BALTIMORE ( Stockpickr) -- The first trading day of August is right around the corner -- and that means that you should be paying attention to a handful of Rocket Stocks as this summer rally heats up.
What summer rally, you ask? I'll admit, the rally this summer hasn't exactly been the most conspicuous. With all of the drama unfolding in Europe and here at home in the form of earnings, there have been eyes on a lot besides price action. But take a minute to look at a chart of the S&P 500, and it's clear that stocks have been making an orderly ascent. Since the start of June, the S&P is up around 8.4%, and the index looks technically set to continue its climb in August. This week, all eyes are on the Fed for the umpteenth time since the summer started. And the term "QE3" is starting to get thrown around again. I've already said why I don't think that QE3 isn't coming yet for investors -- and my "stimulus gauge" still suggests that another round isn't coming this week. But that shouldn't stop stocks from slowly making their ascent. That's why we're turning to a new set of Rocket Stocks this week. >>5 Stocks Under $10 Set to Soar 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 161 weeks, our weekly list of five plays has outperformed the S&P 500 by 77.64%. With that, here's a look at this week's Rocket Stocks.![]() |
CF Industries
Public Service Enterprise Group
While its name sounds like a nonprofit, Public Service Enterprise Group ( PEG) is anything but. In fact, it's a holding company that operates regulated utility, power generation and energy investment businesses. The firm's diversified operations may make it more unique than your average utility stock, but the stock's dividend is everything a utility payout should be: a 4.21% yield at current price levels. That big yield comes in large part from operations in a lucrative service area. With a focus in the mid-Atlantic, PEG sells regulated power in New Jersey, but its merchant power generation business sells across many more states in the power-hungry region. And with an attractive mix of super low-cost nuclear and reasonably low-cost gas plants, the spread that PEG earns has been substantial lately. That's a big part of why power generation has contributed more than 65% of operating profits in the last year. PEG's generation assets are attractive because they have high replacement costs - it doesn't get more capital-intense than building a nuclear power plant, after all. And because of the low-emissions and low operation costs of natural gas and nuclear power, the firm's plants are undervalued on its balance sheet. >>7 Dividend Stocks Paying You More Cash It's hard to beat the income generation of this utility name; this week's earnings could be a big catalyst for shares in the near-term.Toll Brothers
One niche of the housing market has been faring better than most in the last several months: new home sales. Homebuilders have been seeing faster inventory turnover in 2012, as homebuyers start snapping up new construction. There's one key (and very positive) difference between the new home sales this year versus 2005: By and large, folks are buying new homes as primary residences, not as investments or second homes. My favorite homebuilder has to be Toll Brothers ( TOL) right now. Toll Brothers exclusively builds higher-end homes. Last year, for example, the firm's average home price was more than $500,000 -- and it sold 2,600 of them. By targeting a more affluent niche of new homebuyer, Toll is able to capture a market with better credit, bigger down payments, and lower unemployment than the national average. It's also able to benefit from its scale. Because the homes Toll Brothers builds are bigger and pricier, there's more room for TOL to take home bigger margins for its efforts than a more conventional builder could. Despite taking big write-downs when the housing bubble burst -- or perhaps because of it -- Toll Brothers is in solid financial shape. The firm carries more than $1.2 billion in cash and investments on its balance sheet, enough to dramatically offset $1.9 billion in debt. With profit margins on the rise in the trailing 12 months, TOL looks like a solid way to get housing exposure right now. Toll Brothers was also featured recently in " 7 Stocks for a Housing Rebound."Fiserv
Fiserv ( FISV) is a bank processor that provides services like electronic funds transfer, loan processing, and bill payment for small and midsize banks. The banking business is complex, especially for regional banks that are focused more on their core retail banking operations than they are on the processing services that run behind the scenes. By providing that service, Fiserv has been able to build sticky relationships with more than 16,000 banks. Fiserv's offerings let banks run the backend of their systems. Because of that, Fiserv is typically deeply integrated into a bank's business. Besides the medium-length contracts that banks have to sign, the enormous cost of switching systems is the biggest reason why customers opt to keep Fiserv around -- changing processors is typically more trouble than it's worth. That gives Fiserv some level of pricing power with its customers and keeps retention around 99%. That's staggering. >>4 Large Bank Stock Picks From Deutsche Bank Fiserv may not exactly be cheap right now, but it is benefitting from excellent relative strength in 2012. That's ample reason to expect more upside in shares this summer. This evening's earnings call could be a big catalyst for shares. To see all of this week's Rocket Stocks in action, check out the Rocket Stocks portfolio at Stockpickr. -- Written by Roberto Pedone in Winderemere, Fla. RELATED LINKS:
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