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5 Rocket Stocks With Upside This Week - 16641 views
BALTIMORE (Stockpickr) -- Drama in the eurozone continues to be the driving force for stocks at the start of the week, as the unfolding PIIGS drama over the weekend shoves stocks slightly lower this morning. Not so shockinly, Italy’s issues aren’t yet resolved -- even if Friday’s price action in the S&P 500 pointed toward traders pricing in a “fix” for the country’s growing debt debacle.
Even though news across the pond is the biggest headline risk for stocks right now, there are still positive factors in play for U.S. stocks. To take full advantage, we’re looking at a new set of Rocket Stocks today.
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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 128 weeks, our weekly list of five plays has outperformed the S&P 500 by 80.57%. This week, we’ll aim to continue beating the market with another set of names.
With that, here’s a look at this week’s Rocket Stocks.
Agricultural and construction equipment maker Deere (DE) has been the center of attention for the last few years. The $31 billion company got sold off hard in the wake of 2008, pushed lower as skittish investors eschewed any stocks with construction exposure. Then, shares more than tripled in an agriculture-fueled rally, as a second group of investors bid up Deere on hopes that higher soft commodity prices would spur producers to buy more heavy equipment (especially abroad).
Today, the firm sits right around its pre-recession price levels.
Through it all, Deere has been conducting business as usual -- growing its lucrative emerging markets business and fostering innovative products that should help the company stay at arm’s length from an increasingly eager group of competitors. The BRIC countries remain an important part of Deere’s growth strategy, particularly as farming ratchets upward in scale, requiring the industrial-grade commercial tractor equipment that Deere excels at making.
Even with all of that impetus on emerging markets, North America will continue to be a crucial part of the firm’s business -- after all, Deere’s iconic green machines currently make up nearly 50% of the North American farm equipment business. While the existence of a finance arm has been looked at with some trepidation in the past few years, conservative underwriting standards and hefty down payment requirements have kept it from dragging down its parent’s balance sheet.
With rising analyst sentiment this week, we’re betting on shares of Deere.
Deere is one of 13 stocks in the Dividend Stars Portfolio.
2011 has been a strong year for Pfizer (PFE). Shares of the $154 billion drug maker have rallied more than 14% year-to-date, vs. a tenuous 0.49% gain from the S&P 500. Rising analyst sentiment suggests that more of an upward push could be on the way in the near-term.
Pfizer is one of the most well-known names in the pharmaceutical business, with a stable of household name drugs (such as Lipitor, Celebrex and Viagra) and more than $70 billion in annual sales. Despite that enviable positioning, Pfizer is facing some determined headwinds right now -- patent drop-offs being the biggest concern for the mid-term. Without reasonably significant replacement names in its pipeline, the company could face major pressure as generics compete with storied names such as Lipitor.
The acquisition of Wyeth in 2009 greatly increased Pfizer’s scale, reduced the impact of patent drop-offs on the consolidated firm and should provide material cost savings for shareholders. That should buy Pfizer enough time to bring some of its more-nascent pipeline drugs a little closer to market.
In the meantime, a 4% dividend yield -- Pfizer is one of the highest-yielding drug stocks -- makes this stock an attractive name for income investors as we approach 2012. Pfizer also shows up on a list of 10 Top Stock Picks From Morgan Stanley.
PVH (PVH) is the parent company behind such apparel brands as Van Heusen, Tommy Hilfiger, Calvin Klein and Izod. Historically, PVH’s bread-and-butter has been the shirt business. Through Van Heusen (the "VH" in the PVH name), the company has built a stable revenue stream selling its business wear to middle-aged men, a facet of the firm that’s helped it gain exposure to more exciting trends in recent years.
On the strength of its legacy business, PVH bought Tommy Hilfiger in 2010, a $3 billion deal that ramped up the total firm’s balance sheet leverage but ultimately represented a bargain price tag. In buying Hilfiger, PVH greatly expanded its scale and exposure to a business that offers shareholders bigger margins and increased cash flows.
It’s likely that Hilfiger isn’t the last big acquisition PVH shareholder should expect to see. As scale increases, more cost efficiencies should present themselves to the combined firm, boosting margins and cash available to shareholders.
Another retail apparel name we’re looking at this week is Gap (GPS). This ubiquitous mall store is another name whose brand portfolio extends beyond its namesake stores -- Old Navy and Banana Republic are two more of its five brands. Gap owns more than 3,000 stores spread throughout the world (albeit primarily in the U.S.), as well as more than 150 franchised locations in somewhat riskier locales.
That huge geographic footprint is attractive, but it also means that Gap’s market is currently saturated. The firm is going to have to be willing to put capital at risk in emerging markets development if it wants to continue to have meaningful organic growth in the retail space.
More recently, Gap has had some real successes online, catering to cost-conscious consumers who are willing to forego the benefits of a physical retail experience in order to get a bargain on a pair of jeans. The decision to close a swath of its stores in the next year should help to ratchet profitability higher.
While Gap recently added debt to its balance sheet, it retains a strong net cash position. At the same time, investors should like the fact that its 2.2% dividend yield is easily paid for by cash flows.
As its ticker symbol implies, Salesforce.com (CRM) is all about customer relationship management. The company’s hosted CRM software solution boasts more than 90,000 worldwide customers, making it one of the largest offerings out there -- a level of scale that provides for integration with a number of complementary third-party software platforms.
In an era in which the “cloud” is the future, Salesforce.com is ahead of its peers. The firm embraced an online platform from the get-go, a strategy that’s helped to keep distribution costs low and acted as an added benefit for customers who were contemplating a more traditional rival CRM solution.
The fact that Salesforce.com has been able to compete against bigger rivals speaks to how well it understands small and medium businesses -- firms that make up the majority of the firm’s sales. Still, the company will need to continue to innovate to remain a step ahead of companies such as Oracle (ORCL) and SAP (SAP).
With analyst sentiment swinging higher in CRM, we’re betting on shares ahead of third quarter earnings on November 17.
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.