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BALTIMORE (Stockpickr) -- Investor sentiment has a significant impact on the way the market moves. That effect is magnified when the sentiment comes from Wall Street analysts.
Because analysts’ opinions can fuel buying from both retail clients and institutional investors, significant cash can flow into a stock on rising expectations from a firm’s research team. And because analyst expectations are readily available, it’s not difficult to see where firms are focusing their bullish opinions.
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Each week, we do just that to find a new set of potential Rocket Stock plays, 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 99 weeks, Rocket Stocks have outperformed the S&P 500 by a very material 74.31%.
Without further ado, here's a look at this week's potential plays.
Bed Bath & Beyond
Housewares firm Bed Bath & Beyond (BBBY) has been a strong performer already in 2011, with a 13.6% rally in shares already year-to-date. The company, which operates chains such as Christmas Tree Stores and Harmon in addition to its namesake flagship chain, has been one of the biggest beneficiaries of the spike in consumer sentiment numbers since the secular lows of early 2009. Even before that, though, Bed Bath & Beyond was one of the few retail brands that managed to book sales growth throughout the recession.
Bed Bath & Beyond’s innovative store concept has been the lynchpin of its success thus far -- and a critical factor in the success of its less prominent specialty retail brands. As uncertainty continues to swirl around the housing market, Bed Bath & Beyond stores should provide an easily attainable means of upgrading for U.S. homeowners.
But an international expansion initiative means that Bed Bath & Beyond’s attractiveness soon won’t be relegated to U.S. consumers. The company has already opened stores in Canada and Mexico and has significant opportunities to increase its footprint. That said, the company’s business stateside is still far from saturated. Expect growth to continue on pace as the company grows its portfolio of store locations.
$40 billion media giant Time Warner (TWX) is another stock that’s seeing strong analyst sentiment this week. The company, which owns TV networks such as HBO, CNN and TNT, film studios and magazines, has been carving out an increasingly attractive business as it looks to leverage its valuable content portfolio for use with new distribution channels. Because Time Warner is one of the biggest producers of video content, the company is able to diversify itself away from the cable channels that have historically made up the majority of its sales.
That doesn’t diminish the importance of the TV network business for Time Warner right now. At present, nearly 70% of cash flows come from cable TV, and the cable arm is unlikely to lose its position as top focus anytime soon. That’s true despite the push for Internet-based video.
The weak spot in Time Warner’s business is its magazine publishing arm, which has been looking considerably less attractive of late. Even so, if the company can synchronize its push toward premium online content delivery, the publishing business may be able to transform itself.
Time Warner, which shows up in the portfolio of Leon Cooperman’s Omega Advisors, is one of the highest-yielding media stocks as well as one of Credit Suisse’s five best-performing stocks in 2011.
As one of the largest payment networks in the world, it should come as no surprise that MasterCard (MA) is having a solid year. Already, shares have rallied nearly 20% since the first trading day of January, and continued, if tenuous, economic recovery has had a direct effect on the firm’s income statement.
MasterCard is the brand found on around 31% of credit and debit cards, making the firm second only to Visa (V) in market penetration. That said, the barriers for growth are considerably smaller for MasterCard. Because many consumers carry both cards, the onus is on MasterCard to merely incentivize spending on its branded cards. That means that dollar volume of spending, the firm’s biggest profit generator, can expand rapidly and without costly investments to acquire consumers.
It’s that factor that makes MasterCard a potential revenue grower even if consumer spending can’t continue its ascent. As long as MasterCard can continue to get buyers to pull its cards out of their wallets instead of competitors’ cards, expect revenues to climb.
MasterCard is one of the top holdings in Julian Robertson’s Tiger Management. It shows up on recent lists of 10 Top-Ranked Financials to Watch and 36 Momentum Stocks to Consider.
Chipotle Mexican Grill
While quick service restaurant chains saw impressive growth in recent years as consumers traded down from pricier casual dining alternatives, few restaurant names have looked as attractive over that period as Chipotle Mexican Grill (CMG).
Chipotle bridges the gap between the two restaurant categories, operating a chain of more than 1,000 restaurants in 35 states. Chipotle has begun eying international growth in recent years, as well; the firm currently has a small presence in Canada and the UK, one that gives management a glimpse of growth opportunities abroad without exposing CMG to excessive risks of large investments.
Part of the problem with Chipotle’s fundamental success has been how much the company has stood out against its peers. Breakneck growth has bid up this firm to a mammoth valuation that, in my view, carries significantly more risk than shares did just a few years ago.
That said, analyst bullishness should help to buoy share prices in the near-term -- just keep a tight stop.
Las Vegas Sands
Even though shares of Las Vegas Sands (LVS) have traded fairly flat so far this year, a strikingly different outlook for this firm in the last few years should sway investors to this stock.
As its name suggests, LVS has long been a major player in Las Vegas, operating major casino resorts in the city for years. But today, LVS’ most attractive business comes from its exposure to Asian gambling hot spots like Macau.
Macau currently boasts materially higher revenues per player than Vegas -- and as one of only six casino operators in China to hold a casino license, competition looks to remain reigned in for the foreseeable future. As travel spending continues to improve in the U.S. though, expect formerly beleaguered Las Vegas properties to begin to hold their own again. Meanwhile we’ll play sentiment this week.
Las Vegas Sands was highlighted recently as one of several online gambling stocks with upside.
-- Written by Jonas Elmerraji in Baltimore.
To see this week’s sentiment plays in action, check out the Rocket Stocks portfolio at Stockpickr.
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.