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5 Strength Plays for June’s Weak Market - 18463 views
BALTIMORE (Stockpickr) -- Market strength has been seriously lacking in the first week of June, as the biggest single-day drop of 2011 last Wednesday complemented a similar economic-data-induced dip on Friday. The abundance of supply of shares doesn’t bode well for investors right now -- especially as the S&P 500 flirts with the 1300 support level, which has been hotly watched by traders for the last few months.
Even though stocks are on shaky ground right now, there’s still a way to seek out upside potential in this market; the key is to look for sentiment strength. To do that, we’re turning once again to a new set of Rocket Stocks plays to bet on Wall Street’s favorite plays right now.
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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 been working out pretty well -- in the last 106 weeks, Rocket Stocks have outperformed the S&P 500 by a very material 76.43%.
With that, here’s a look at this week’s Rocket Stocks.
Chipmaking giant Intel (INTC) continues to be the dominant force in the semiconductor space, with major technological and relationship advantages over its competitors. As the largest semiconductor firm in the world, Intel also has the resources to sink into prices R&D projects that further entrench the company’s position as the industry’s league leader. This is a firm to watch out for in 2011.
One of the key reasons for that is the company’s hefty dividend payout. While tech companies once eschewed dividends, preferring instead to pour cash into growth opportunities, Intel has a long history of paying out cash flow to investors -- and with a 3.87% yield at present, this firm is looking comparatively cheap right now. Intel is one of the top-yielding electronics Stocks.
With a household-name brand, a significant economic moat, and an attractive valuation, Intel ranks at the top of the list for firms that are catching Wall Street’s eye this week. We’re betting alongside them.
A big bet on Intel comes from Renaissance Technologies, which scooped up an addition 4.5 million shares of the stock in the first quarter, for a total of 10.4 million shares. Intel shows up on a recent list of 9 Dow Stocks Likely to Outperform.
Despite weakness in the broad market, payment processor Visa (V) has been seeing a strong year in 2011. Already, shares of the firm have rallied more than 12% since the first trading day of January. Compare that to the 3.37% that the S&P has managed to eke out over that same time period, and the contrast is even more telling.
Visa thrived during the credit crunch because, while its logo can be spotted on an estimated 60% of the world’s payment cards, Visa is merely the payment network, not the card issuer. While credit card usage declined during the recession, Visa’s exposure to debit card products kept the dollar volume of transactions high enough to accelerate revenue growth through the depth of the recession. Now, with a return to normalcy on spending, this stock is primed to continue to reap the benefits.
Key to the company’s future growth is a high level of international exposure. While competition for payment transactions is strong, the sheer force needed to dethrone Visa from its perch gives the company a palpable moat.
Visa’s market strength doesn’t necessarily mean that all of those competitors should be avoided. For shareholders of MasterCard (MA), share performance has been even more impressive, with the firm generating returns approaching 24% year-to-date. In a big way, Mastercard operates in materially the same business as Visa, processing payments that get made through the firm’s branded cards.
As the second-largest network, MasterCard doesn’t quite have the same scale as Visa, but the firm has been working hard to change that in recent years. That’s been accomplished by courting merchants through low fees, and courting consumers through an aggressive ad campaign designed to incentivize using cards with MasterCard’s logo on them. Considerable excess capacity in the MasterCard network means that the company is well-positioned to accept a higher dollar volume of transactions in the near-term, knocking out one potential barrier to growth.
One attractive growth avenue for MasterCard comes from debit cards, which the company has been embracing in recent years. While MasterCard is unlikely to catch up to Visa’s deployment of debit products anytime soon, it’s still a space that could generate significant revenue growth in the near-term.
MasterCard, which shows up in several Stockpickr professional portfolios, including Tweedy Browne's, Steve Mandel's at Lone Pine Capital and Warren Buffett's, is one of the Hedge Fund's Biggest Buys and Sells in the first quarter.
Oil field servicer Halliburton (HAL) has also been getting considerable attention from Wall Street analysts lately, fuelled largely by the ascent of oil into the triple-digits. As oil prices rise, the economic viability of pricier projects becomes more attractive, generating new business for oil servicers like Halliburton. With industry-leading experience in the oil business, Halliburton is generally one of the top options for the world’s prominent oil companies.
Halliburton essentially provides expertise and products designed to take an oil-producing property and extract that crude from the ground as inexpensively as possible. Because many of Halliburton’s services are complementary, the company is able to capture significant value from each deal -- and because of Halliburton’s size and market positioning, those deals are numerous.
Naturally, Halliburton is exposed to the ebb and flow of the oil market. Low prices mean that producers halt projects and preserve capital, so the commodity rally is definitely a beneficial factor for shareholders to be watching right now. With crude holding up at high prices, Halliburton should be able to produce some attractive numbers at next month’s earnings call. We’re betting on shares this week.
While industry consolidation activity has put a lot of attention on cable operators in the last year, satellite giant DirecTV Group (DTV) deserves its fair share of attention right now. With 19 million U.S. customers under its belt, DirecTV is the largest satellite provider in the country -- an impressive Latin American satellite TV business contributes another 9 million consumers to its Rolodex.
While DirecTV’s U.S. business is attractive, growth in the Latin American operations are a big reason to keep an eye on DirecTV right now. Economic growth in Latin America continues to push consumers into middle class territory, increasing their demand for discretionary services like satellite TV. At the same time, strong currencies (such as Brazil’s real) are offering very attractive currency translation benefits for the income statements of U.S. stocks with large Latin American operations.
This stock continues to deliver strong net increases in customer numbers for both geographic areas. While competitors are trying to encroach on DTV’s operations, the company is showing its value to investors right now. Analysts on Wall Street are taking note from a sentiment side.
Betting on DirecTV is Lee Ainslie's Maverick Capital, with a 5.9 million-share position in the stock as of the most recent period.
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.