Stock Quotes in this Article: KSS, MCD, PM, TGT, YHOO

  BALTIMORE (Stockpickr) -- Spain’s continued drama is gut-punching Mr. Market this morning – and taking some of the attention off corporate that have handily bested Wall Street’s expectations so far this earnings season.

Of the 121 S&P 500 stocks that have announced earnings this week, for instance, approximately 90% have overshot Wall Street’s estimates on profits. That tells us that investors have been way off base this earnings season -- and that stocks could have more upside ahead of them if market prices are to stay line with the values investors can find right now. Based on price and earnings, the S&P is already discounted more than 20% versus where it was just a year ago.

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It’s not hugely surprising that Europe is shoving stocks underwater this morning: Equities have been conducting an orderly rally for the last few months, and increasingly anxious investors are still looking for any crumbling foundations to the climb in price. That said, a lack of truly new information in Europe combined with an earnings season data dump this week should refocus investors’ attention in the next few days.

After all, big names such as Apple (AAPL) and Merck (MRK) are slated to announce their earnings numbers this week, and more than 170 total S&P names are reporting in the next five days. That’s why we’re turning to a new set of Rocket Stocks 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 160 weeks, our weekly list of five plays has outperformed the S&P 500 by 79.05%.

With that, here’s a look at this week’s Rocket Stocks.

Philip Morris International

It’s been a good year for everyone’s favorite sin stock, Philip Morris International (PM). So far in 2012, shares of the tobacco giant have rallied more than 13%, besting the broad market’s returns over that period by 491 basis points. And that doesn’t even include PM’s big 3.46% dividend yield.

Philip Morris International is the result of a 2008 spin off that separated Altria’s (MO) domestic business from its international operations. The result is a firm that has exposure to the markets where cigarette use is still growing, and the Western brand portfolio that’s so popular with tobacco customers overseas, particularly in emerging markets. At present, PM owns around 28% of the entire global tobacco market.

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PM has an attractive mix of markets in its book right now. Regions like Western Europe and Japan offer mature income streams, not unlike the domestic market here at home. At the same time, markets like Vietnam and Serbia hold the keys to growth for PM’s flagship Marlboro brand. Customer stickiness in the tobacco business makes it all the more attractive right now, even if a strong dollar has been like kryptonite for earnings.

Once PM can unleash its full income statement power under more normalized currency conditions, the stock should shine -- and so should its dividend payout.


From a defensive name like Philip Morris International onto another: McDonald’s (MCD).

McDonald’s is the standard bearer in the fast food business, with more than 33,500 locations spread across 119 countries. Rewind market conditions back a few years, and this stock was one of the very few that actually managed to increase in price in 2008, a feat that MCD pulled off by being at the lower end of the dining market. This firm should continue to benefit as U.S. consumers trade down and a burgeoning middle class in emerging markets decides to trade up to Big Macs and McFlurries.

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Even though rivals like Yum Brands (YUM) have rightfully gotten a lot of credit for capturing the Chinese fast food market, McDonald’s is still the undisputed king of the international segment. Here at home, the firm earned mindshare from consumers by upgrading stores with features like Wi-Fi and refreshed interiors and upgrading menus with healthier and premium options.

Scale is a serious advantage for McDonald’s, as it can leverage its massive network to get favorable pricing on everything from food to new locations. While many investors don’t realize it, McDonald’s actually owns the land underneath franchised store locations, generating bigger royalty streams from each location than rival quick service restaurant chains.

That goes a long way in paying off shareholders. The firm returned more that $6 billion to shareholders last year, thanks in large part to a 3.1% dividend yield right now.

MCD is another solid core holding, especially while investors remain as anxious about owning stocks as they are now.


Yahoo! (YHOO) is getting a lot of attention right now. Last week, the firm announced that it had poached Marissa Mayer from her conspicuous spot at Google (GOOG) to head Yahoo! as CEO. The move was a good one for Yahoo!, particularly after an embarrassing string of management screw-ups. Mayer, after all, wasn’t just a high-level Google exec -- she brings expertise in running the search business, which is exactly what Yahoo! could use right now.

Since its start, Yahoo! has stood out from other search engines by becoming a content portal. While a third of the firm’s revenues come from paid search, more comes from serving up ads on article content from partners and on the firm’s free hosted email service. That takes some of the onus off of a direct competition with Google right now, at least until Mayer settles in and figures out the best direction for the firm.

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Even though Yahoo! isn’t the most popular search site out there, the firm still earns considerable profits and boasts a secure balance sheet that’s effectively debt-free. That abundance of “dry powder” should give Yahoo! the ability to spend money re-aligning the business and making acquisitions in the next couple of years.

With rising analyst sentiment flowing into YHOO’s shares right now, we’re betting on this name.

Yahoo! shows up on a recent list of 5 Stocks to Buy if They Crash on Earnings.


Big box retailer Target (TGT) is another name that’s having a good year in 2012. Shares have rallied close to 20% since the first trading day of January, impressive performance to say the least. A big part of that performance comes from Target’s success in carving out a niche in the mass retail market. By pitching itself to a slightly higher end of the market than Wal-Mart (WMT), Target has been able to thrive in spite of being dwarfed by the industry’s standard bearer. Now Target’s hoping to drive more traffic to its stores by adding groceries to its sales mix.

Across the country, Target stores are getting revamped with new grocery options for shoppers, a move that isn’t intended as a growth engine in and of itself, but rather as a new way to get people inside its doors to get them buying other products. While the addition of grocery will dilute margins for TGT, it should translate into bigger absolute profits, a very good thing for investors.

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Around 20% of TGT’s sales come from private label products, an impressive mix that yields higher margins than merely retailing another manufacturer’s wares. That 20% number also indicates that Target has a sticky customer base that’s sold on its in-store brands.

Keep an eye out for second-quarter earnings on Aug. 15. In fact, Target shows up on a list of 8 Top-Rated Stocks With The Best Earnings Outlooks.


We’re doubling down on retail for our Rocket Stocks this week, with Kohl’s (KSS). Kohl’s is a big-box department store chain that operates more than 1,127 locations spread across the country. The firm targets value-conscious middle-income consumers, positioning that’s paid off in spades more recently as middle class customers sought to spend less after the recession.

Unlike other department store brands, Kohl’s doesn’t typically anchor mall locations, cutting its overhead and helping the firm follow through on its cost focus. Kohl’s has one gleaming similarity with Target: the fact that around 50% of its revenues come from private label or exclusive products. That positioning means that KSS only competes directly on around half the dollar volume that passes through its doors, and that the rest delivers bigger margins and drives customer traffic.

From a financial standpoint, Kohl’s is in stellar shape. The firm has grown its sales significantly in the last few years, even during the recession, and profitability has remained consistent as well. With a manageable debt load and more than $1 billion in cash on its balance sheet, the firm should be well positioned to tackle any headwinds that come its way in the foreseeable future.

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








Follow Stockpickr on Twitter and become a fan on Facebook.


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