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5 Rocket Stocks Worth Buying This Week - views
BALTIMORE (Stockpickr) -- Mr. Market is starting start the week flattish, after posting an impressive run last week. The S&P 500 gained 2.43% in the last five trading sessions, the biggest week for stocks in a full quarter. That performance isn’t being lost on investors right now either. With Treasuries also selling off in rare fashion in the last week, it’s clear that a lot more people are participating in this 2012 rally.
For stock investors, that’s a very good thing.
As long as corporate fundamentals continue to impress and “flight to safety” investments continue to lose their shimmer, the broad market should continue to be able to catch a bid near these four-year highs. To take full advantage of that trend, we’re turning to a new set of Rocket Stocks for 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 144 weeks, our weekly list of five plays has outperformed the S&P 500 by 80.39%.
With that, here’s a look at this week’s Rocket Stocks.
Tobacco giant Philip Morris (PM) tips the scales as the world’s second-largest tobacco company, bolstered by a portfolio of brands that’s even familiar to nonsmokers. Marlboro leads the pack, so to speak, along with smaller brands that include L&M, Parliament, and Lark.
All told, the firm holds around 16% of the non-U.S. tobacco market. After splitting off from former parent Altria (MO), PM’s focus is solely outside the U.S.
Back in 2007, when the spinoff was crafted, that exposure made a whole lot of sense. Latin America was on fire, and more and more individual investors were hearing about the BRICs. During the crisis, however, the strong dollar meant that the sales Philip Morris earned in other currencies were worth less.
Dollar strength has continued to be a problem for PM’s earnings to this day. Despite that black cloud, the firm does a stellar job of diversifying a portfolio that’s too U.S.-centric.
Even though the dollar has been strong, PM hasn’t had any trouble making money. The company throws off considerable cash, a lot of which goes toward the firm’s 3.59% dividend yield. Investors looking for income and diversification could do worse than this well-known “sin stock.” With analyst sentiment rising in shares this week, we’re betting on PM.
Philip Morris was also featured in "7 Dividend Stocks Promising Growth and Protection."
Oil and gas exploration and production firm EOG Resources (EOG) is having a strong year in 2012. Already since the first trading day of January, shares have rallied close to 19% on the heels of good production volume and prolonged strong oil prices -- and the prospect that they could turn even higher by the summer.
EOG owns low-cost energy assets spread across the U.S., with additional exposure to fields in Trinidad, the U.K. and China. For an energy E&P, cost is everything -- so while the firm lacks the scale seen at supermajor rivals, the only critical factors in EOG’s profitability is how much the firm paid for its projects and how much it’s paying to pull those commodities out of the ground.
The firm’s expertise in unconventional drilling methods should be especially beneficial in the years ahead. As less sophisticated E&Ps look to unload dried up fields, EOG’s ability to pull extra oil and gas from them means that it can expand its balance sheet at a bargain price.
Financially, EOG is in good shape, with plenty of balance sheet liquidity. Even though the E&P business is capital intense, this firm has the wherewithal to invest where it’s necessary.
Tyco International (TYC) is on track for some major changes in 2012 -- and investors who want to get in now need to strike while the iron is hot. By September, the firm is expected to have completed its three-way split, breaking its ADT security business apart from its commercial security and fire business and its flow control unit.
Three-way breakups are nothing new for Tyco. Back in 2007, the firm broke apart three ways to form TYC, Tyco Electronics, and Covidien (COV). Now the firm is hoping for a repeat performance.
Right now, around half of Tyco’s sales come from outside the U.S., but the ADT unit is still the focal point of the conglomerate’s business. The residential security division boasts large margins and extremely high customer stickiness (forced, in part by long-term contracts for consumer companies) that helped Tyco keep its sales minimally impacted by the recession.
While a breakup does potentially unlock value for the firm (particularly in recovering markets, when the sum of the parts exceeds the value of the whole), it’s not without costs and risk. Still, investors should like the fact that management has done this before -- and that the breakup makes economic sense right now.
Desktop virtualization firm Citrix (CTXS) is in business to help consumers and companies get access to software and documents from any computer. While there’s significant competition in the “cloud” space right now, Citrix’s long-established position has kept the firm in the league-leader position for a while now. As long as the firm continues to prioritize spending on product development, it should be able to keep its big customer doles happy.
While rivals were courting the big bucks of corporate America, Citrix based its business on the small- and medium-sized business market. That niche focus helped the firm to realize breakneck growth rates over the course of the last few years and resulted in a product that appeals to a wider group of potential customers.
Citrix has an impressive financial position, with a debt-free balance sheet and a huge cash balance on hand. That sort of positioning is a double-edged sword, though. If Citrix can’t find a way to use that cash effectively, it’s better off returning the value to shareholders in 2012.
Still, with rising analyst sentiment showing up in CTXS this week, we’re adding this name to our Rocket Stocks list.
Stanley Black & Decker
Tool manufacturer Stanley Black & Decker (SWK) is another stock that’s having an impressive year so far in 2012: Already, shares of the firm have rallied more than 18% after posting strong numbers this earnings season. The firm is one of the biggest consumer and professional tool makers in the world, with exposure to the security and industrial sectors as well.
It’s been approximately one year now since Stanley and Black & Decker closed their merger, and things have been going smoothly. The combination of two leading tool brands means higher margins without compromises to quality, thanks to improved economies of scale. Because key customers include price-conscious big-box stores, that’s a crucial advantage to have over rival tool firms.
SWK is looking internationally for growth opportunities in the years ahead; Latin America is a particularly strong market for the firm, and other regions could provide similar growth characteristics. As consumer spending on home improvement continues to outperform Wall Street’s expectations, this firm should be one of the biggest beneficiaries.
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.