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BALTIMORE (Stockpickr) -- A short trading week should make for a quiet start to September trading. With big events such as Ben Bernanke’s Jackson Hole, Wyoming speech in the rearview mirror this week, that’s not such a bad thing.
So, with a new month upon us, what does September hold for stocks? If historical seasonality studies are any indication, investors could be in for a good end to the year.
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In the last decade, September through December has historically been the best-performing chunk of the year, earning average performance of 6%. With Mr. Market already up double digits year-to-date, another 6% price hike would be more than welcome.
There is a small caveat to that data: Historically, September is the weakest month of the final stretch of the year. Still, with the S&P in a perfect uptrend right now and a correction nearing support in the index, I think that the odds favor more upside in September.
That’s reason enough to start looking at a new set of Rocket Stocks worth buying this week.
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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 166 weeks, our weekly list of five plays has outperformed the S&P 500 by 78.65%.
Without further ado, here’s a look at this week’s Rocket Stocks.
There’s no two ways about it -- it’s been a phenomenal year for shares of Alexion Pharmaceuticals (ALXN). Shares of the $20 billion pharmaceutical firm have rallied 50% since the first trading day of January, besting the broad market’s performance by a wide margin.
Alexion emerged from obscurity on the heels of its Soliris drug, a treatment for rare blood disorders. By focusing on niche treatments of rare diseases, Alexion gets the big benefits of orphan drug status, and it doesn’t have to compete with big pharma rivals.
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While Soliris is Alexion’s sole drug, the firm has been working to gain its FDA approval for other autoimmune diseases. The result is more sales without more development costs associated with trying to bring other drugs to market. It’s a perfect strategy for an orphan drug, which gets longer patent protection, and Soliris has already proven useful for other indications.
That performance has helped the firm build a large cash backstop (more than $800 million at last count, offset by some added debt from its Enobia acquisition) that should help to fuel its future R&D costs. Let me be clear, though: ALXN isn’t a cheap stock right now; it’s actually quite overpriced. But momentum continues to be rock-solid in this stock, and buyers aren’t scarce.
That’s why ALXN gets Rocket Stock status this week.
Whole Foods Market
Whole Foods Market (WFM) is another name that’s seeing awesome performance in 2012. Shares of the grocery chain have rallied more than 39% since the first trading day of the year, driving shareholders to new all-time highs in the last month. Whole Foods is the biggest natural and organic foods retailer in the world, with more than 311 stores spread across the U.S. and a smattering of Canadian and English locations.
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Don’t mistake Whole Foods for a grocery store. This firm earns much bigger margins, enjoys much larger organic growth rates (pardon the pun), and has an economic moat that’s unheard of in the grocery business. Whole Foods accomplishes that by focusing on a very specific demographic. By targeting affluent health-conscious consumers, it’s able to build out better profitability than rivals, and its customers end up stickier than most run-of-the-mill grocery stores.
While WFM was one of the many retail names that suffered from a growth-at-any-cost mentality heading into the Great Recession, the firm is back on solid footing with a productive store base and a strong balance sheet position. Management learned their lessons the last go-around, a factor that should help protect investors from another over-levered investment in the years ahead.
Clearly, this is another name with momentum on its side right now. We’re betting on shares this week.
Whole Foods shows up on a list of 5 Volatile Stocks to Buy More Of.
Integrated energy firm PPL (PPL) is benefiting from rising analyst sentiment this week as well. The $17 billion name owns 11,200 megawatts of power generation capacity, and regulated utility businesses here at home as well as in the UK.
Income investors take note: PPL currently pays out a hefty 4.9% yield.
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PPL has been focusing on a risk-off approach to the energy business in the last few years. For starters, it’s been acquiring new regulated utility names, dropping its merchant generation business from the biggest earner to a much smaller piece of the corporate puzzle. Ultimately, that’s a good move for PPL -- merchant generation is a riskier business that’s more beholden to commodity price swings than its regulated arm. And dividend-seekers should find solace in the fact that PPL is focusing on highly-predictable regulated revenues.
That’s not to say that generation will disappear from PPL’s income statement. With an attractive portfolio of generation assets (that are skewed towards attractive, low-cost fuels), generation should be a nice “extra” business that won’t derail its ability to pay a dividend if the unexpected happens. While an aggressive CapEx plan has meant that PPL’s debt has been increasing, the firm should be able to service its debt while at least maintaining its dividend payout right now.
Ingersoll-Rand (IR) is a diversified manufacturing firm that owns brands ranging from Club Car golf carts to Schlage locks to Trane air conditioners. In general, Ingersoll-Rand’s brands have been heavily affected by the recessionary headwinds of the last few years, a factor that’s helped to buoy shares now that the economy is stabilizing again. Hefty exposure to construction means that improvements in heavily watched data points like housing starts and new home sales bode well for IR’s income statement.
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Like many other capital-intense manufacturing firms, Ingersoll-Rand took the recession as an opportunity to shore up its financials and become a stronger, more svelte firm. By needing less working capital to fuel operations, the firm is better able to withstand any economic hiccups down the road.
New products continue to be an important part of Ingersoll-Rand’s revenues, something that’s commendable for a manufacturer whose products typically have longer lifecycles. That commitment to product development should help to keep IR’s portfolio of brands in their market-leading positions.
With more than 1,000 stores spread across 44-states, Tractor Supply (TSCO) has been one of the biggest growth stories in retail lately. In the last two years alone, Tractor Supply has seen its top line grow 31% (a cool $1 billion increase) while at the same time ratcheting its net profit margins higher each quarter.
With profitability that far and away exceeds the numbers that other similar retailers are seeing, TSCO shouldn’t be ignored by investors in 2012.
The Brentwood, Tennessee-based firm sells a whole lot more than its name suggests. Products include everything from clothing to home and garden products, to pet care items (yes, the company sells tractors too). But its unique positioning attracts curious shoppers and its unique product merchandising (TSCO stocks many exclusive and private-label offerings) keeps them coming back.
The firm’s geographic focus has been just as important. TSCO builds its locations in rural communities outlying major metropolitan areas, positioning that offers enough consumer concentration to support a store with the demographics that will want the products Tractor Supply sells. With a deep net cash position on its balance sheet and a price multiple that’s only slightly high, I think TSCO is one of the most attractive names in retail right now.
So, with rising analyst sentiment in shares, we’re betting on this Rocket Stock this week.
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.
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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.