Another week of earnings season announcements is ahead of us, providing investors with another opportunity to take advantage of a brand new wave of bullish earnings sentiment. Despite downward pressure in the markets over the course of the last couple of months, investors have become increasingly optimistic about second-quarter 2010's financial performance — and stocks are seeing a shift upward as a result.
That's helped buoy major indexes such as the S&P 500, which gained an impressive 3.55 percent last week amid hundreds of earnings calls. And while the S&P 500 generated impressive returns last week, TheStreet's "Rocket Stocks" plays managed to do even better.
(For the uninitiated, Rocket Stocks are TheStreet's weekly list of companies with short-term gain catalysts and longer-term growth potential. In the last 53 weeks, Rocket Stocks have outperformed the S&P 500 by 51.21 percent.)
Investing in companies ahead of earnings can offer investors significant gain potential at the risk of equally impressive losses. But that benefit is still too hard to ignore, so for this week's Rocket Stocks plays, we'll be focusing on companies that are reporting their numbers to Wall Street this week.
Here's a look at this week's list.
Diversified defense contractor General Dynamics has seen its share of struggles as a result of the global downturn.
With exposure to the highly volatile business aviation market, the company saw its historically steady margins get squeezed despite major defense backlogs to shore up its revenue stream. But with business aviation recovering and defense contracts remaining strong, General Dynamics is poised to exit the recession with minimal battle scars.
General Dynamics has been an integral part of the U.S. defense budget for some time now. The company produces crucial battle platforms such as the M1 Abrams tank and Virginia-class nuclear submarines, and it derives around 70% of total sales from the US. government. But its business in the civilian market is significant too, including Gulfstream Aviation, GD's business jet arm, which contributes more than 16 percent of sales.
Gulfstream's business is on the uptick thanks to loosening credit lines and increased global commerce, but the company will need to work hard to convince customers that jet acquisitions are justifiable business decisions. With the growing importance of emerging markets, that job's getting easier — especially when it comes to the company's Gulfstream 650, a $60 million long-haul jet with a 7,000 nautical mile range. We'll see how sales meet up with expectations during General Dynamics' July 28 earnings release.
Another aerospace and defense contractor worth watching this week is Boeing.
Unlike General Dynamics, Boeing's bread and butter is commercial airliners, an area that's been especially anemic in recent years. But with airlines starting to see improved profitability in 2010 and with Boeing's notoriously delayed 787 Dreamliner nearing delivery, expect the company to improve its fundamental footing this quarter.
In the airline industry, where fuel input costs can make or break a business, the type of aircraft used in service makes an enormous impact on profitability. That's why next-generation planes such as Boeing's new 787 are incredibly attractive offerings. The 787, which should see deliveries starting next year, is expected to be Boeing's most fuel-efficient airliner yet, giving the airlines that operate it a significant cost savings. But constant delays have been a major hurdle for orders until recently.
Now that the 787's initial deliveries are in sight, airlines are excited to see just how the final version of the next-generation airliner will impact their route profitability. In the meantime, a pullback in commercial deliveries in 2010 has analysts penning gloomy expectations for Boeing. Beating those conservative bets could put gains in Boeing's stock following its July 28 earnings numbers.
Defense contractors aren't the only plays that look interesting right now. Visa, which also announces on July 28, continues to impress investors with an unmatched payment network and growing transaction volume.
Visa's innovative business model kept most investors away immediately following its 2008 IPO, but scores of shareholders have already seen the light. While most credit issuers got shellacked amid rocketing defaults and uneven balance sheets, Visa continued to stay profitable. The company's secret? Instead of actually being exposed to borrowers' risks, Visa makes its money through transaction facilitation. That means that when lending stalled in 2008 and American consumers eschewed credit card purchases in favor of cash, Visa still banked revenues on debit transactions
This company should continue to see revenue growth as consumer spending recovers from 2008 lows, but its protection from recessionary headwinds comes at a cost. Credit card issuers will enjoy lending profits when times are good — Visa won't. Nevertheless, this stock should continue to impress investors on its own merits.
Disclosure information was not available for Elmerraji or his company.