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5 Stocks With Bullish Analyst Sentiment - 23841 views
BALTIMORE (Stockpickr) -- The S&P 500 is continuing its sideways meandering this week, as investors disgorge March’s increased volatility in favor of cooler heads. While volatility is approaching multi-month lows for stock right now, more enthusiastic market action is taking place elsewhere, with commodities pushing definitively higher in the last week. The increase in commodities, though, is less a 2008-style flight to quality than it is a flight to risk assets as the S&P collects itself.
That’s actually a good sign because it means that market participants aren’t gun-shy. In fact, they’re actively seeking out riskier assets that can provide bigger economic rewards in this environment.
We’ll seek to do the same this week by taking advantage of strong analyst sentiment in our Rocket Stock plays. For the uninitiated, Rocket Stocks are a set of companies with short-term gain catalysts and longer-term growth potential. In the last 98 weeks, our Rocket Stocks have beaten the S&P 500 by a very material 73.91%.
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On Wall Street, expectations can mean everything -- and stocks with rising expectations often benefit from increased buying pressures from institutions and retail investors alike. To find them, I run a quantitative screen that seeks out stocks with a combination of analyst upgrades and positive earnings surprises.
Without further ado, here's a look at this week's potential plays.
Even though shares of fast-food behemoth McDonald’s (MCD) haven’t had a particularly strong year (shares are currently flat for 2011), this stock is worth keeping an eye on right now. Not only has it proven itself to be an incredibly strong defensive play, but the company also pays out a hefty 3.21% dividend yield.
Because this market-leading stock is currently lagging the restaurant industry’s stock performance as a whole, mean reversion investors should be looking to go long McDonald’s right now.
McDonald’s isn’t just the largest restaurant chain in the world -- it’s also one of the most innovative. The company’s push toward a more upscale appearance, refreshed premium and healthy menu items, and McCafe concept should help break this stock free of the grease pit imagery that threatens to halt sales growth domestically. The bulk of growth has largely come internationally in years past, something that’s unlikely to change going forward; recent domestic initiatives could skew that revenue growth stateside.
With excellent financial health, unmatched scale and bargaining power, and a truly global footprint, we’re betting on shares ahead of the company’s April 21 earnings call.
McDonald’s, which shows up in the portfolio of Jim Simons Renaissance Technologies, is one of TheStreet Ratings’ top-rated restaurant and hotel stocks and one of the Top Dogs of the Dow Stocks for 2011.
The merger tussle continues at NYSE Euronext (NYX), the parent company of the storied Big Board. In early February, Germany’s Deutsche Borse made an offer to acquire the iconic U.S. financial institution, but uncertainty has ruled the process as U.S. interests wrung hands over the idea of control of the NYSE crossing the pond. In response, Nasdaq OMX (NDAQ) and IntercontinentalExchange (ICE) launched a rival bid at a nearly 20% premium to the Deutsche offer.
Political reasons aside, a merger between NASDAQ OMX, ICE and the NYSE would create an interesting combined firm -- one with anticipated $740 million in annual synergies (trumping an estimated $533 million in synergies with the Deutsche Borse deal). While a merger between the dominant exchange forces in the U.S. is already posing concerns at consumer groups over an anticompetitive environment, political factors and significant competition among off-exchange institutional alternatives should make the merger feasible nonetheless.
Right now, the NYSE’s sheer size and brand equity is its biggest positive attribute. As the most well respected investment institution on the globe, expect NYX shareholders to end up the victors however this suitors’ war pans out.
NYSE Euronext shows up in the portfolio of Bill Miller’s Legg Mason Capital Management, at 1.9% of the total portfolio.
2011 has already been a strong year for Swiss-based ABB (ABB), a power and automation system maker. ABB’s biggest offering is the promise of added efficiency to its customers, but a recent spending shift has made the company’s emerging markets infrastructure sales an even more attractive business.
ABB has a deeply honed store of intellectual property that gives the company an undeniable advantage over competitors, one that should shine even brighter as more power management systems get deployed among emerging markets, and competition for incremental revenues becomes more challenging.
With earnings slated for April 28, we’re betting on shares.
Capital One Financial
Capital One Financial (COF) has built an enviable business in recent years, as it morphed from a marginal credit card issuer to a large-scale lender and retail bank. While the company cut its teeth on providing credit to riskier applicants, its conservative risk modeling and diversification to more investment-worthy clientele helped to spare Capital One from being a victim in 2008.
It’s that prescience that allowed the company to make bargain-priced acquisitions in the wake of the recession, growing its access to cheap money and expanding its lending operations even further.
Today, Capital One is spending considerable cash to position itself as a different kind of credit card issuer in consumers’ eyes. One of the biggest focuses is on its rewards programs, which offer expensive points-matching deals right now to lure in high-spending consumers from other programs.
Historically low interest rates make now a particularly good time to build a position in capital one -- as rates increase, it’s likely that COF’s spreads will also. A number of analysts are already expecting earnings surprise in the company’s April 21 earnings call. That potential should help expand Capital One’s already-impressive year-to-date price appreciation.
Capital One, a top holding of both John Paulson’s Paulson & Co. and David Tepper’s Appaloosa Management, is one of TheStreet Ratings’ top-rated consumer finance stocks and shows up on a recent list of S&P 500 stocks with big insider buying and selling.
Rising oil prices may be a negative thing for most companies, as a major input cost ticks up, but they’re an incredibly good thing for railroads. That’s because railroads are constantly vying for a larger share of corporations’ domestic transportation dollars. Normally, trucking is the preferred method because of its flexibility and speed, but when fuel prices rise, the superior efficiency of railroad transportation makes it the more cost effective option.
Take CSX (CSX), for example. With 21,000 miles of track primarily in the Eastern U.S., CSX is approximately three times more efficient per ton than trucking. And increased operational efficiency in the past several years means that the company is even more able to adjust its margins to stay competitive.
Of course, rising oil prices are also attractive to CSX because they typically come hand-in-hand with increased prices in other commodities. While that does mean increased fuel costs for the railroad, it also means increased production and transportation of commodities like coal, which makes up nearly a third of the railroad’s revenue.
We’re betting that CSX will be well suited to profit from the trend.
To see this week’s sentiment plays 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.