- 5 Stock Charts Screaming 'Buy' in March
- 2 Stocks Spiking on Unusual Volume
- 3 Stocks Breaking Out on Big Volume
- 2 Stocks Rising on Unusual Volume
- 3 Biotech Stocks Spiking on Big Volume
5 Rocket Stocks to Buy This Week - views
BALTIMORE (Stockpickr) -- This morning's muted price action is setting us up for a quiet week for stocks, at least compared with the excitement that's been keeping things interesting for the last few weeks. After rallying more than 6% in the last few weeks, the S&P 500 is ready to take a breather.
A pause in the broad market doesn't mean that it'll be a quiet week for all stocks -- only for stocks in general. Indeed, it's shaping up to be another market-beating week for a handful of new Rocket Stock names in May.
Today, we'll take a closer look at five of them.
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 199 weeks, our weekly list of five plays has outperformed the S&P 500 by 75.5%.
Without further ado, here's a look at this week's Rocket Stocks.
2013 is shaping up to be a stellar year for American Express (AXP). Shares of the $77 billion financial stock have rallied 22% since the start of the new year, smashing the broad market's already impressive performance. The firm's unique market positioning should keep its niche well-protected, even as competitors try to lure Amex's cardmembers to rival brands.
American Express owns the most attractive brand in the payment business. By focusing on attracting high-spending high-credit consumers and businesses with its rewards programs and benefits (instead of focusing on issuing credit in volume), the firm created a profitable niche in its flagship charge card products. The lack of a revolving credit line means that Amex enjoys higher creditworthiness among its members -- and it also sports the highest dollar volume across its network, even if its cards aren't carried by nearly the number of customers that more mass market rivals have. For aspirational consumers, that cachet puts American Express cards in wallets.
In the last couple of decades, Amex has expanded its reach, offering traditional credit cards as well as other financial products that are more volume focused. While those offerings are dilutive to the firm's credit health, they add a lot in the way of merchant fees. With a spend-centric (rather than lend-centric) model, the firm is better positioned for the next economic hiccup than its peers are. In the meantime, partnerships with more conventional banks should add to Amex's fee generation abilities without levering up its balance sheet.
Consumer spending should continue to be a big tailwind for American Express in 2013.
TE Connectivity (TEL) is undergoing a big transformation. After spinning off from Tyco International (TYC) in 2007, the firm embarked on a restructuring effort in 2011, changing its name and shaking excess costs out of the business. Now TEL looks well-positioned for the year ahead.
TE Connectivity operates a relatively boring business. The firm is the largest electronic connector maker in the world, a lucrative operation that doesn't exactly inspire investors the same way that Apple (AAPL) or LinkedIn (LNKD) can. But the ubiquity of electronic connectors in so many applications provides a very attractive market for TEL's products, especially as industrial production continues to recover from the hangover of the Great Recession.
Financially, TE Connectivity is in excellent shape, with more than $1 billion in cash offsetting a total debt position of around $3 billion. That relatively modest leverage for an industrial stock should give TEL the ability to hike its dividend payouts and continue to invest internally as needed. Expect stellar relative strength so far in 2013 to keep up in the second quarter.
Private equity giant Blackstone Group (BX) offers its clients exposure to a wide array of alternative investments, ranging from its well-known private equity funds to real estate and hedge funds. That abundance of alternative investment options is particularly attractive right now, as correlations across "traditional" financial assets remain very high. For clients looking to escape the "risk on, risk off" environment that's been prevalent in the last few years, Blackstone is a stellar option.
Blackstone's well-connected private equity arm is one of the biggest firms of its kind in the world, providing scale that rivals can't match. Because BX can afford to shell out bigger investments in private firms, it's able to pursue deals alone that potential rival bidders would need partners for. The firm's expertise in guiding privately held portfolio companies has also borne a lucrative advisory business, a high-moat business that newcomers can't simply hold out a shingle and expect to succeed in.
Real estate and hedge funds are two areas where Blackstone is underrated. Here again, the firm's scale offers a major advantage for investors. Its fund of funds products, for instance, are able to build portfolios with much lower fees than smaller firms can offer investors, greatly reducing what can often be one of the biggest barriers to meaningful returns in a hedge fund of funds. As this equity rally continues to propel stock prices, BX's unique menu of alternative investments should become increasingly important for investors.
Hertz Global Holdings
Car rental firm Hertz Global Holdings (HTZ) is having an amazing year in 2013. While the Great Recession put Hertz's head on the chopping block, the firm has survived to generate gains of nearly 53% year-to-date. Now Hertz looks a lot more attractive for investors.
Shorting Hertz into 2008 would have been a prescient move. With the travel industry battered, the car industry bruised and a hugely leveraged balance sheet, Hertz was very poorly equipped to survive the Great Recession. But it did. Today, the firm's worldwide rental car empire includes brands Dollar and Thrifty in addition to its namesake yellow marquee. While competition is fierce in the car rental business (and extremely concentrated), key partnerships at Hertz and a sticky base of rewards program customers should keep sales stepping higher year after year.
A strong used car market is another catalyst for Hertz right now. A rental car firm's attractiveness hinges on a modern, well-equipped fleet of cars. To pull that off, Hertz has to sell is existing cars on the used wholesale market after just a couple of years. That quick turnover rate is a challenge when times are tough, but with used car prices soaring amid low inventory in 2013, higher proceeds should help buoy the firm's bottom line.
Alliance Data Systems
Last up is Alliance Data Systems (ADS). ADS is all about outsourced relationships; the firm provides marketing and loyalty services for other companies, handling more than 120 million customer relationships with a specific focus on Canada, where its Air Miles subsidiary operates.
Because companies can add ADS' turnkey loyalty programs and expertise to their brands, they're willing to pay for the customer stickiness and analytics that Alliance Data provides. The firm earns double-digit net margins for its trouble, while at the same time building itself an attractive moat. With clients' customer lists and very long-term contracts as standard, revenues are stickier than they would be if ADS didn't own many of the networks that it administers for firms.
ADS doesn't just deal in loyalty. The company has also established itself as a major player in the private-label credit card business, processing transactions on behalf of retailers who don't want the hassle or balance sheet risks of issuing cards themselves (for its part, ADS securitizes its receivables, so little credit risk remains on its balance sheet). Growth efforts outside of North America should pay off in 2013.
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