benefit of Weight Watchers’ scale is the firm’s omnipresence in the grocery aisle and increasing appearance of Weight Watchers point values on restaurant menus. For weight loss firms, choice is crucial -- by making food choice a more turnkey process, Weight Watchers is going to increase the likelihood of customer success and attract customers who were previously on the fence about taking on a new diet.
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.