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5 Rocket Stocks to Buy This Week - views
NEW YORK (TheStreet) -- When others are fearful and shy away from stocks, it can give us an opprtunity to buy. That’s why we’re turning to a new set of Rocket Stocks.
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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 151 weeks, our weekly list of five plays has outperformed the S&P 500 by 82.72%.
With that, here’s a look at this week’s Rocket Stocks.
Aircraft manufacturer Boeing (BA) has been gliding in 2012. Shares of the $55 billion firm are effectively unchanged on the year, save for a modest dividend payout that’s upped the stock’s performance a bit since the first trading day in January. But there’s reason to believe that BA could have some upside ahead of it this year.
Boeing is one of two main heavy airliner manufacturers in the world, supplying airlines with shiny new planes. As any airline passenger knows, fleet age has a big bearing on customers’ comfort on an airline -- with an aging global fleet in need of major replacements in the next several years, Boeing should benefit in a big way from the tailwind.
That’s especially true with the introduction of the 787, a next-generation aircraft that’s 20% more efficient than comparable models -- cost-conscious airlines will be eager to reduce their oil exposure by purchasing extremely efficient airliners.
Of course, airliners only make up around half of Boeing’s business. The other half comes from the defense sector. Boeing has a series of lucrative defense contracts under its belt, including the Air Force’s refueling tanker project -- a contract that could be worth $75 billion by itself. While budget constraints could choke off the flow of cash to Boeing’s defense business, fleet upgrade needs at major airlines should make up for any lost ground.
Not that long ago, Macy’s (M) wouldn’t have stood a chance at making this list. Now, though, the firm has spearheaded major restructuring efforts that are boosting profitability and getting more shoppers in its stores -- investors should be impressed by that progress.
The company operates around 850 Macy’s and Bloomingdale’s department stores spread across the U.S. In every sense of the word, Macy’s is a legacy retailer: It’s primary locations are anchor stores at shopping malls, positioning that’s been threatened by aging malls around the country and lower mall traffic. But restructuring efforts have refocused costs around productive stores at popular malls and at flagship downtown locations across the country.
Localizing the merchandising process at Macy’s has been one of the biggest changes to the firm’s operations (aside from cutting around 7,000 jobs). It means that products are more tailored to customers at a specific store and that the distribution channel is more streamlined. Now, with restructuring efforts paying off in Macy’s earnings, and analyst sentiment on the rise in 2012, we’re betting on shares this week.
With so many black clouds over Wall Street this week, it makes sense to take a more defensive posture. That’s why we’re also adding Dollar Tree (DLTR) to our list of Rocket Stocks. DLTR is the largest “dollar store” chain in the U.S., boasting more than 4,000 stores in 48 states. As investors worry about the possibility of another economic slump in 2012, Dollar Tree offers some major downside protection.
That’s because DLTR was one of the biggest beneficiaries of the last recession. In 2007 and 2008, as consumers traded down their retail experiences, Dollar Tree saw top and bottom line performance expand -- and the firm has been able to maintain that stair-step momentum for revenue and earnings in the years since. Going forward, some investors have been concerned that a return to economic normalcy would eat away at DLTR’s market. The firm is countering that by expanding the footprint of its multi-price point Deal$ brand, a move that should open the door to bigger-ticket merchandise at higher margins.
Dollar Tree’s acceptance of debit and credit cards as well as EBT cards means that the firm is able to earn revenue from a whole new category of shopper, even if it comes at the expense of margin. Historically, Dollar Tree’s margins have stomped traditional retailers, so the firm is making an attractive tradeoff to grab hold of more cash flowing to DLTR’s top-line one dollar at a time.
Genuine Parts Company
Genuine Parts Company (GPC) is a $10 billion parts distributor that serves the automotive, industrial, and electronics industries. The firm owns the NAPA brand of auto parts retailers, a business that stocks nearly 400,000 parts at each of its nearly 5,000 franchised and company-owned stores.
The industrial and electronics businesses operate under the same models as NAPA’s wholesale parts business -- it serves customers who need mission-critical parts for industrial machines. GPC’s role is all about getting niche parts to customers as fast as possible.
While the industrial side of the business is quite cyclical, the automotive side isn’t -- and an aging nationwide car fleet should continue to be a big boost for GPC’s parts business. At present, the average car on the road is older than ever before at 11 years. As consumers try to wring more time out of their existing vehicles, every firm involved in the process should benefit.
Income investors should give GPC an even closer look right now: a nearly debt-neutral balance sheet and ample cash generation from the parts business should keep the firm’s 3% dividend yield flowing to investors for the foreseeable future.
Aptly-named apartment REIT Equity Residential (EQR) owns 427 properties that together comprise 122,000 units spread across some of the most attractive rental markets in the U.S. While many investors think of REITs as a way to gain exposure to the real estate market, they’re not -- at least not directly.
Instead, REITs are primarily income-generation vehicles. They sport consistent recurring revenue and the legal obligation to pay out the vast majority of income as dividend income to shareholders. It’s true that residential REITs are more exposed to rental prices than commercial REITs (which tend to enter into very long-term leases), but ultimately, income is still the name of the game. EQR currently yields 2.13%.
EQR’s properties are centered around large metro areas with high barriers to entry for landlords. That factor should keep occupancy rates high and make this REIT act more like a commercial trust than a run-of-the-mill residential REIT. With rising analyst sentiment pouring into EQR 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.
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.