BALTIMORE (Stockpickr) -- Mr. Market is returning to rally mode this morning, and he's got help from hedge funds. So far, the S&P 500 has rallied more than 11% in 2012, and professional investors are starting to take the hint.
In the trailing five months, hedge funds have been winding out bearish positions and buying stocks at their fastest rate in two years, according to data compiled by Bloomberg. That's a good sign for stocks as we head toward April. As demand moves into the equity market, large hedge funds' $13 trillion in assets could help to propel share prices higher.
And now, with the S&P sitting within throwing distance of an all-time high, there are some major psychological implications for traders. Plenty of eyes are on 1400 to start the week as the index attempts to hold a price level that's as of yet only really been flirted with in March. It's likely that a push above 1400 would bring some money from the sidelines back into active buying -- and with hedge funds already buying with both hands, that's a move that could give this rally some serious staying power.
To take full advantage, we're turning to a new set of Rocket Stocks this week.
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 145 weeks, our weekly list of five plays has outperformed the S&P 500 by 79.35%.
With that, here's a look at
First up is North Carolina-based
, a $21.6 billion regional bank that boasts 1,800 branches in the Southeastern and Mid-Atlantic states. I've been a fan of BB&T for a while now -- back in October, it made
. And now, even though shares have rallied hard in the months since, BB&T is still one of the best-positioned banking names.
Like other regional banks, BB&T has remained focused on retail and commercial banking (rather than exotic, higher-risk ventures), and the firm has been able to collect double-digit net margins for its trouble. A major part of that success has been the underwriting standards that regional names maintained before and after the financial crisis.
More recently, BB&T has been pushing to generate more fee-based revenue, leveraging its relationships with banking customers to sell them on insurance and other financial services.
During the crisis, BB&T used its strength (relative to struggling peers) to snatch up assets of Colonial BancGroup from the FDIC at a bargain basement price. Now, the firm is benefitting from the cheap deposits it picked up.
A well-capitalized balance sheet also means that BB&T has been able to continue to pay a dividend (albeit a slashed one) before, during, and after the financial crisis. A 2.58% dividend yield is gravy for this stock.
BB&T shows up on a list of
Customer relationship management firm
is a must-have application for its 100,000 customers. The firm's eponymous Web application enables users to run business applications that interact with their customer lists, enabling everything from sending newsletters to tracking sales. That mission-critical nature of Salesforce's offering is digs a big economic moat for shareholders right now.
Salesforce was one of the first major business application vendors to focus on the cloud. By pioneering the software-as-a-service model, the firm has a major lead on new rivals that are trying to enter the lucrative hosted CRM software market.
It also provides a recurring revenue model with extremely sticky customers who have a lot invested in the firm's platform; because integration takes place deep in the Salesforce platform, switching costs are extremely high for customers.
Financially, Salesforce is in excellent shape, with stair-step revenue growth and a balance sheet with a deep net cash position. That wherewithal should be critical as the company looks to acquisitions to add new business applications to its stable.
With analyst sentiment on the upswing this week, we're betting on shares.
Salesforce shows up on recent lists of
Dick's Sporting Goods
Dick's Sporting Goods
has done a good job of holding onto its "league leader" status in the last few years. With just shy of 500 big box stores spread throughout the U.S. and another 81 Golf Galaxy locations under its belt, Dick's has a clear scale advantage over its competitors.
And in retail, scale matters.
Size means that DKS can negotiate favorable contracts with suppliers that typically have the pricing power in the relationship. It also means that the firm can reap major supply chain benefits and absorb costs across its entire store network, a factor that makes merchandising improvements that much more attractive.
Better still, despite the size advantages at DKS, there's still a whole lot more room for this chain to expand at this point.
Dick's focuses on higher-priced sports apparel and accessories, a niche that provides some protection from having to compete with cost leaders like
(WMT). In the next few years, private label brands on Dick's shelves should help to expand net margins and step the company away from selling overly commoditized products.
I also featured Dick's, one of the
, in "
That brings us to
, a sporting apparel brand that's seen its shares sprinting in 2012; so far this year, UA has rallied more than 35%, besting the S&P by a factor of three. Unique brand-positioning should help to keep UA's trajectory on track in the next few months.
Under Armour has carved out an attractive niche in the sportswear business, standing out as the technology leader. Rather than trying to compete directly with the brand cachet of
, UA's performance apparel instead catered to athletes looking for clothing that would regulate body temperature and wick perspiration away from their bodies. While UA's offerings have expanded dramatically from those first successes, the firm still owns that space in consumers' minds.
Without the budget to compete with bigger sportswear brands, UA went guerilla in its marketing, instead opting to grab endorsement deals with up-and-comers rather than athletes who were already superstars. That policy generated high returns for UA, and while the ad and sponsorship budget has grown, the firm has done a good job of making the most of its promotions.
With only around 10% of sales coming from outside the U.S., there's still plenty of growth room for Under Armour right now. Investors will want to see management continue to avoid throwing cash around to achieve it.
Under Armour is one of the
, which scooped up 1.35 million shares of the stock in the fourth quarter.
While being the world's largest industrial gas supplier may sound boring, that's exactly what
is going for. Boring business, boring name -- and anything but boring performance. In the last year, ARG has rallied more than 30%, offering investors 5 times the stock gains that the broad market has delivered.
Airgas supplies everyone from industrial manufacturers to hospitals with gases such as oxygen, nitrous oxide, and acetylene, in addition to complementary hard goods such as welders and eye protection. But as the firm's name implies, gas is ARG's bread and butter.
Because gas is relatively low cost (compared to customers other overhead items), the firm has considerable pricing power. Coupled with the surprisingly high returns generated from renting out gas cylinders, ARG has a cash-generation machine at its fingertips. Historically, the packaged gas business has been extremely fragmented. Airgas' huge acquisition history has helped the firm establish itself as one of the few firms big enough to handle national accounts.
That improved competitiveness should help this "boring" Rocket Stock deliver higher returns than smaller peers.To see all of this week's Rocket Stocks in action, check out
-- 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.