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5 Rocket Stocks Worth Buying in April - views
BALTIMORE (Stockpickr) -- With another month of trading under Mr. Market’s belt in 2012, it’s clear that stocks took a bit of a breather in March: the S&P 500 climbed just 3.13% last month, performance that pales in comparison versus January and February’s contribution to the rally.
So what’s in store for April?
Even though stocks slowed their climb in March, equities are still in rally mode right now. The S&P remains above the 1400 level after kicking off its best quarter in a decade or two, and other indices are posting similar stats. From a seasonality standpoint, April tends to be a bullish month for stocks. While that’s no guarantee that we’ll see the rally accelerate again this month, it’s a good sign.
This month, I’m expecting one of the primary catalysts for stocks to be flow of funds from the safety assets of 2011 (namely bonds) to the stock market. A rising tide should help lift all ships in that scenario.
To take full advantage, we’re turning to a new set of Rocket Stocks 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 146 weeks, our weekly list of five plays has outperformed the S&P 500 by 78.39%.
With that, here’s a look at this week’s Rocket Stocks.
As impressive as the broad market’s rally has been year-to-date, wireless technology firm Qualcomm (QCOM) has managed to do one better. Shares of the $115 billion firm have rallied by more than 24% in 2012 -- and they’re poised for even bigger gains thanks to major tailwinds in the mobile phone business.
In spite of a turbulent economy over the last few years, mobile phones have been a major growth business, with new smartphone offerings constantly hitting the market. Because Qualcomm owns key 3G and 4G patents, the firm generates royalty revenue every time a phone is sold -- even if Qualcomm’s chips aren’t used. That’s an impressive benefit, but it’s hardly Qualcomm’s entire business.
Mobile chips are still the lion’s share of QCOM’s revenues; the firm’s offerings are critical components in phones such as the HTC Droid Incredible and the iPhone 4S. Qualcomm’s new Snapdragon processor stands to be the jewel in the firm’s crown, offering more processing power for OEMs and more revenues per chip for QCOM. Snapdragon sales have more than doubled in the last year, a pace that should continue as new handset and tablet makers adopt the relatively new platform.
April 18 earnings are the closest upside catalyst for this stock right now.
If any stock has been in rally mode in 2012, it’s been Fossil (FOSL). Shares of the $8.3 billion apparel and fashion brand have climbed 66% in the last three months alone. Just last week, S&P Indices announced that Fossil would become a member of the S&P 500 Index, a major achievement for a firm that had small-cap status just a couple of years ago.
Fossil designs and sells watches, leather goods and other accessories through more than 360 company-owned locations, online channels, and third-party retail stores. In addition to its namesake brand, Fossil owns higher-end Swiss watch brands Zodiac and Michele, and manufactures watches for a bevy of other well-known designers. Fossil has found considerable success in the moderately priced apparel segment, where discretionary purchases don’t involve spending hundreds or thousands of dollars.
From a financial perspective, Fossil’s breakneck growth hasn’t come at the cost of increased balance sheet leverage. The firm sports a minuscule debt position that’s more than offset by ample cash reserves.
Investors should keep an eye out for this Rocket Stock’s May 8 earnings call.
Fossil shows up on lists of 10 Mid-Cap Stocks That Have Almost Doubled in 2012 and 15 Best Stocks at Top-Performing Mutual Funds.
Activision Blizzard (ATVI) is one of the biggest video game development and publishing companies in the world, boasting a stable of extremely popular franchises that includes World of Warcraft, Call of Duty and Diablo. Activision’s online multiplayer franchises are particularly significant: The World of Warcraft series, for instance, generates recurring subscription revenues with an extremely sticky customer base and deep margins.
The firm is no stranger to success in a more traditional video game model: ATVI’s release of Modern Warfare 3 in 2011 became the best-selling first-day release in entertainment history -- an impressive feat given the smaller market for first-person shooter games. Successful franchises such as Call of Duty and World of Warcraft have the potential to spawn lucrative new titles in perpetuity as long as Activision doesn’t violate fans’ expectations.
ATVI is another firm that’s in stellar financial shape. The company has a debt-free balance sheet and more than $3.5 billion in the bank, a cash hoard that accounts for a sizable chunk of Activision Blizzard’s market cap.
With analyst sentiment on the upswing, we’re betting on shares this week.
As of the most recently reported quarter, Activision is one of the top holdings at Whitney Tilson's T2 Partners.
Coffee giant Starbucks (SBUX) has been seeing major growth of its own in the last few years, much to the surprise of analysts and investors who thought that “a Starbucks on every street corner” meant that SBUX had reached a saturation point. With coffee shops becoming ubiquitous (at more than 17,000 worldwide stores), the impetus for SBUX’s growth became grocery shelves. Offerings such as packaged coffee and K-Cups have fuelled the firm’s sales in the past several quarters.
Earlier this month, Starbucks surprised Wall Street with the announcement of its own single-cup brewing system, the Verismo. After penning a potentially lucrative deal to sell its coffee in K-Cups for the popular Keurig brewer systems, Starbucks is effectively making an about-face to introduce a direct competitor. Keurig is the league leader in the competitive single-serve market, and Starbucks could be making a critical error in the Verismo if it can’t execute effectively. Until the Verismo hits the market, the jury’s still out.
This isn’t the first time Starbucks has cut a partner out of its business -- the firm dumped its grocery distributor Kraft (KFT) in late 2010, opting instead to handle its own distribution and keep the food processor’s cut of the business. That move turned out to be lucrative as SBUX ramped up its presence on grocers’ shelves; we’ll see if SBUX can pull it off again.
In the meantime, the firm’s core business remains strong for this Rocket Stock. Watch out for second-quarter earnings on April 26.
Over-the-counter pharmaceutical firm Perrigo (PRGO) is the company that’s secretly behind the store brand health-care, nutrition, and drug products that line store shelves. OTC pharmaceuticals have seen a major shift in the last several years, as consumers became aware that store-brands were (in many cases) identical to the premium-priced brands sitting next to them.
While not all drugs have become commoditized in that way, it’s a trend that’s spurred retailers to offer more of their own competing products at higher margins. In that way, Perrigo benefits from the margin squeeze that retailers have been facing in recent years; struggling to find ways to expand their margins, offering more store-branded OTC products is an easy choice -- one that fuels double-digit net margins in PRGO as well.
While acquisitions have ramped up PRGO’s balance sheet leverage, the firm remains on solid financial ground in 2012. New moves to lower costs should contribute to better margins and the ability to be more competitive overseas, where PRGO still only generates around 20% of sales. Perrigo’s third quarter earnings are slated for May 8 – that’s the next big fundamental catalyst analysts should be watching out for in 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, 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.