April has been a pretty quiet month for stocks--despite the excitement of earnings season, the big S&P 500 index has continued to grind sideways this month, holding out just below all-time highs. As I write, the S&P is down just shy of 1% this month.
But don't let that lack of movement in the S&P fool you--this is still very much a "stock picker's market."
In other words, there's plenty of movement in the individual stocks that make up the big S&P 500 index. Case in point: year-to-date, one in three S&P components is up 10% or more.
To find the stocks that look most likely to lead the market higher this spring, we're turning to a fresh set of "Rocket Stocks" worth buying this week ...
In case you're not familiar with it, Rocket Stocks is 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 past 396 weeks, our weekly list of plays has outperformed the S&P 500's record-breaking run by 77.74%.
So, without further ado, here's a look at this week's Rocket Stocks.
Sometimes, being No. 2 comes with some big advantages. That's the story over at MasterCard Inc. (MA) - Get Report, the world's second-largest payment network. While bigger peer Visa (V) - Get Report may have the scale advantage, MasterCard is big enough to spread its infrastructure costs across a huge swath of customers without being so big that it's impossible to move the growth needle. That's helped MasterCard edge out Visa on a stock performance basis over the last year ...
MasterCard is benefiting from the rising tide of electronic payments. As more consumers worldwide make the shift from cash to cards, MasterCard is one of the major options for buyers to push money through. And since MasterCard is the card network, not the card issuer, it doesn't face adding credit risk to its balance sheet to increase its scale.
Payment processing is a positive feedback loop. Consumers carry MasterCard-branded cards because of high acceptance rates at stores, and stores accept the cards because so many customers carry them. Because card networks aren't mutually exclusive (that is, consumers are likely to carry both Visa and MasterCard branded cards), dollar-volume growth isn't a zero-sum game. MasterCard's network capacity is able to handle 140 million transactions per hour, giving it ample room to continue to grow without the need for onerous additional costs.
Shares of MasterCard are up 11% on a total returns basis in 2017--look for that outperformance to continue in the weeks ahead ...
Intuitive Surgical Inc.
Medical equipment maker Intuitive Surgical Inc. (ISRG) - Get Report is another large-cap that's been on an outperformance streak in 2017. Shares of this $30 billion healthcare play are up almost 30% since the calendar flipped to January, leaving the rest of the broad market in their dust. And buyers are clearly still in control of this stock's price action this spring ...
Intuitive Surgical makes robotic surgical systems for hospitals that want to be able to perform less-invasive surgeries than would be possible if done by a surgeon's hands. The firm's da Vinci system is deployed in more than 3,600 hospitals around the globe--and that huge installed base comes with some big benefits.
Intuitive enjoys a "razor and blade model." That means the firm starts off by selling surgical systems, and then books recurring revenues by selling the surgical tools used by the devices. Service contracts are another source of recurring revenue for Intuitive--hospitals see those contracts as a way to protect a big investment. That huge source of recurring revenues (services and accessories made up more than 70% of total sales in 2016) makes ISRG particularly attractive here.
While there's still considerable political uncertainty surrounding the healthcare sector, Intuitive's machines should continue to face strong demand from hospitals, especially as new surgical procedures get added to da Vinci's repertoire.
Stanley Black & Decker
Stock price leadership carries over to tool company Stanley Black & Decker Inc. (SWK) - Get Report. This $21 billion tool stock is up 20% on a total returns basis in 2017, a rally that has a lot to do with the strength of the housing market. As housing prices continue to tick higher nationwide, homeowners are opting to invest in more DIY home improvements, driving demand for consumer-grade and "pro-sumer" grade tools that are SWK's bread and butter.
Stanley Black & Decker owns a vast collection of well-known tool brands. Beyond its namesake Stanley and Black & Decker brands, the firm also owns DeWalt, Porter-Cable, Mac Tools and Bostitch among others. The firm's purchase of the storied Craftsman brand from Sears (SHLD) was a notable move--it gives SWK the ability to apply its manufacturing scale to a well-known, well-regarded brand name. The sale of Newell Brands' (NWL) - Get Report tools business back in October is another major brand add, with names like Irwin and Lenox under the SWK umbrella as of March 10.
Stanley Black & Decker is another stock that benefits from a sticky customer base and high switching costs thanks to its power tool lines. For instance, because batteries are generally brand- and even product-line specific, buyers generally make big investments in power tool lines when they make a purchase, hiking switching costs and driving recurring sales. A homeowner who invests in a DeWalt drill that uses its new FLEXVOLT battery system is likely to buy a circular saw or grinder that uses the same batteries. Look for housing to continue to provide a tailwind to SWK for the foreseeable future ...
Quest Diagnostics Inc.
Last on our list of Rocket Stocks is $14 billion healthcare diagnostics stock Quest Diagnostics Inc. (DGX) - Get ReportIf you've had a blood test in the past few years, there's a good chance it happened at one of Quest's 2,000-plus locations across the country. The firm provides clinical testing, pathology, drug testing and advanced medical testing.
It's not hard to spot the big macro tailwind in Quest right now: as the U.S. population ages, demographics are pushing demand for medical services, including tests. While the uncertainty in the healthcare sector is a concern for most providers, including Quest, the overall tailwind in medical testing outweighs the potential risks of lower costs per test. That's especially true as Quest pushes into higher-margin businesses such as esoteric testing and IT services.
For instance, Quest's web-based physician portal makes it easier for doctors to access patient lab results and records, providing a benefit to docs who send more patients to Quest. That's an important economic moat that's incredibly hard to replicate for all but a few diagnostics providers. At the same time, a push toward more-advanced testing should simultaneously boost margins and make it harder for other labs to offer competitive products. With rising sentiment in shares of DGX this week, we're betting on this healthcare stock.
At the time of publication, author had no positions in the stocks mentioned.