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 187 weeks, our weekly list of five plays has outperformed the S&P 500 by 76.86 percent.
Without further ado, here's a look at this week's Rocket Stocks.
Altria is the quintessential "sin stock." The $70 billion firm is the largest tobacco company in the U.S., led by its crown jewel Marlboro brand. Altria's other businesses include cigars and smokeless tobacco, Ste. Michelle Wine Estates and a massive stake in SABMiller. And like you'd expect from any good sin stock, the firm pays out a mammoth dividend right now, weighing in at just over 5 percent.
Let's face facts: Altria's business is dying slowly. Demand for tobacco products in the U.S. has been dropping over the last couple of decades, and Altria long ago spun off its growth prospects in Phillip Morris International. But the key word is that demand is dying slowly; cigarette volumes should see slips in the mid-single digits for the next few years.
In the mean time, the firm generates massive cash flows, and it pays out a huge chunk of those cash flows in the form of dividends. With sales declines already priced into shares, MO could surprise some investors in 2013.
And while the firm's biggest business is in decline, its side businesses are in growth mode right now. Take Ste. Michelle Wine Estates and MO's 27-percent stake in SABMiller. The alcoholic beverage market is hot right now, and that should remain the case. With Miller alone making up around $7 per share for MO, a material chunk of the firm's balance sheet enjoys reduced risk.
For income investors, this sin stock might be worth a second look.
No other financial services company enjoys the reputation and brand that American Express has. The $69 billion payment network operates the largest closed-loop payment network in the world, giving it differentiation from larger open-loop competitors such as Visa and MasterCard. Because AmEx actually issues its own plastic, the firm is able to court bigger margins for its trouble.
American Express also courts a different consumer than Visa or MasterCard. By focusing on big-spending buyers, AmEx actually has higher dollar volume than its rivals, even if those competitors have more cardholders. And since the firm also charges higher processing fees than peers, American Express is able to turn that niche focus into enormous revenue generation.
While other firms have tried to pursue consumption spending the way American Express has been able to, most have been stuck playing catch-up, effectively offering "knock offs" of AmEx's Centurion card.
As long as this firm can keep its niche happy, shareholders should remain happy too. Look for share prices to increase on the heels of increased consumer spending in 2013.
I think that LinkedIn is the best of the social media IPOs of the last few years. The firm's professional social network connects more than 130 million users with colleagues who can help them land jobs, fill them or figure out business problems.
LinkedIn's advantage can be summed up in a sentence: It's the only social network that's actually monetized helping users do what they want to do. While other social media firms earn revenue by distracting their users from what they're trying to do (and getting them to click on ads while stalking their friends, for instance), LinkedIn makes money by helping users with the exact task they're trying to accomplish: find a job, network or hire someone. That seems like a small distinction, but it's critical to LinkedIn's ability to make money off of each user.
Increased job turnover in recent years makes LinkedIn a must-have product, particularly in an environment where traditional job Web sites are being seen as less and less useful. The firm's spotless balance sheet includes $750 in cash and no debt. While this firm is far from a value play, stellar relative strength makes it a good momentum name to watch this quarter.
AutoZone is another stock that's enjoying good relative strength, at least in the near-term. Shares of the $14 billion auto parts retailer have climbed close to 9 percent so far in 2013, besting the broad market's impressive performance by around 250 basis points. Now this Rocket Stock looks well positioned for even more upside.
AutoZone is the biggest after-market car part retailer in the country, with more than 5,000 stores in the U.S. and Mexico as well as a Brazilian pilot location. AutoZone also runs a lucrative commercial business, which provides parts to repair shops and service stations. While the margins aren't as deep for the commercial part supply business, the volumes are, and they enable AZO to take advantage of repair trends that extend beyond the do-it-yourselfers who stroll into one of the firm's stores.
The record age of the average car on roads today is a big secular tailwind for AutoZone. As consumers need to spend more on maintenance to keep their cars driving, the firm should continue to enjoy increased parts spending. Exposure to Latin American markets is another major growth driver in the shorter-term.
With rising analyst sentiment in shares, we're betting on this Rocket Stock this week.
Food processing firm ConAgra Foods has performed around double what the rest of the market has managed in 2013, climbing more than 13 percent year-to-date as food commodity costs settle. ConAgra owns a portfolio of well-known food and kitchen product brands, such as Parkay, Healthy Choice and Chef Boyardee — and relying on those brands has been ConAgra's saving grace in this market.
While the firm got hit hard by consumers' willingness to trade down to store brands during the recession, it's enjoying the counter-cycle right now. ConAgra took the recession as an opportunity to shake out its less defensible brands and focus on the higher-margin labels in its portfolio. That more attractive positioning should make ConAgra better able to withstand future economic hiccups down the road. It should also calm at least some concerns over rising input costs — stronger brands let ConAgra pass some of those costs onto customers.
ConAgra currently sports a decent balance sheet and a hefty dividend payout, two factors that look attractive in the exceptionally low-rate environment that investors are currently stuck in. The firm's next earnings call in March could be a big catalyst for shares.