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5 Rocket Stocks Set to Rally - views
BALTIMORE (Stockpickr) -- The tail end of earnings season is in full swing this week, as another set of firms gear up to report their numbers to investors. When it comes to the opportunity for big stock moves, there's nothing quite like earnings season.
Earnings are a big deal; they're one of just four fundamental updates that investors get access to each year. So it's not surprising that earnings calls can inject some serious volatility into the broad market.
That's exactly what we're seeing this month: strong overall earnings numbers are sent the S&P 500 breaking out to new all-time highs above 1,700 last week, an important move from a technical standpoint. With a new high-water mark in equities, it's worth taking a look at five Rocket Stock names worth trading this week.
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 210 weeks, our weekly list of five plays has outperformed the S&P 500 by 82.1%.
Without further ado, here's a look at this week's Rocket Stocks.
LinkedIn (LNKD) saw some strong performance last week, jumping more than 13% on the heels of -- you guessed it -- strong earnings. In many ways, LinkedIn is Wall Street's favorite social media stock; since going public, LNKD has rallied more than 150%, while the giant in the space, Facebook (FB) has barely broken even.
That favorite status is for good reason: LinkedIn is the social network that actually makes money by helping its users do what they were trying to do when they logged in. While other social media firms earn revenue by distracting their users from what they're trying to do (and getting them to click on ads while stalking their friends, for instance), LNKD makes money by helping users with the exact task they're trying to accomplish: find a job, network or hire someone. That seems like a small distinction, but it's core to LinkedIn's ability to maximize the money it makes off of each user.
None of that is the same as saying that LinkedIn is a bargain -- it's not. The firm trades for an exaggerated multiple right now in spite of its spotless balance sheet. But that's not likely to put a hamper on LinkedIn's price action this summer, at least while the broad market remains in rally mode. That's why we're betting on shares of this Rocket Stock this week.
Sirius XM Radio
2013 has been a strong year for Sirius XM Radio (SIRI) -- the satellite radio company has seen its shares rally more than 30% since the calendar flipped over to January, more than doubling the S&P's ascent year-to-date. Sirius XM provides subscription-based radio coverage to more than 25 million subscribers in the U.S. and Canada. Beyond satellite, Sirius has made big investments in its online platform of late, adding options like on demand programming to the mix.
The breakneck growth of auto sales in 2013 is trickling down to SIRI's income statement. With satellite radio transmitters installed in more than two-thirds of new cars sold today, the firm has a captive audience that's excited to play with the features of their latest big purchases, including free trials to SIRI's services. As a result, the firm converts close to half of those trial users into paying subscribers. Size matters in the content business, and Sirius XM's scale means that the firm can afford to pay for exclusive names and pricey content partnerships for sports and music.
Even though rivals like Pandora (P) are competing to grab consumers' drive-time attention (and dollars), SIRI's dominant integration and superior service coverage gives it a major advantage in the shootout.
Intel (INTC) is the 800-pound gorilla in the semiconductor business. The firm owns around 80% of the microprocessor market, giving it a major edge over smaller rivals like Advanced Micro Devices (AMD). Since Intel is inside more new PCs rolling off assembly lines today, it's able to incentivize developers to make the most out of its chip architecture. That, in turn, creates a positive feedback loop that secures Intel's moat.
The downside to Intel's dominant share of the market is growth. When you own 80% of a market, grabbing that remaining 20% becomes a battle of diminishing returns. Instead, Intel is targeting new markets like mobile with its Atom chips. It's also leveraging its $17 billion cash position to invest in R&D, a fact that's helped make Intel one of the few firms in the PC food chain that still earns double-digit net profit margins.
Another big use of cash for Intel in recent years has been dividends. With a 3.9% dividend yield at current price levels, Intel is consistently one of the highest-yielding names in the technology sector. With rising analyst sentiment in shares this week, we're betting on shares.
Even if Ford Motor (F) gleaming best-in-breed status among Detroit automakers has worn off, the firm still looks stellar in 2013. Just five years ago, the difference between Ford and its peers was a little more stark; after all, Ford was the only one of the big three to actually avoid bankruptcy in the wake of the Great Recession. But maybe more startling has been Ford's transition to making really good cars again.
In the 1990s and 2000s, Detroit became a punch line for failing to build cars that consumers actually wanted. No more. A complete revamp across Ford's lineup has left the firm with solid reviews from auto journalists as well as customer rankings that landed the firm in the coveted top tier for initial quality. And now, with interest rates scraping along historic lows, the barriers to getting into a new car have dropped dramatically for many consumers. Ford's revamp may have been late, but it's certainly better than never.
Europe has been a big black cloud for Ford in 2013. While the firm has executed extremely well in the high volume car market here in North America, an ongoing economic crisis in the Eurozone (where Ford earns around 20% of sales) has weighed on performance. Now that the EU is showing signs of turning the corner, releasing that earnings drag could be a big catalyst this year.
Last, but certainly not least, is Micron Technology (MU), a name that's consistently been one of the hottest momentum movers of 2013.
Micron is a computer memory maker that until recently was best known for manufacturing RAM for PCs. But the company has spent the last several years building its flash memory business, a switch that exposes Micron to a far more lucrative niche. That's because the push toward mobile devices in recent years has boosted demand for NAND flash memory, tightening supplies and spiking prices. These solid-state drives are capable of more speed and capacity for a given footprint than traditional magnetic media, and their premium pricing also produces deeper margins for Micron.
The firm's OEM connections are a big advantage because they keep sales efforts minimal. Instead, the firm just needs to keep creating flash technology that device makers want. The increasing use of flash memory in enterprise settings (such as servers) is another big trend that's helped to propel Micron's share price in 2013. As cloud storage gets used by more and more consumers, a rising tide should lift all ships in the computer storage business.
With rising analyst sentiment boosting shares this week, we're betting on this Rocket Stock.
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