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5 Rocket Stocks Worth Buying This Week - views
BALTIMORE (Stockpickr) -- The last trading week in June is kicking off to a rocky start, with markets pointed considerably lower on Monday. No great surprise, we’ve got the eurozone to thank for investors’ hitting the “risk off” button today.
Spain needs money to recapitalize its banks, it seems. The kingdom formally asked for up to 100 billion euros from European stability funds this morning, a move that signals that things are still very bad over at the region’s fourth-largest economy. This week is going to be full of headline risk from the EU. Leaders are meeting on Thursday for a two-day summit that’s meant to shore up eurozone banks. If leaders can come up with an elegant solution for the debt crisis, investors will probably start buying with both hands again; if they can’t, expect that “risk off” button to stay pressed.
Meanwhile, there are some more optimistic situations taking place in a handful of Rocket Stocks this week. Today, we’ll look at five names that are worth buying 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.
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In the last 156 weeks, our weekly list of five plays has outperformed the S&P 500 by 82.67%.
With that, here’s a look at this week’s Rocket Stocks.
2012 has been a stellar year for shareholders of Disney (DIS). Since the start of January, shares of the $85 billion entertainment giant have rallied more than 26%, beating the broad market by a huge margin.
A lot of that success is coming off the heels of success at Disney’s cable networks, most notably ESPN. Even though Disney may be best known for Mickey Mouse and friends, nearly half of the company’s profits come from TV networks such as ABC and ESPN.
ESPN is the most valuable network in the world, capturing a bigger part of your cable bill than any other network out there -- and it’s all thanks to football. Despite shelling out more than $1.8 billion each year to the NFL for Monday Night Football broadcast rights, the network’s model has proven immensely profitable.
Even if ESPN is Disney’s crown jewel, the firm’s other businesses are still performing well in a soft market for what are essentially luxuries. China stands to be a big growth market for the company’s theme park unit, even if the China Disney property is pricey to develop this year (after all, Disney is no stranger to making expensive investments pay off).
Investors also shouldn’t forget about Disney’s legacy filmmaking business. The purchase of Pixar in 2006 was transformational for the firm, and should help to bring in consistent blockbusters in a way that Disney’s animation studios haven’t by themselves.
Investors looking for consumer discretionary exposure with a defensive bent should give Disney a closer look.
Disney shows up on a recent list of 3 Hot Stocks to Survive Summer.
Intuitive Surgical (ISRG) is another name that’s been a strong performer year-to-date: Shares of the firm have rallied close to 20% so far in 2012. Intuitive develops and sells robotic surgical systems for hospitals that want to be able to perform less-invasive surgeries than would be possible if done by a surgeon’s hand. The firm’s da Vinci system is currently deployed in more than 2,000 hospitals around the globe.
The robotic surgery business is interesting because it’s nascent. ISRG’s installed base only covers a small number of the world’s hospitals, but it’s effectively the only established robotic surgery equipment vendor out there. As a growing number of surgeons get trained on the da Vinci system, switching costs of adopting a new platform start to get quite high, giving ISRG a sticky customer base and a big competitive advantage.
Another benefit of ISRG’s relatively large installed base is the fact that it’s able to earn revenues on older machines by selling services and instruments for existing da Vinci machines.
Intuitive has done a good job of exceeding sales expectations in the last few years, a fact that’s spurred significant investment in the firm. While that means that ISRG is no value stock at this point (its P/E weighs in at a hefty 41.6 right now), the firm’s momentum speaks for itself.
With rising analyst sentiment in ISRG this week, we’re betting on shares.
Birmingham, Alabama-based Regions Financial (RF) is a $9.5 billion regional bank that has more than 1,700 bank branches focused on the Southern part of the U.S. That exposure was a massive drag on earnings during the financial crisis of 2008, when the housing market in the South got hammered and Regions’ $80 billion loan book suddenly started looking dramatically less attractive.
But a lot has changed for Regions in the years since. Management has reduced the firm’s exposure to riskier loans (like construction loans) and the bank was able to repay its TARP loans, becoming one of the last large banks to rid themselves of TARP obligations.
At the same time, Regions has broken away from the typical regional bank mold, building out a large nonbanking business that includes insurance and wealth management. That big exposure to fee-based revenues should help smooth out RF’s earnings if economic drama persists.
Regions reports its second quarter numbers at the end of July. A good report could be a big catalyst for investors this summer.
Expedia (EXPE) is the world’s biggest online travel agent, with more than $29 billion in gross travel booking last year. That size does have some advantages in the travel space, where leverage over travel inventory can mean the best prices for customers. Largely, though, travel is becoming commoditized, with “lowest rate” guarantees becoming standard. As price becomes uniform across all sites, integrated booking features are going to have a big advantage.
Like its rivals, Expedia’s end goal is in getting travelers to hit its site first and to book without bothering to visit a competitor such as Priceline (PCLN). But that plan should become harder to execute if features start to blend across sites.
Expedia is trying to fight that by creating deep bargain travel offerings, a niche that’s essentially disappeared in the last decade. International bookings are another big area for growth -- currently, only a third of EXPE’s sales come from overseas, well short of sites like Priceline, which earn most of their sales abroad.
An ambitious sales strategy in mainland China, where EXPE has an ownership stake in popular travel sales sites, looks like a good way to boost that international exposure in 2012. Here again, we’re looking at a momentum name in Expedia -- this stock isn’t cheap, but it’s been rallying hard this year.
With analyst sentiment on the upswing, we’re betting on shares.
As of the most recently reported quarter, Expedia was one of Greenlight Capital's holdings.
Last up on this week’s Rocket Stocks list is Nike (NKE), the standard bearer in the sports apparel and footwear businesses. Nike sells to retailers in more than 170 countries -- and direct to consumers through its more than 700 company-owned retail stores. Size matters a whole lot more for a firm like Nike than it does for the likes of Expedia, in this case giving the firm massive pricing power over key customers.
The sports apparel business is extremely competitive, with scores of brands vying for Nike’s success. In order to stave off rivals like Under Armour (UA) and cling onto its brand cachet, Nike needs to continue innovating like smaller, more nimble firms. Bigger-ticket products like Nike+ should keep consumers in saturated markets like the west flowing in.
At the same time, Nike’s biggest growth opportunities are in the East. Burgeoning middle class populations in countries like China and India have swelled demand for Nike’s attainable status symbols, making those countries its most appealing customers -- and not just a source of cheap labor for Nike’s manufacturing facilities.
Nike shows up on a recent list of 8 Stocks to Help Keep the Bear Market at Bay.
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.