- 5 Big Stocks to Trade for Gains as QE3 Ends
- How to Trade the Market's Most-Active Stocks
- 4 Big Stocks Making Headlines -- and How to Trade Them
- 4 Stocks Breaking Out on Big Volume
- 5 Stocks Spiking on Unusual Volume
5 Rocket Stocks Worth Buying This Week - views
BALTIMORE (Stockpickr) -- Even though Europe is grabbing headlines this morning, it’s all about the earnings this week.
Earnings season is back, and it’s investors’ biggest hope to add some fuel to the rally that’s propelled stocks for most of this year. We’re in the very early stages of this quarter’s earnings bout. So far, only eight S&P 500 stocks have released their numbers to Wall Street. But the early results indicate that analysts are buying the “overextended” sentiment that’s shoved stocks lower in April: Five of those eight stocks have posted positive earnings surprises so far.
With record corporate profits fueling record cash positions on corporate balance sheets, it suddenly becomes a whole lot harder to be bearish -- especially if earnings surprise investors to the upside again this quarter. Almost a fifth of the S&P is slated to release earnings over the course of this week; that makes the next five trading sessions critical for stock investors.
To leverage some of that market attention, 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 148 weeks, our weekly list of five plays has outperformed the S&P 500 by 79.97%.
With that, here’s a look at this week’s Rocket Stocks.
It’s been a lackluster year so far for shares of Chubb (CB) -- the $19 billion insurer has only seen its stock rise by 64 basis points in 2012, hardly the rally that the rest of the broad market has been experiencing. But considering the strides that the company has made internally, management has made some meaningful accomplishments nonetheless. Chubb is one of the largest multi-line insurers in the world, with a massive property-casualty business and scale that enables the firm to handle policies that only a handful of rivals can take on.
That size advantage means that Chubb can offer more bespoke policies and earn larger margins for their troubles. That’s critical diversification in an insurance market that’s become commoditized in the last decade. Shile more traditional insurers are forced to match prices and underwrite in volume, Chubb is able to walk away from business based on price.
While most insurers have been chasing growth by broadening their insurance lines, Chubb has actually been reducing its businesses in the wake of the financial crisis. By focusing on its core property-casualty insurance business and finding growth by looking overseas, the company should be able to grow with less risk than rivals.
With analyst sentiment on the upswing for this stock, we’re betting on shares.
Meanwhile, retail heavyweight Macy’s (M) has posted some impressive price performance this year: shares of the $16.7 billion department store chain have rallied more than 24% on better-than-expected sales strength. Macy’s operates more than 850 stores in the U.S. under the Macy’s and Bloomingdale’s banners.
Like many peers, Macy’s took the recession as a sign that it was time to restructure and rethink its operations. The result is a firm that boasts better net margins and a much-improved merchandising strategy that’s more customized to individual stores than the company’s previous model was.
At the same time Macy’s is decentralizing its merchandising, the firm is doing a better job of centralizing operations functions that have previously been replicated across regions. The combination of those two initiatives should help focus manpower where it can generate the biggest returns for shareholders.
The rising tide of strong retail sales is lifting all ships right now, a fact that makes it all the more important for Macy’s to execute well on its plan now, while times are good. First-quarter earnings on May 9 look like the next big catalyst for shares right now.
Medical equipment maker Zimmer Holdings (ZMH) has been quietly seeing a rally of its own in 2012. Since the first trading day of January, shares of the $11 billion orthopedic device maker have climbed more than 18%.
Zimmer is the world’s biggest supplier of knee and hip replacements, treatments that have gained in popularity as patients opt for the vastly improved mobility that orthopedic implants provide. As scores of baby boomers begin reaching joint replacement age, Zimmer should see its volumes increase in kind.
One major structural advantage for Zimmer is who exactly pays for the replacement joints that the company sells. Because most replacements are covered by government programs like Medicare, the financial impact of the decision for a join replacement normally doesn’t fall on the patient. That makes undergoing the procedures a much easier decision.
Zimmer also has a largely untapped market abroad, particularly in countries where join replacement isn’t as prevalent as it is here at home. Zimmer’s standard-bearer status in this niche should help to guarantee that it continues to do well as it expands its reach.
Deep double-digit margins should ensure plenty of value available to return to shareholders in 2012.
Industrial supply company W.W. Grainger (GWW) is another name that’s making this week’s Rocket Stocks list. The firm supplies a mix of maintenance, repair, and operating supplies to more than 2 million worldwide customers. The industrial distribution business is an extremely fragmented area, where Grainger competes against scores of smaller rivals.
That’s actually a big advantage for the firm. With only a couple of peers that can match Grainger’s scale, the firm is able to deliver big cost advantages and global distribution that smaller company’s can’t match.
Online sales have been a major growth area for Grainger in the last few years, now climbing to almost a fifth of total sales. That performance in the online space is critical for the firm because it makes GWW better able to compete with bigger rival Fastenal (FAST), whose massive brick-and-mortar store footprint gives it serious advantages.
Online sales give Grainger bigger margins and faster growth than other channels – but the firm will need to stay cognizant of the fact that economic moats are a whole lot more shallow online. A history of share buybacks and dividend hikes have kept Grainger returning value to shareholders even when times were tough and shares were cheap, exactly when management should be thinking about value.
With investor anxiety still high right now, that’s a major positive for investors.
Grainger shows up on a recent list of 9 Stocks That Prove Dividends Make All the Difference.
Digital Realty Trust
Digital Realty Trust (DLR) is one of the best real estate investment trusts (REITs) on the market right now, even at the significantly higher levels that shares have seen in recent months. DLR owns 16.8 million square feet of leasable space that’s dedicated to technology firms -- namely datacenters, internet gateways and tech offices. The firm’s niche focus gives it a defensible moat (datacenters and the like have infrastructure that is costly to replicate or move) and high lease renewal rates.
That’s magnified even more by the long-term demand for datacenter facilities across the countries. As consumers’ data needs balloon thanks to technologies like smart phones and cloud storage, so too does the need for newer and bigger datacenter locations.
The best way to think about REITs (DLR included) is as big income-generation instruments. REITs lease out space through long-term triple net contracts that take almost all of the landlord risks away from them and put them onto tenants. The result is a trust that generates large, consistent income streams -- and that’s legally obligated to pay out the vast majority of that income in the form of dividends. With a 4% yield right now, DLR is a solid core income holding.
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.