5 New Rocket Plays for November
BALTIMORE (Stockpickr) -- The first trading week of November is upon us, brining with it a new set of economic data to focus on and a new slew of earnings for investors to watch with baited breath. Those two factors should help to contribute to a somewhat more volatile trading week to start the month, a shift from the sideways churning of major indexes to end October.
Despite the fact that the
S&P 500
remained flat last week, we managed to squeeze another round of outperformance from our weekly list of Rocket Stock plays. For the uninitiated, Rocket Stocks are our weekly list of companies with short-term gain catalysts and longer-term growth potential. Last week,
vs. the paltry 0.02% performance of the S&P 500.
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That means that in the last 77 weeks, of tracking, Rocket Stocks have outperformed the broad-based index by 77.99%.
As with the past few weeks, we'll focus this week on stocks benefiting from rising analyst expectations. To find them, I run a quantitative screen that picks out companies with a recent series of analyst upgrades and a history of outperforming the Street's expectations. It's a methodology that's worked well for us in the past -- and one that should continue to serve us well as we enter a new month.
Without further ado, here's a look at
this week's Rocket Stock plays
.
First up this week is behemoth retailer
Wal-Mart
(WMT) - Get Report
.
Wal-Mart has been a relative stranger to our Rocket Stocks lists in the past, eclipsed by the attractiveness of higher-end competitor
Target's
(TGT) - Get Report
niche. But increasing analyst sentiment could help spur institutional buying right now a stock that's typically been considered one of the most stable blue chips out there.
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There are few questions about Wal-Mart's operational prowess. With more than $400 billion in annual sales, Wal-Mart's foothold on the U.S. retail business is hard to dispute. The company benefits immensely from a large degree of control over its suppliers' pricing and highly efficient operations. While the former has earned the company a less-than-enviable reputation, the fact remains that having Wal-Mart as a customer is often a game-changer for businesses, especially during tough economic times.
The biggest challenge for Wal-Mart right now is growth. Although U.S. retail may have seemed saturated just a year or two ago, the company has done a good job of expanding its reach domestically. But domestic growth is just the tip of the iceberg. International expansion holds the key to top-line expansion right now, and management knows it: The company has been fiercely increasing its footprint abroad, focusing on markets like China and Brazil. Don't expect Wal-Mart's pace to slow anytime soon.
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Coach
(COH)
may have one of the world's best high-end brands under its belt, but that didn't spare the company's stock price from being hit hard by 2008's pullback in discretionary spending. Although shares have certainly done a good job of bouncing back this year -- with a 37% rally in 2010 -- there's more upside left to this stock.
In discretionary retail, market positioning is essential, and in Coach's case, it's something that was executed exceptionally well. The company's luxury leather products (namely handbags) are both expensive and attainable, making them a status symbol with low barriers to entry.
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For Coach, those status symbols provide deep net margins and consumer demand that really wasn't as elastic to recessionary headwinds as most analysts anticipated. Even as other luxury goods companies faced cutbacks, Coach has managed to grow its top line in each of the last four years.
But sentiment on Wall Street bid down shares of Coach as investors anticipated a bigger business impact from the great recession. To help counter that case, management instituted a 30-cent dividend last year -- a payout that's since doubled commensurate with the company's share price. While still not in league with traditional income stocks, that dividend payout certainly sweetens the pot with Coach. Shares should continue to push higher on momentum.
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While some turn to wine as an investment, investors in winemaker
Constellation Brands
(STZ) - Get Report
are looking for a more traditional approach to growth.
As with Coach, Constellation was hit hard as a result of the recession. Shares essentially halved between 2006 and 2008, a painful drop for investors who had turned to the company for its recession-resistant "sin stock" status.
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Part of the reason for such a sizable drop was Constellation's push into the luxe segment of the booze business. The company expanded its portfolio upward from a pricing perspective, courting higher-end consumers who could fuel bigger margins for the firm. That move wasn't relegated to wine, either. Constellation's beer business is built around premium import brands that cost more than leading domestic offerings.
Consumers didn't prove to be as sticky as the company had hoped -- especially in the wine business, which generates nearly 90% of revenues. Constellation's earnings numbers were seriously impacted by a major cutback in high-end alcoholic beverage spending. Now, though, the company is gunning for growth again as its original premium beverage strategy finally pans out. Investors are catching on quickly too, buying back shares of the stock at increasing prices. We'll jump onboard this trend this week for a push higher.
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For more stocks that made this week's cut, including
Cognizant
(CTSH) - Get Report
and
Humana
(HUM) - Get Report
, check out
at Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
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At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji 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.
