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5 Rocket Stocks Ready for Blastoff - views
BALTIMORE (Stockpickr) --
Even though the broad market is still stammering after Friday’s 1.6% pullback in the S&P 500, a new set of Rocket Stocks is fueling up for blastoff this week.
Friday’s pullback was even more painful for NASDAQ stocks, the index crashing 2.25% by the session’s close as pressure from jobs numbers and black clouds from Europe blew over trading floors in New York. This morning, things aren’t looking much better thanks to massive selling in Asia and to a much lesser extent in Europe today.
All told, last week took 2.44% out of the S&P 500, ringing in the biggest weekly loss in 2012. That sort of “record setting” decline is more significant for the headline effects it’ll have on investors than the actual implications of the pullback. At this point, the S&P remains cautiously strong from both a technical and fundamental perspective. With the tail end of earnings season wrapping up this week, piling more money onto the S&P’s record corporate profits could help snap investors out of “risk off” mode.
With all of this going on behind the scenes, it makes sense to pay attention to the Rocket Stock names that are fuelling up on strong performance right now.
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 150 weeks, our weekly list of five plays has outperformed the S&P 500 by 80.92%.
With that, here’s a look at this week’s Rocket Stocks.
Ask any analyst who the biggest mobile carrier in the country is, and they’re sure to tell you Verizon (VZ), of course. But au contraire, what if I were to tell you that top rival AT&T (T) was, in fact, much bigger?
Even though Verizon Wireless boasts millions more customers, VZ only owns 55% of its cellular carrier subsidiary. AT&T, on the other hand, lays claim to all of AT&T Mobility and its 89 million cell phone subscribers.
That’s not the only reason to like AT&T as an investor. The firm’s wireline business provides phone service to approximately 40 million more customers and gives AT&T massive inroads into triple-play U-verse packages that offer the company much deeper margins than single-service subscribers. The result of all of those businesses is cash -- AT&T threw off approximately $3.5 billion in cold hard cash in its most recent quarter, all of which was returned to shareholders.
AT&T’s dividend yields a jaw-dropping 5.4% right now, a hefty payout for a speculative small-cap company, let alone a $200 billion phone utility. A defensive business (phone subscriptions are relatively inelastic to economic conditions), massive cash generation abilities and a mammoth geographic footprint all make AT&T worth watching this week.
It’s been a good year so far for Amazon.com (AMZN): Since the first trading day of January, shares of the e-tailing giant have rallied close to 30%. That performance has come largely as the result of stellar fundamental performance; despite Amazon’s size as the biggest online retailer by sales, the firm still managed to churn out breakneck growth in its most recent quarter.
Amazon’s model is predicated on selling massive volumes of products and taking only paper-thin margins. A low overhead model means that Amazon can offer those products at cheaper prices than brick-and-mortar (and even online) rivals, and it ensures that the firm can react relatively quickly to economic headwinds without sacrificing profitability.
In recent years, though, AMZN has expanded its reach, stepping into online services and device sales with its wildly successful Kindle platform. Initiatives like Kindle and Amazon Prime should continue to fuel customer growth at the cost of near-term margin dilution -- a welcome tradeoff for most long-term investors.
From a financial perspective, Amazon is in stellar shape, with a massive $5.7 billion cash position and no debt. Finding meaningful returns on that cash might be tricky in this market; Amazon may want to follow the lead of other tech names by returning some of it to shareholders in 2012.
In the meantime, we’re following rising analyst sentiment to bet on shares.
Amazon shows up on recent lists of 15 Apple-Like Stocks That Could Bear Similar Fruit and 5 Stocks to Buy on a Downturn.
With the market starting to look a little bit sketchier in the short-term, it makes sense to take a defensive posture this week. We’re doing that with Altria (MO), the prototypical “sin stock” thanks to its status as one of the biggest tobacco and alcoholic beverage companies in the world. Altria owns cigarette brands such as Marlboro and L&M here in the U.S. and wine labels such as Ste. Michelle Wine Estates, and it owns nearly a third of SABMiller (SBMRY), the second-largest beer brewer in the world.
There’s a reason why investors turn to sin stocks for a defensive positioning. With recession-resistant revenues, deep margins, and sticky customers, these names tend to perform better during downturns (although they’re not immune, contrary to investing myth). And following the theme in today’s names so far, they throw off mountains of cash in good times and bad.
Even though tobacco sales in Altria’s sole market -- the U.S. -- are slowly atrophying, slow decline is already priced into shares. At the same time, management has turned to more creative measures in order to find growth.
A liquid balance sheet and plenty of “dry powder” should help secure returns for Altria’s shareholders in the foreseeable future.
As the number-one global payment network, Visa (V) has some major economic tailwinds at its back. Today, more than 60% of the world’s credit and debit cards sport the Visa logo, a share of the market that rivals are going to struggle to challenge in the years ahead. Visa’s network effect is a positive feedback loop: a huge customer base means that merchants effectively need to accept payments through Visa, and nearly-universal acceptance means that more customers opt for Visa cards.
Because Visa only operates the payment network, the firm never carried the credit risks that lenders were exposed to during the financial crisis. In fact, the firm thrived during the downturn as it collected interchange fees from its leading share of debit cards. While some rivals’ fates are tied to increased consumer spending, Visa’s biggest boon is the consumer shift of spending from cash and checks to Visa’s cards.
Visa’s unmatched network makes this stock worth owning. While shares are hardly “cheap”, rising analyst sentiment in shares this week is reason enough for us to add this name to our list of Rocket Stocks.
Starwood Property Group
Starwood Property Group (SPG) is one of the biggest real estate investment trusts in the world, boasting 337 retail properties comprising 245 million leasable square feet of space. Shares have rallied more than 20% in the past year, on top of a dividend hike last week that brought SPG back to the font of investors’ attention.
If you’re thinking that a REIT like SPG is a way to get exposure to the real estate market, don’t. Instead, these vehicles are almost purpose-built income generation tools. REITs like Simon use long-term triple-net leases when signing new tenants, a lease structure that effectively insulates them from the ebb and flow of the real estate market (as well as property taxes, insurance, and maintenance) while providing predictable income generation.
And because most of Simon’s properties are malls, SPG also gets to take a cut of tenant sales – that gives this particular REIT more exposure to consumer spending than real estate swings. SPG’s yield isn’t at the top of the pack, but we’re still betting on shares because of analyst attention pouring into this name this week.
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.