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5 Rocket Stocks to Buy This Week - 25213 views
BALTIMORE (Stockpickr) -- Stocks are kicking off the final week of July on a weak note, held underwater by more debt crisis infighting on Capitol Hill. If Congress can’t get its act together as a whole, the ramifications for the broad market could be significant.
Those sovereign debt worries are holding back the market from otherwise impressive profit numbers this earnings season. Last week, the S&P 500 rallied more than 2.18% on the heels of record profitability for Dow and S&P 500 stocks. Even so, blue-chip stock valuations currently sit at crisis levels, a sobering statistic given the lack of buying in the market right now.
But that said, those discount valuations could work out very well for investors right now. It’s all a matter of finding names with positive sentiment behind them. That’s why we’re taking a look at a new set of Rocket Stocks this week.
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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 quantitative screen that seeks out stocks with a combination of analyst upgrades and positive earnings surprises.
It’s a strategy that’s been working out pretty well. In the last 113 weeks, Rocket Stocks have outperformed the S&P 500 by a very material 77.8%.
With that, here’s a look at this week’s Rocket Stocks.
2011 has been a fairly mixed year for $202 billion conglomerate General Electric (GE). While shares are up around 4% on the year, that’s largely thanks to a substantial rally in the first month of 2011 -- shares have been slowly trending lower ever since. Even so, GE could be on the verge of bucking the trend thanks to a strong quarter reported last week.
GE’s financial services business, GE Capital, has been a drag on earnings for the last several quarters as significant lending risks for the firm’s consumer loan book came to bear on financial results. But this quarter, better-than-expected numbers at GE Capital suggest that this unit’s performance could be on the upswing. At the same time, GE has been minimizing the impact of its financial business on the company’s total operations, a move that’s been long overdue.
Last week’s positive earnings surprise gives GE a stronger rank on our Rocket Stocks list. Now, with analysts looking increasingly bullish on this blue-chip name, buying pressure could be enough to derail this stock’s downtrend.
Pharmaceutical and health care manufacturer Abbott Labs (ABT) is having a more clearly positive year in 2011. Shares of the firm have rallied more than 10% this year, on top of a 3.63% dividend yield that got increased incrementally back in April. This stock looks like it’ll be able to continue its upward trajectory for the second half of the year.
Part of the reason for that is the firm’s patent portfolio. While other pharmaceutical peers are dealing with material patent losses in the next couple of years, Abbott still has time on its most lucrative names.
At the same time, a maturing pipeline means that new offerings should meet with FDA approval in the near future. Though the firm’s pharmaceutical business is strong, it’s the growth potential of the nutrition segment that’s most attractive for Abbott right now.
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Abbott’s nutritional products are marketed to everyone from infants to high-performing athletes; the latter providing exposure to the $50 billion fitness market. Even though nutritionals contribute a small portion of total sales right now, they offer deep margins and perpetual lifespans that should help smooth earnings in the long-term for this pharma name.
Simon Property Group
As the largest retail real estate investment trust in the U.S., Simon Property Group (SPG) took significant knocks during the depths of the recession. But investors have come around since then -- and solid earnings surprise (and cash distributions) are likely to thank for that.
While many retail investors think of REITs as a way to get exposure to the commercial real estate market, they’re not. Instead, they’re income-generation instruments that distance themselves from their assets by undertaking very long-term triple-net leases with their tenants. Because tenants pay variable expenses on SPG’s properties, the REIT is able to generate consistent income that’s mostly passed through directly to shareholders.
Simon Property Group’s current dividend payout puts its yield at around 2.6%, a payout that’s on the lower end of the spectrum for a retail REIT. That said, good performance in tomorrow’s earnings call could be the key to a dividend hike. Keep a close eye on this stock.
Starbucks (SBUX) made its mark on the coffee world through incredibly successful retail stores. Now, with the retail channel approaching saturation here at home, Starbucks is looking toward other avenues for growth. One of the biggest is the grocery aisle; Starbucks’ Tazo, Seattle’s Best and namesake coffee and tea brands have proven reasonably successful so far.
This year, Starbucks signaled its seriousness about the packaged coffee business when it ended its distribution agreement with Kraft (KFT) in favor of managing its own distribution. That’s a risky proposition given Kraft’s expertise in stocking grocery shelves efficiently, but it’s a risk that could yield a big payoff if Starbucks can do it well.
Another lynchpin for Starbucks’ success in 2011 is its push toward additional international locations. The firm is focusing its expansion plans on China, where the chain hopes to have more than 1,500 stores in place within the next four years. Expansion into new unsaturated markets should be a workable growth plan for the foreseeable future. Starbucks releases its second quarter numbers on Thursday.
Priceline.com (PCLN) is another name that’s been buoyed by its exposure to consumers outside the U.S. The firm is putting increased impetus on its European and Asian operations, growing booking revenues at a massive pace in the process. With significant room to grow in those markets (particularly Asia), Priceline.com should be able to sustain double-digit growth for some time.
That upside potential has been reflected in share prices for a while now -- shares have rallied around 33% already this year. Even so, this stock likely has further to run in 2011. While intense competition has driven online travel to near-commodity pricing levels, Priceline’s unique offerings (such as its “name your own price” bidding system) give the firm a big advantage.
Analysts like this stock right now -- and we’re betting on shares this week.
Priceline is one of TheStreet Ratings' top-rated Internet catalog and retail stocks.
To see this week’s sentiment plays 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.