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BALTIMORE (Stockpickr) -- Last week wasn’t exactly a good week to be a stock investor. The S&P 500 shed 4.3% between Monday’s open and Friday’s close, erasing all but 3% of the gains that Mr. Market had earned year-to-date. But if the week was bad, this month has been worse.
The Dow Jones Industrial Average, for instance, has lost ground in 12 of the last 13 trading sessions. That’s the worst 13-session losing streak for the index since back in 1974. But with this morning’s price action looking decidedly bullish, chances are the big indices are going to be earning back some of those lost points in today’s session after being oversold for so long. That should provide an opportunity for buyers in the broad market right now.
To take full advantage of that turn in momentum, we’re looking to a new set of Rocket Stock names for Monday.
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.
In spite of all of the gains the broad market has given back in the past few weeks, eBay (EBAY) is still having a stellar year in 2012; shares of the online auction site have rallied more than 26% since the first trading day in January. Then again, maybe it’s a little bit of a stretch to call eBay merely an online auction site these days. After all, the firm’s PayPal unit currently makes up around 40% of revenues, and growing.
Exposure to online payments is a big opportunity for eBay in the coming years. Already, the PayPal network has built itself to more accounts than American Express (AXP), and it’s accepted at more major online merchants than not.
Still, PayPal is shirking one of its best opportunities in becoming the payment acceptance platform of first resort for smaller online retailers. In the past few years, PayPal has earned a reputation for being difficult to deal with and locking up customer funds for months at a time. If the firm wants to keep growing PayPal (and taking home big fees for its trouble), then it’ll need to resolve those customer service issues.
On the auction front, eBay is doing a solid job of courting growth. The firm has been expanding the footprint of its Marketplace offerings, gaining exposure to emerging markets, where the firm is going to find the majority of new users. And by tightly integrating the auction and payment businesses, eBay gets to double dip on fees for all of the dollar volume that passes through its platform.
The biggest challenge right now will be figuring out how to use the firm’s mountain of cash wisely. In the meantime, investors should watch out for second quarter earnings on July 18.
Packaged food giant Kraft (KFT) owns some of the best brands on grocery shelves -- and that’s benefiting the firm in a big way as consumers start getting more comfortable with trading up in this economy. Go out to 99% of U.S. consumers’ pantries, and the firm boasts that you’ll find a Kraft product somewhere in there. Nabisco, Oscar Mayer and Maxwell House are just a few of the firm’s labels, in addition to its namesake Kraft brand.
Inflation has been the big black cloud hovering over food firms’ heads for the past two years. As commodities rallied in the wake of 2008, investors were shaking at the prospect of margins getting squeezed hard from higher input costs -- but those fears never played out as badly as expected. While margins have been trimmed on rising costs, Kraft still boasts net margins north of 6% each quarter.
Kraft generates enormous amounts of cash right now, cash that goes to pay off the firm’s shareholders in the form of dividends. Right now, the food firm boasts a yield of just over 3%, a payout that’s in-line with peer companies in this environment.
With analyst sentiment on the upswing, we’re adding this Rocket Stock to our list this week.
Allstate (ALL) tips the scales as the country’s second-biggest personal lines property-casualty insurer. The firm insures cars and homes and provides life insurance and other financial products through a network of 13,000 Allstate agents as well as a network of banks and independent agents. That network effect is a big deal for Allstate, and the high-touch customer relationship is one feature that the firm markets heavily as an advantage of being an Allstate customer.
Let’s face it: Allstate is an insurance company, a business that’s largely commoditized these days. So even though having a strong sales network is a huge advantage for the firm (it provides much higher-margin cross-selling opportunities for bundled insurance services), ultimately price is going to be the deciding factor. Allstate’s reputation and customer service give the firm the ability to be a bit more risk-conscious than many of its rivals, but ultimately if ALL can’t compete on price it’s going to lose business.
In some categories, Allstate has been trying to lose business. ALL trimmed its homeowners portfolio to shed some catastrophic risk from its balance sheet -- a good move. Instead, a focus on auto insurance is a good shift -- risks in auto are highly quantifiable, and a massive scale gives Allstate some information advantages in underwriting.
The firm’s shareholder meeting tomorrow could be the next catalyst for buying in this stock.
Whole Foods Market
Whole Foods Market (WFM) isn’t your average grocery store chain. The firm is the nation’s biggest retailer of natural and organic foods, a niche that has been taking off in the last several years. Today, WFM boasts more than 300 stores primarily based in the United States (with tiny exposure to Canada and the U.K.). After being a frequent Rocket Stocks constituent back in 2009, WFM is back to boost our returns in 2012.
Whole Foods essentially owns the natural grocery business. While there are alternatives for natural and organic foods, and growing challenges coming from the traditional grocery chains, Whole Foods boasts selection and shopping experience that rivals can’t take on at this point. As affluent Americans become more and more concerned with the sourcing of their foods, WFM should continue to benefit from niche sales that are growing at double-digit rates right now.
While economic concerns do threaten to derail the successes that WFM has enjoyed more recently, the trading down among WFM’s target demographic wasn’t as bad as analysts expected back in 2007 and 2008. Now, with more consumers trading up their shopping experiences again, this natural foods brand should benefit. With net margins that are effectively double the paper-thin take home numbers at conventional grocers, investors should be paying attention to WFM in the near-term, even if it’s not particularly cheap.
Spice and seasonings firm McCormick (MKC) is another name that’s been showing investors impressive relative strength lately. The $7.5 billion firm has rallied close to 12% since the first trading day in January -- and more important, it’s managed to outperform the broad market more recently.
McCormick enjoys the leadership position in the global spice and seasoning business, supplying grocery shelves, but also serving restaurant chains and packaged food firms that use its seasonings in their respective products. Because few firms can boast MKC’s operational expertise with spices, it’s a go-to firm for clients who need help developing and mass-producing the seasonings they use in large scale food manufacturing. That niche has helped the firm turn out deep margins and a very long track record of paying out a modest dividend yield.
Even though close to half of sales come from overseas, under 10% is from emerging markets. That provides plenty of room for top-line growth in MKC, particularly because of the firm’s experience in making exotic spices available to U.S. consumers -- McCormick already has supply channels in place for popular spices in emerging market countries.
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, 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.