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5 Stocks to Capture Bullish Sentiment - 10900 views
BALTIMORE (Stockpickr) -- Investors are coming back from a three-day market break today, the first opportunity to buy or sell stocks since Thursday’s close. While there’s typically plenty of information to digest following a weekend, the extra day’s reprieve from trading should make things even more interesting today. Early on, commodity futures were rallying this morning on weak dollar and “flight to risk asset” pressures -- believe it or not, that should mean good things for equities today.
While many investors believe that strong commodity prices are a bad thing for stocks, the two groups have historically traded in step with each other -- with stocks leading the way. That’s been even more evident in the last four weeks, as correlations have skyrocketed between commodities and stocks.
Now, with hundreds of companies’ new earnings data hitting Wall Street this week as well, expect a serious catalyst for the S&P 500 to surpass the 1,344 high set in February. We’ll attempt to benefit from a higher push in stocks by looking at a new set of Rocket Stock plays.
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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 quantitative screen that seeks out stocks with a combination of analyst upgrades and positive earnings surprises.
It’s a strategy that’s worked well for us -- in the last 100 weeks, Rocket Stocks have outperformed the S&P 500 by a very material 75.52%.
Without further ado, here's a look at this week's potential plays.
The league leader in the analyst expectations category is clearly Apple (AAPL). This technology giant has been on top of analysts’ list of “Wall Street Darlings” for the last few years -- and rightfully so. Shares of Apple have climbed 423% in the last five years, making it one of the best-performing large-cap stocks out there. And unlike speculative names, Apple’s share price ascent has been predicated on fundamental financial statement numbers.
Even better numbers came alongside last week’s earnings. The company beat earnings estimates by more than a dollar per share, saw double-digit sales growth in software, peripherals and Macs, and more than doubled iPhone shipments vs. last year’s third quarter. It’s fair to say that Apple’s performance over the last few years has vastly outdone any expectations (perhaps that’s even an understatement), and with a deeply entrenched portfolio of popular products, it’s no surprise that analysts are bullish on this stock right now.
It’s difficult to talk about Apple’s prospects without mentioning the recent – albeit temporary -- departure of Steve Jobs from the company’s day-to-day operations. Jobs has been heralded in as the reason for Apple’s success since he re-took the company’s helm more than a decade ago, and rightfully so. At some point in the future, investors will need to come to terms with Jobs bowing out of Apple’s management team -- and while it’ll likely impact share prices, the blow will be short-lived as long as the firm (namely the talent that Jobs has cultivated) continues to perform at such a high level.
Apple is one of TheStreet Ratings' top-rated computer hardware stocks.
Another tech giant that’s seen stunning gains in 2011 is Chinese search firm Baidu.com (BIDU). Shares of the $51 billion ADR are up 54% since the first trading day of the year. With a string of positive earnings surprises and a first-quarter release slated for April 27, this stock could be a big mover this week.
That upward movement could be accelerated by the bullishness among analysts. If Wall Street sees solid earnings as confirmation of an already bullish viewpoint, institutional buying could spur a bigger move. The key to Baidu’s success is its domination of the Chinese search market; thanks to Google’s exit from China, Baidu’s now without a comparable competitor in the highly fragmented Chinese search business.
Paid search is by far the largest contributor to Baidu’s bottom line, and it’s a business that should continue to ratchet up in step with China’s economic growth. As the country’s burgeoning middle class continues to consume at breakneck pace, the amount of money advertisers are willing to spend with Baidu should move higher in the coming quarters.
As one of the most well-known agricultural equipment brands in the world, Deere (DE) benefits from an image that translates well to emerging market economies where people are deploying capital to increase soft commodity output. Because of the impact that 2008’s market crash had on the nearly saturated market for ag equipment, that sort of revenue diversification is crucial for investors right now.
Like many equipment makers, Deere’s finance arm is in-house, providing credit to borrowers looking to acquire the firm’s machines. But unlike many peers, strong demand during good times allowed Deere to operate its finance business conservatively. As a result, bad debts haven’t been the drag on earnings that many expected -- and earnings have impressed Wall Street as a result.
Hefty competition of a smaller number of customer dollars continues to be the limiting factor in the agricultural machinery business right now. But as commodity costs rise, expect commercial farmers’ spending abilities to move higher as well.
Deere shows up on a recent list of Stocks for Investing Your Tax Refund.
Enterprise software firm Oracle (ORCL) has benefited from its market-leading position in the database software business this year. With an estimated 40% of the high-priced database software business under its belt, Oracle is a deeply profitable machine that generates consistently high free cash flow. High switching costs mean that its top-line numbers are reliable.
That’s not to say that Oracle is without issue. The company’s high fees are attracting new lower-priced competitors to the industry with offerings that could threaten to knock Oracle from its perch. At the same time, Oracle’s stock is far from a value story right now -- investors have bid shares up to fairly lofty levels in the past few years, and investors looking for anything but growth would do well to steer clear.
Even so, it’s bullish analyst sentiment that brought this stock to this week’s Rocket Stocks list -- so we’ll bet on buoyancy in shares this week.
Oracle is one of TheStreet Ratings' top-rated software stocks.
Ratings agency Moody’s (MCO) took considerable heat for its role in the financial meltdown of 2008 (as did peers), but that added scrutiny could actually bode well for shareholders -- especially given the added interest in debt quality right now. Moody’s is one of just a few firms that provide credit ratings for companies and governmental agencies. While credit ratings are the firm’s most well-known offering, the company benefits from a relatively diversified set of offerings that includes research services and database products for financial professionals; the prevalence of those two businesses on the company’s income statement should keep shares strong despite regulatory threats to margins.
As investors become less and less enthralled by the current quality of credit (including U.S. sovereign debt), expect in-depth ratings data from firms like Moody’s to continue to be in high demand -- especially given the firm’s renewed directives to produce more accurate ratings of risk in the marketplace. Earnings on April 27 could be a big catalyst for share movement right now.
A big bet on Moody's comes from Warren Buffett; the stock comprises 1.4% of the Berkshire Hathaway portfolio.
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.