- Buy These 5 Financial Sector Breakout Stocks in October
- 3 Financial Stocks Rising on Unusual Volume
- 3 Big-Volume Stocks to Trade for Breakouts
- 4 Stocks Spiking on Unusual Volume
- How to Trade the Market's Most Active Stocks
5 Rocket Stocks Worth Buying This Week - views
BALTIMORE (Stockpickr) -- Traders are reluctantly slinking their way back to their desks this morning, the first market session after the a three-day reprieve from trading.
The extended holiday should have given market participants a chance to rethink their assumptions going into April -- and to decide whether they’re betting on a rally to continue into April, or fizzle out entirely. At this point, popular sentiment has clearly moved from bullish to bearish, even if the fundamental and technical picture hasn’t actually reflected the same.
But there is a big catalyst for some fundamental-driven price action coming our way this week: I’m talking about earnings season.
Earnings officially kick off with Alcoa’s (AA) call after the bell tomorrow. And analysts are anticipating a less-than-great quarter, with a 0.1% drop in first-quarter earnings for the S&P 500. Here’s the thing that most people are missing though: Major selloffs don’t happen when stocks fall in-line with analyst estimates; those negative expectations are already priced into the market. So any earnings positive surprise is going to have a lifting effect on U.S. stocks.
To get ready for earnings season, 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 147 weeks, our weekly list of five plays has outperformed the S&P 500 by 79.73%.
With that, here’s a look at this week’s Rocket Stocks.
2012 has been a good year for shareholders of O’Reilly Automotive (ORLY). Shares of the auto parts retailer have rallied close to 16% since the first trading day of January, outpacing even the S&P’s prodigious rally this year. O’Reilly is the second-largest auto parts chain in the country, with more than 3,700 stores spread across the country. The firm’s unique positioning sets it apart from peers right now.
O’Reilly started off serving the commercial auto parts market, a lucrative business that rival retailers are actively trying to acquire right now. By starting off in that business, ORLY is able to boast a bigger chunk of sales from the commercial segment. While the acquisition of CSK Auto shifted O’Reilly’s sales mix more to the retail side, management has been aggressively working to make CSK’s business mirror the operations at legacy O’Reilly stores.
From a secular perspective, there are some major tailwinds lapping at auto stores’ backs. The biggest is the average age of the U.S. car fleet -- while new auto sales have been strong lately, the average age of cars on the road has been drawing longer. That makes a strong case for increased car part demand, and it’s helped to drive the nearly double-digit net margins that ORLY has seen in the last year or two.
Investors should watch out for first-quarter earnings on April 26.
O'Reilly shows up on a recent list of the 10 Longets-Held Stocks of Top-Rated Mutual Funds.
Asset manager BlackRock (BLK) has been enjoying some impressive performance of its own in 2012; shares of the $37 billion firm have rallied more than 15% this year, as the equity rally drove the firm’s assets under management higher. But while market sentiment is shifting right now, investors don’t need to be anxious about BLK’s earnings ablity.
BlackRock weighs in as the largest asset manager in the world, with more than $3.5 trillion in AUM. Size carries some distinct advantages in the asset management business, and in BlackRock’s case, scale is a major driver of the firm’s deep double-digit net margins.
A major feather in BLK’s cap is its asset allocation. Equities and fixed income assets are nearly evenly balanced right now, and while money markets are a bit under-represented in BLK’s product mix, they also provide pretty underwhelming management fees. The firm’s current positioning puts it in good shape to take “flights to quality” in stride.
The biggest growth avenue for BlackRock right now is the retail space. BlackRock has traditionally been an institutional money manager, and its client list reflects that: Only around 25% of assets come from retail investors. As BLK grows its retail Rolodex, it should be able to attract more assets to its portfolio managers. Another is the introduction of alternative investment products (such as unique ETFs) that provide exposure that investors can’t otherwise get easily.
BLK is set to post its first-quarter earnings on April 18.
CBS (CBS) owns a bevy of media assets, ranging from the firm’s eponymous television network to Showtime, the CBS Outdoor advertising business, and Simon & Schuster. That diversification provides some big advantages for CBS -- namely a slew of content that it can share across different businesses.
That said, hefty exposure to advertising and entertainment spending means that CBS’ whole business ebbs and flows as one; true sales diversification isn’t there.
CBS enjoys special positioning in the entertainment industry. The network and TV studio lay claim to some of the most popular shows on network television, positioning that’s crucial for the firm to take advantage of ramped up ad spending. New digital billboards are prompting big changes in the outdoor advertising segment, offering CBS the ability to change ads in an instant and better target ad spending opportunities throughout the day.
Ultimately, CBS is an old business that continues to generate significant cash. Management will need to keep pushing cost reductions and continue to search out growth opportunities if they want to keep investors tuning in.
With rising analyst sentiment in shares this week, we’re betting on CBS.
Even though Atlanta-based IntercontinentalExchange (ICE) is a relative newcomer to the financial world, the firm has done a good job of establishing itself as a go-to exchange and clearing house for global derivatives markets. Today, the firm operates four regulated exchanges located in the U.S., Canada and the United Kingdom.
While legacy exchanges battle it out for a larger share of extremely low-margin businesses, IntercontinentalExchange has worked to carve itself a more defensible niche. The firm is a major player in the OTC market for “less commoditized commodities”, helping to match buyers and sellers of less vanilla securities. The firm’s clearing business is a very attractive complement to its exchange and OTC trading arm -- it essentially lets ICE fill a role that a third-party would otherwise get a piece of.
ICE will need to continue to work hard to keep its share of the exchange and OTC derivatives markets. Competition among exchanges has made it harder than ever to make money in this business, a factor that puts a big target on ICE’s back when the firm is making money hand over fist.
Even so, traders know that they can turn to IntercontinentalExchange to find liquidity for more exotic products, and that should provide the company with a more defensible moat than peers.
Dollar Tree Stores
Deep discount retailers haven’t been a big part of our weekly Rocket Stocks lists for a while now -- at least not since the depths of the recession, when the few stock investors still willing to pour cash into the market were buying dollar stores with both hands. But Dollar Tree Stores (DLTR) is making our list this week, amid an upswing in analyst sentiment for shares.
Dollar Tree is the largest dollar-store chain in the country, with more than 4,000 stores spread across 48 states and four different retail brands. While it may seem unintuitive, dollar stores actually boast much deeper margins than most retailers, thanks to a focus on cost management rather than product availability. That best-in-breed retail ability should keep Dollar Tree throwing off cash in 2012.
So should economic hiccups in the year ahead. While unemployment numbers have made some strides in the last couple of years, the number of unemployed and underemployed remain extremely high -- that factor should keep shoppers in DLTR’s bargain-filled stores, especially on the discretionary front. Even if shoppers trade up to pricier stores to get staples, Dollar Tree should still be able to capture seasonal discretionary spending.
More importantly, with investors showing major anxiety about equities right now, Dollar Tree provides some exposure to a very defensive name. Investors should be keeping an eye on May 17 earnings.
Dollar Tree shows up on a recent list of 6 Companies Battling for Americans' Grocery Money.
To see all of this week’s Rocket Stocks in action, check out the Rocket Stocks portfolio at Stockpickr.
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.