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5 Rocket Stocks Ready for Blastoff - views
BALTIMORE (Stockpickr) -- So far, May has certainly lived up to the "new month, new market" mantra that's defined stocks in 2013. Since the calendar flipped over on May 1, the S&P 500 has rallied approximately 5.4% -- that's an annualized pace of 228%!
Clearly, that breakneck pace isn't sustainable. But that doesn't mean that stocks are due for a big pullback necessarily. Based on the last time the S&P went so far so fast during this rally, a period of sideways consolidation looks more likely than a sharp decline.
As impressive as the broad market's performance was last week, we managed to do one better with a handful of Rocket Stock names.
On average, the five Rocket Stocks that we looked at last week climbed nearly 4% between Monday's open and Friday's close. That's double the performance of the S&P on one of the index's strongest week's of 2013. This week, we'll attempt to do it again with a new set of Rocket Stocks.
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 200 weeks, our weekly list of five plays has outperformed the S&P 500 by 77.4%.
Without further ado, here's a look at this week's Rocket Stocks.
2013 has been a stellar year for shares of Goldman Sachs (GS). The $73 billion investment bank has rallied more than 24% year-to-date, blowing away the broad market's impressive performance. That shouldn't come as a huge surprise; financial sector stocks have exposure to the market's upside, so a bull run in stocks tends to be a positive feedback loop for the financial sector. Goldman, though, has particularly good positioning as one of the few legacy investment banks that's managed to retain standalone status.
Goldman Sachs has a reputation that precedes it. Because the firm is known for being a well-connected financial house, it's able to score a certain amount of cachet with clients. That's particularly true on the investment management side of the business, where wealthy retail clients want the Goldman Sachs name on their statements. But ultimately the institutional and investment banking sides of GS' business make up a much more significant piece of the revenue pie -- and there, the firm's decision to become a bank holding company is likely to continue to constrain the level of risk that the firm is able to take on.
This isn't your father's Goldman Sachs. The firm's increased regulatory scrutiny means that profits aren't likely to reach their pre-recession potential. Leverage just isn't possible to the same degree that it was half a dozen years ago and for investors, that's probably a good thing. With a P/E ratio that's skimming the top of the single-digits, GS looks fairly cheap in spite of it's ascent this year. We're betting on shares.
Detroit-based Ford Motor (F) has seen some trials and tribulations of its own in the last several years. The firm was the sole automaker to avoid bankruptcy in the wake of the financial crisis, and its about-face has been more than just financial. The firm substantially improved its car lineup, revamping everything from styling to build quality.
Those product improvements were long overdue. Despite quality widely touted for Ford's lackluster sales in years past, management did little more than lip service to correct the problem. Now Ford is scoring top marks from automotive journalists and review agencies, and that boosted sentiment is flowing down to consumers too.
Europe continues to be a sore spot in Ford's performance. Because the region makes up more than 21% of Ford's revenues, a challenging economic environment in the EU translates into revenue challenges at Ford. But the firm has managed to offset Eurozone challenges with sales leaps in markets like China, which ultimately hold more promise over the next decade for the company anyway.
With major milestones getting hit day by day (like the firm's advancement to an investment-grade credit rating), investors could do a lot worse than Ford right now, especially as auto sales here at home continue to get fuelled by record-low interest rates.
Priceline.com (PCLN) is benefitting from rising tides of travel spending in 2013. The online travel site is a destination for consumers seeking hotels, airline tickets, rental cars or vacation packages, and while travel has become increasingly commoditized in recent years, Priceline's scale in the U.S. and exposure to more attractive markets should help to offset any detractors in 2013.
Today, many travel sites sign "lowest price" guarantees with hotels, a phenomenon that effectively means that it doesn't matter where you buy your next trip; you're probably going to end up paying the same price anyway. But there is a lot more flexibility abroad, particularly in emerging markets in Asia and Latin America. There, consumers are looking for travel outlets that have the biggest inventories of rooms and air carriers, and experienced travel firms such as Priceline are well positioned to take advantage as a result.
The firm's Agoda acquisition in 2007 gave the firm a huge instant share of the Asian travel market, for example. And more recent acquisitions, like the still-pending buyout of Kayak, should add some advantages for PCLN in the U.S., where a more content-driven travel site can still win some advantages with consumers. With rising sentiment hitting shares this week, we're betting on PCLN.
Yahoo! (YHOO) is getting a lot of attention this week, after news hit that the firm was planning on purchasing social networking site Tumblr for $1.1 billion. The acquisition is a high-profile chess move for Yahoo! CEO Marissa Mayer, who's been working to turn the ship around at the flailing tech firm.
Yahoo! has had more cash than sense in recent years, sporting a hugely attractive balance sheet and a much less attractive business. While the benefits of the Tumblr acquisition have yet to be seen (it appears that Yahoo is paying a hefty premium to acquire the platform), there are still some good reasons to like the former search star.
For starters, Yahoo! still boasts a stellar balance sheet. While the $1.1 billion Tumblr deal will materially cut into Yahoo!'s cash position, the firm will still have more than a sixth of its market cap covered with net cash. If management can prioritize returning some of that value to shareholders over spending it, I think both parties would be better off.
Too many investors underrate Yahoo's business. While the firm has lost its crown to the likes of Google (GOOG), it's still one of the most popular destinations on the internet. The millions of eyes that hit Yahoo's pages each and every day translate into dollars; until that changes, this firm remains a bargain-priced tech name at current levels.
Retail has enjoyed some tailwinds in 2013 -- and one firm that's managed to benefit more than most is Macy's (M).
Macy's operates more than 850 Macy's and Bloomingdale's department stores spread throughout the country, selling a mix of apparel, home furnishings, and other consumer-driven categories. The exact same positioning that scared investors away in droves during the Great Recession has become Macy's biggest positive this year, as consumers whip out their checkbooks and credit cards and ramp up spending.
The upside in Macy's hasn't solely been market-driven. In the wake of 2008, the firm made some huge efforts to shore up its operations, including strengthening its localized merchandising efforts to drive more traffic into its mall anchor stores. Macy's also restructured itself, cutting headcount and shuttering underperforming stores. Now, with the red pen more or less put away, the firm is riding stock performance upside in 2013.
With rising analyst sentiment helping push Macy's to new highs 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.
-- 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