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5 Rocket Stocks to Buy Now - views
BALTIMORE (Stockpickr) -- As earnings season draws to a close, investors are getting antsy. Last week's 2.1% drop in the S&P 500 may be pretty perfunctory by normal standards, but it's a colossal drop in the context of the low volatility that's characterized the stock market in 2013.
It's worth noting that the biggest gains in this rally haven't come during earnings. Instead, the rally legs in the broad market have come after earnings season ended each quarter -- that's when investors could stop panicking about the possibility of a big earnings miss and speculate about a firm's upside. So with earnings season all but over for this quarter, it makes sense to start buying again.
To figure out which names are worth adding, we're turning to a fresh set of Rocket Stocks 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 212 weeks, our weekly list of five plays has outperformed the S&P 500 by 87%.
Without further ado, here's a look at this week's Rocket Stocks.
Calling 2013 a big year for real estate Web company Trulia (TRLA) is a bit of an understatement -- shares of the recent IPO are up 184% since the calendar flipped over to January. Trulia's Web site is a search engine for buying and renting homes, a business that provides ample selling opportunities for home advertising and mortgage leads. And Trulia passes my tech IPO sniff-test: The firm earns its revenue from efforts directly in-line with helping customers find what they're looking for on the site.
As housing prices find some upward mobility again, sites like Trulia are well-positioned to take advantage of increased real estate transactions. And investors are betting that a rising tide will lift all ships. After all, Trulia is far from without competition. But today, around half of the $24 billion realtors spent on advertising each year gets pushed towards offline efforts, a medium that only attracts 11% of homebuyers. As realtors realign their spending efforts more towards online, both Trulia and its competitors have room to benefit.
Trulia's July 31 earnings call came with an important highlight: the firm posted an adjusted profit per share. The idea that profitability is within reach for TRLA is encouraging -- especially since Trulia is still focused on spending its way to bigger market share. Relative strength has been stellar for this stock in 2013, and that looks likely to carry over to the second half of the year too.
From a recent IPO to one of the most staid blue chips on the NYSE: General Electric (GE).
GE is one of the biggest industrial names in the world, with a hand in everything from making jet engines to wind turbines to medical equipment. At first, GE's businesses look disparate: What does a refrigerator have to do with a sonogram machine? But the firm has found great success in making the puzzle pieces fit together and share technologies and customers across business lines. For instance, the wind turbine business can benefit from the advances the firm is making in its jet engine business, and both can finance customers' capital-intense purchases through the GE Capital unit.
Not surprisingly, GE's fortunes ebb and flow very tightly with the broad economy. That meant that the firm got shellacked along with the rest of the market in 2008, and it also means that the firm has been benefitting in a big way in 2013. With firms sitting on record levels of corporate cash right now, GE's ability to sell big-ticket infrastructure investments is better than ever.
GE Capital is another unit that's enjoying good times. The captive finance arm almost sunk GE just a few years ago thanks to huge bets on the consumer sector, but most of the skeletons have been shaken out of the closet at this point. Still, GE's financial arm still makes up a huge part of the firm's total business, so don't forget that GE is just as much a financial sector name as it is an industrial stock. With rising analyst sentiment flowing into shares of this Rocket Stock, we're betting on upside today.
AT&T (T) doesn't get the credit it's due. While the firm's mobile arm does come in at a close second to top rival Verizon (VZ) AT&T investors actually own the larger wireless communications company. Don't follow? The big difference is that AT&T owns its Mobility unit outright, whereas Verizon just owns 55% of its cell phone carrier. That gives AT&T shareholders some important advantages.
In 2007, AT&T landed a huge coup when it gained exclusive rights to the original iPhone. The device was transformational to AT&T's business, nabbing an enormous share of lucrative smartphone users as consumers flocked to the device. While that exclusivity is no more, around 40% of its customers are iPhone users. That's prompting AT&T to work out similar deals in the future. At launch next month, the firm will be the only carrier that allows users to order custom Moto X handsets, an upcoming flagship phone that's getting a lot of attention from mobile tech reviewers. While the setup won't repeat iPhone's amazing performance for AT&T, it could give the carrier an edge among hardcore Android fans.
Let's not forget that AT&T isn't just a wireless company. The firm is also one of the biggest fixed-line utilities in the country, powering something like 37 million phone lines, 16 million internet accounts, and 4 million TV accounts. While that business isn't nearly as exciting as mobile, it does provide predictable recurring revenues -- fuel for the firm's hefty 5.2% dividend payout.
Pandora Media (P) is another not-so-recent IPO name that's posted stellar performance in 2013; shares have climbed 121% since the start of the year. As of this writing, shares of the internet radio site are sitting right at all-time highs, a fact that brings a considerable psychological boost for investors. And the firm's fundamentals don't hurt either.
Even if profitability hasn't been on the table for Pandora, revenue growth has been stair-step since the firm launched. Around half of Pandora's current users have joined within the last two years, an indication of this firm's growth rate. With more than 71 million active users consuming 1.3 billion hours of listening, the firm's scale affords it the ability to negotiate licensing and advertising deals effectively. Pandora's extremely low use barriers, widespread integration with vehicles and home devices, and massive music library make acquiring new listeners easy, but the fact is that keeping them is a challenge.
Rivals such as SiriusXM Radio (SIRI) and Apple's (AAPL) new iTunes Radio service could threaten Pandora's share if the firm doesn't add on some new exclusives to its offerings. Meanwhile, a spotless balance sheet and ample access to the capital markets help reduce the operational risks of buying shares right now. Make no mistake, Pandora isn't cheap by any stretch of the imagination -- but shares of this Rocket Stock look well positioned for more upside in the near-term.
Software behemoth Microsoft (MSFT) has been getting a lot of attention recently from one of the smallest corners of its business: the upcoming Xbox One. All the while, the firm's industry-leading operating system and application software is generating massive cash flows for investors -- and supporting MSFT's nearly 3% yield.
Microsoft is at a turning point right now. As mobile devices take more and more work that was once done by full-fledged PCs, Microsoft knows that it needs to have a more dominant share of the market. To do that, it's been releasing new phones and tablets, hoping to capture a bigger share from top-names Apple and Google (GOOG). Even though MSFT's results have been tepid, now's the right time for the firm to spend the R&D to try to create the "next big thing" for shareholders.
That's because the lion's share of the firm's sales still come from software franchises like the Windows OS and the Office suite of applications, sticky revenues that can easily support the firm's development costs, on top of large payouts to shareholders. And with close to $60 billion worth of net cash and investments on its balance sheet, Microsoft has plenty of dry powder to keep on looking for ways to bridge the gap between its core products and your mobile devices. With rising analyst sentiment in shares this week, we're betting on shares.
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