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5 Rocket Stocks to Buy Before Turkey Day - views
BALTIMORE (Stockpickr) -- Investors are getting heartburn this week, and it's not just from the turkey and mashed potatoes everyone will be eating on Thursday. Stocks have been in pullback mode for the last month and change, and that has investors nervous about what's still to come for their portfolios this year.
But with Thanksgiving's shortened trading week upon us, weary investors could very well be due for a change -- historically, Thanksgiving offers a strong push for stocks. If nothing else, market reprieves on Thursday and half of Black Friday will offer investors a chance to sit back and mentally absorb the price action that we've been dealing with of late.
Even though we're looking at a shortened week, there are still market moves worth making. That's why we're taking a closer look at five new 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 177 weeks, our weekly list of five plays has outperformed the S&P 500 by 75.67%.
Without further ado, here's a look at this week's Rocket Stocks.
We'll start off with biopharmaceutical firm AstraZeneca plc (AZN) -- and no, it's not just because the firm's heartburn drug, Nexium, could see a sales boost come Turkey Day. AstraZeneca is a $55 billion pharmaceutical stock with an impressive portfolio of brand name drugs and a truly worldwide presence. The firm generates less than 40% of sales in the United States, and it's been working hard to increase its exposure to high-growth emerging markets.
AstraZeneca's strong brands have had some impressive performance. Even drugs with recent generic competition have been able to boost their market share thanks to strong marketing campaigns, easing some worries about the patent cliff that AZN has looming on the horizon. Even so, patent dropoffs are still a big concern right now -- AstraZeneca is just coming off the expiration of blockbuster Lipitor's patent protection. To counter that, management has been very cost-conscious, cutting down on potential earnings drags further down the income statement.
Speaking of financials, AZN boasts a strong balance sheet too, with close to $7 billion in cash that helps to offset $11 billion in debt built up from an acquisition-hungry approach. That liquidity leaves the firm with ample dry powder to buy a bigger drug pipeline. With rising analyst sentiment in play this week, we're betting on shares.
As the holiday season kicks into high gear, Costco Wholesale (COST) is readying itself for the rush. The standard bearer in the club store business, Costco boasts more than 430 warehouse stores with sales per square foot that come in at nearly twice what its biggest competitor (Wal-Mart (WMT) subsidiary Sam's Club) can pull off.
Costco's not willing to take just anyone's money -- you have to be a member. While that model sounds like sacrilege to most folks with retail experience, Costco has proven that it works. By selling exclusively to its 64 million members, the firm can cut its margins to nearly zero, while still earning tidy profits on its $55 and $110 annual membership fees (for regular and executive memberships, respectively). Because consumers are less likely to carry memberships from competing wholesale clubs, Costco's existing base of higher-spending customers gives the firm a shallow economic moat versus its peers.
Where other firms have struggled bringing the warehouse store abroad, Costco's international locations are actually profitable, a testament to this chain's ability to perform in geographic regions with starkly different cost structures. Costco's balance sheet currently sports a deep net cash position, with almost $5 billion in cold hard cash offsetting a $1.3 billion debt load. Stair step sales and income growth over the last several years (and in spite of the Great Recession) give this firm a stellar trajectory for 2013.
Target (TGT) is another retail name that's making our Rocket Stocks list this week. The big box store chain operates under a very different model than Costco's, but it's equally impressive as consumers start gearing up on Red Bull and NoDoz for the Black Friday rush. Target has a much bigger reach too -- the firm boasts approximately 1,800 stores in North America.
Right now, Target is hard at work reducing its margins. And that's actually a good thing. Across the country, Target stores are getting revamped with new grocery options for shoppers, a move that isn't intended as a growth engine in and of itself, but rather as a new way to get people inside its doors to get them buying other products. While the addition of grocery will dilute margins for TGT, it should translate into bigger absolute profits, a very good thing for investors.
Like Costco, Target's biggest competitor is Wal-Mart. But Target's pitch to a slightly higher end of the consumer demographic has worked -- and so has the effort that Target has poured into its private label brands. Today, around 20% of sales come from Target's own brand, a fact that helps to boost margins to mid-single digits. This firm's Black Friday sales could be a big catalyst for investors at the end of the year.
2012 has been a strong year for Akamai Technologies (AKAM) -- the $6.4 billion internet CDN provider is up close to 12%, besting the broad market by a respectable margin. Akamai's main business is built on helping companies speed up their web content and serve media more quickly to visitors. That's been an attractive business in the last couple of years as cloud computing increases consumers' reliance on web-based content.
Akamai boasts some significant infrastructure. The firm's 95,000 servers are positioned to collocate content closer to the users who need that content, a simple task on its face that's enough of a technical challenge to warrant the hefty paychecks Akamai earns for its trouble. Competition has been ramping up in recent years, as the cloud computing buzzword attracts more tech firms, particularly from niches that are struggling right now. Even so, Akamai has proven its long-term wherewithal, and a rising tide should continue to lift all ships for the foreseeable future.
Akamai's finances are in stellar shape, with more than a billion dollars in cash and investments and no debt. That, coupled with deep double-digit net margins, should keep investors interested in this stock. While AKAM is hardly a value name, it should be able to keep up its momentum into 2013.
Last up on this week's list of Rocket Stocks is Priceline.com (PCLN), the $31 billion travel site. Priceline has made a stellar run so far this year, rallying more than 31% since the first trading day of 2012. While that's down from the initial run that this stock showed off into May, PCLN looks like it's consolidating for a second leg higher in the fourth quarter of 2012.
Priceline has its sights set overseas -- and that's a very good thing. The U.S. travel market is largely commoditized at this point. It's becoming increasingly common for travel sites to pen "lowest price" guarantees with hotels, a phenomenon that effectively means that it doesn't matter where you buy your next trip; you're probably going to end up paying the same price anyway.
But there is a lot more flexibility abroad, particularly in emerging markets in Asia and Latin America. There, consumers are looking for travel outlets that have the biggest inventories of rooms and air carriers, and experienced travel firms like Priceline are well positioned to take advantage as a result. In the meantime, Priceline's strong brand recognition and current share of the market here at home should continue to pad its profitability in spite of margin squeeze -- those margins have a lot of room to squeeze before PCLN has to worry.
To see all of this week's Rocket Stocks in action, check out the Rocket Stocks portfolio at Stockpickr.
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.