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5 Rocket Stocks to Lock In September Gains - 16849 views
BALTIMORE (Stockpickr) -- Stocks were on fire last week, a nice change from the first week of September. In case you missed it, the S&P 500 climbed 5.35% in the last five trading days, the third-biggest weekly gain since 2009. Not too shabby considering that economic factors, such as the European debt crisis and the jobs bill debate, are still holding a knife to Mr. Market’s throat.
It should come as no great shock then that stocks are starting off the week lower; it’s the third consecutive time that market participants have turned risk off to kick off a new trading week. Plus, a lower session is hardly a negative force right now. Equities have climbed higher for five straight trading sessions, and a bit of a pullback is a good way to keep stocks from getting oversold as they try to claw their way back from the depths of August’s selling.
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Meanwhile, the Rocket Stocks are continuing to churn out strong performance in 2011, a year that’s been fraught with poor performance. In the last 121 weeks, Rocket Stocks have outperformed the S&P 500 by 83.3%. That’s a material return
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 typically follows.
This week, let’s take a look at five new Rocket plays that meet our criteria.
Chipmaking giant Intel (INTC) has been on the Rocket Stock radar for a while -- and for good reason. Intel doesn’t just command its industry as the standard bearer; the firm also boasts significant relative strength over the S&P 500 and a 3.82% dividend yield. Those are two impressive attributes to keep in mind given the selloff that most stocks participated in over the course of 2011. Investors who bought Intel at the beginning of the year are actually sitting on gains.
Intel’s scale as the biggest player in the semiconductor business provides a bit of a self-fulfilling prophecy for the $115 billion firm. Because Intel can pour massive cash flows into R&D expenses, the company can come up with the next-generation technology that helps to secure its number-one spot going forward. That’s not to say that competition isn’t posing a challenge right now.
ARM Holdings (ARMH) has been posing a challenge in the growth-rich mobile device category, where Intel has thus-far trailed. Intel’s Atom chips could capture some market share from ARM, and the firm’s plans to push downward (into mobile technology) are probably more attainable than ARM’s efforts to move into PCs -- for now.
Lorillard (LO) is one of the largest cigarette manufacturers in the world, with more than $4 billion in annual sales and a stable of brands that’s led by flagship name Newport. The Newport brand is the most significant part of Lorillard’s business by far, capturing a double-digit share of the entire cigarette market for the company and contributing more than 94% of sales. But there’s long been trouble in smoker’s paradise.
The FDA has been eager to pose new regulation on menthol cigarettes, threatening Lorillard’s cash cow. Shares of the firm have seen added volatility as a result. But despite all of the FDA’s threats, Wall Street’s worst fears have yet to come true, and shares of Lorillard have rallied more than 36% year-to-date as a result. In fact, it recently earned a spot on a list of the 10 best-performing S&P 500 stocks of the year so far.
Exposure to the U.S. tobacco market is another detractor for LO. While menthol segment growth has been positive, it’s been positive in a declining market -- sort of like being the winner of the ugly contest. Investors can expect sales to slowly decline over the next few decades as a result.
Where other tobacco names have sought growth in emerging markets, Lorillard can’t. The firm sold off its branding rights in the late 1970s when the U.S. tobacco market was still on the upswing. That’s probably the most unfortunate element of LO’s potential. Even so, this stock is a fundamentally sound way to get exposure to an income-generating, recession-resistant name. The firm’s dividend yield currently sits at 4.65%, making it one of the highest-yielding tobacco stocks.
2011 has brought some impressive performance in shares of payment network MasterCard (MA), another of the top-performing S&P stocks of 2011. Shares of the $44 billion company have rallied 55% so far this year, and they could have further to move in the short term thanks to a blend of strong technical and fundamental factors. We’re betting on shares this week.
MasterCard may play second fiddle to Visa (V) in terms of scale, but this brand has been second-to-none in terms of growth -- particularly abroad, where the firm’s cards enjoy a high penetration rate among retailers. Like Visa, MasterCard doesn’t carry any credit risk on its balance sheet. Instead, the firm merely acts as the payment network for cards that are issued by other financial institutions. As a result, the firm benefits when transaction volume increases but doesn’t carry nearly as much downside when consumers are defaulting on their debt.
The transition away from cash and toward electronic payments is one of the biggest secular tailwinds for MasterCard and peers. And since that shift can increase transaction volume even when consumer spending remains flat, it’s a significant reason to watch this stock even in less-than-attractive economic conditions.
MasterCard, which once again makes an appearance in Warren Buffett's portfolio -- in fact, Berkshire Hathaway's position in the stock increased by 87.5% in the most-recent quarter -- was also featured recently in "2 Pair Trades for a Stagnant Economy, paired against a short of Bank of America (BAC).
Online travel site Priceline.com (PCLN) is another stock that’s seen outsized relative strength against the broad market in 2011. Shares of the Connecticut-based firm have rallied more than 31% year-to-date as stronger-than expected travel booking revenue (particularly abroad) spurred investors to pile into shares. With a small share of the global travel market, Priceline has further room to stretch its legs right now.
Travel hasn’t exactly been the industry of choice for most investors. It’s a highly cyclical and recession-sensitive business that generally requires substantial scale to be competitive in. But despite the industry detractors, Priceline has done well for itself lately. The firm’s focus on higher-margin hotel bookings (vs. the comparatively lower margins in airfares, for instance) has helped push net margins past the 20% mark in the latest quarter. At the same time, solid exposure to travelers outside of the U.S. has meant that Priceline.com’s revenues aren’t constrained by domestic belt-tightening.
One of the biggest elements in Priceline.com’s favor is the fact that the firm has built a successful advertising campaign based on the “name your own price” option on its eponymous site. If the firm can continue to carry its impressive marketing track record over to its target markets in Asia, Europe and Latin America, the firm should be able to generate impressive growth going forward.
Finally this week, we’re looking at Coach (COH), my pick for a best-in-breed luxury spending stock. Coach is a label that didn’t just hold its own during the global recession -- it actually grew its top line. The key to success was the firm’s decision to trim pricing and make its brand more attainable than aspirational. While management risked devaluing the firm’s premium pricing, the gamble paid off considerably as consumers (particularly in emerging markets such as China) bought Coach bags in droves.
Today, Coach is a significantly larger firm, but there’s still considerable room to grow geographically to support an increase in the firm’s top line. At the same time, continued expansion into disparate markets such as Europe and China should reduce some of the risks of pouring capital into building the brand.
Luxury spending has remained stronger than most analysts expected in the last several years. If that trend is any indication, Coach should remain one of the best ways to capitalize on any sort of rally in consumer spending. With sentiment increasing this week, we’re betting on shares.
Coach showed up on an August list of Jim Cramer's Long-Term-Trend 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.