5 Rocket Stocks to Buy This Week

BALTIMORE ( Stockpickr) -- U.S. stocks keep putting distance between where they started trading for the year and where they sit today -- but that's not due to participation from retail investors.

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It's true. Bears may point to the recent pop in equity mutual fund flows as evidence that this rally is overbought, but that one-month data point is a little like shooting a squirt gun upstream. The long-term trend in fund flows remains very much against stocks. For the last seven years, retail investors have pulled $7.2 billion a month from their stock funds, on average.

In 2013, they've added around $500 million into U.S. stock funds each month. Irrational exuberance this isn't.

But as the macro trend continues to propel stock prices higher, it makes sense to remained positioned for more upside. To make the most of it, we're taking a closer look at five new Rocket Stock names worth buying this week.

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For the uninitiated, "Rocket Stocks" are 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 222 weeks, our weekly list of five plays has outperformed the S&P 500 by 89.23%.

Without further ado, here's a look at this week's Rocket Stocks.

Sirius XM Radio

Entertainment stock Sirius XM Radio ( SIRI) has been benefiting in a big way from some big tailwinds in the automotive industry. The firm has added more than 2 million new subscribers to its customer list in the last year, pushing its total subscriber count to 25.6 million paying subscribers. As the SIRI benefits from economies of scale in 2013, investors will continue to benefit too.

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Despite challenges from popular rivals such as Pandora ( P) and now Apple ( AAPL), Sirius XM's offering is relatively safe from competition. Why? In short, SIRI offers a very different set of services than iTunes Radio or Pandora. Because SIRI's content is actively curated and includes high-barrier content such as Howard Stern and NFL football, subscribers listen to the satellite radio network for very different reasons. The inclusion of satellite tuners in around two-thirds of all new vehicles this year provides a powerful source of new customers for SIRI -- the firm converts almost 45% of its trial users into paying subscribers.

Financially, SIRI has reached critical mass. The satellite radio business is extremely expensive, but with subscription fees driving the firm to profitability now, the firm should have little trouble maintaining its impressive margins. Best of all, costs are effectively nil for the firm to activate additional radios, greatly lowering customer acquisition costs (since SIRI can use trials aggressively as a sales tool).

This stock isn't cheap, but momentum is coming back into shares this quarter.


In the last few years, Yahoo! ( YHOO) has become a punch line as a tech company that's lost relevance with the rest of the world. But in reality, the folks mocking this $36 billion tech giant are the ones who've lost touch. Believe it or not, Yahoo! is still a cash cow. Despite serious competition from a handful of Wall Street darlings, Yahoo! is still one of the most popular brands on the Internet, with a collection of destination sites that draw absolutely massive amounts of traffic.

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Yahoo!'s advertising network throws off considerable cash. The firm earned close to $300 million in profits in the latest quarter, buoyed by strong ad sales and hefty pass-through income from its stakes in Yahoo! Japan and Alibaba Group. Still, there's no question that Yahoo! isn't what it once was -- and that's exactly why CEO Marissa Mayer & Co. are working so hard to turn the ship around. If the firm can invest in its next big thing without destroying shareholder value in the process, it'll be a slam dunk for shareholders today.

Don't focus too hard on YHOO's earnings multiple; it's the jam-packed balance sheet that should be getting investors excited right now. As I write, around $5.84 of every share of Yahoo is paid for in a combination of net cash and investments -- that's close to 20% of the firm's market capitalization, a fact that provides some semblance of a safety net for investors.

With rising analyst sentiment coming into YHOO this week, we're betting on shares.


After spending much of the year in a downtrend, deep-water drilling firm Transocean ( RIG) is finally breaking higher. RIG shareholders have had a rough time in the last few years. The firm was on the hook for huge liabilities for its role in the Macondo blowout in 2010, and it's only recently put the worst behind it. Now this driller is worth a second look.

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Transocean operates a fleet of more than 160 rigs and vessels, giving it scale that others lack. With seven new vessels on the way, the firm is materially growing its capacity now, while interest rates remain low and energy companies look for cost-efficient ways to pull commodities out of the ground. The firm's decision to sell off its legacy jackup fleet in favor of building next-generation jackup equipment should give RIG some extra advantages over competitors with less modern fleets. By making big moves while the firm was dealing with Macondo-related turmoil, management was able to pull off changes in one clean move.

More recently, Transocean has been undergoing a proxy battle with Carl Icahn, which finally got resolved yesterday with RIG's decision to pay a $3 per share dividend and change up the board's composition. Ultimately, the move should speed along shareholder returns for 2014.

Wells Fargo

Big bank Wells Fargo ( WFC) is having a solid year in 2013; shares of the financial giant have rallied 25% since the calendar flipped over to January. And that's in spite of the $869 million settlement that the firm agreed to pay out a month ago -- a payout that takes a material bite out of Wells' earnings for the quarter ahead.

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That doesn't change the fact that Wells Fargo is certainly the best-positioned of the big banks. Wells was one of the best-capitalized names heading in to the Great Recession five years ago, and it's continued that tradition all the way out, picking up Wachovia's huge deposit base along the way. The firm's huge basket of cheap deposits should continue to fuel its earnings in the years ahead, especially as rates take on some upward trajectory. After all, as rates get boosted, the spreads WFC earns on its loan book will too.

Right now, Wells Fargo boasts one of the heftiest dividend payouts among mega-cap financial firms, and that cost yield should continue to grow for investors who get in early. Wells actually trades for a discount to the earnings premium placed on other big banking names right now. That makes this Rocket Stock a good buy for investors seeking financial sector exposure.


Oracle ( ORCL) is one of the biggest software companies in the world. The $159 billion firm sells mission-critical software packages to clients that need database tools for everything from customer resource management to supply chain analysis. Because Oracle's software is integrated so tightly into its customers' operations, those customers have extremely high switching costs and competitors have big barriers to entry.

The transition from conventional software licenses to the cloud is proving lucrative for ORCL -- it provides recurring subscription income for the firm's income statement. Massive cash generation abilities have ballooned the cash balance on Oracle's balance sheet to more than $15 billion net of debt. That huge pile of dry powder gives ORCL a lot of options right now, from acquisitions to dividend boosts to debt extinguishment. Because Oracle's products are less flashy than more consumer-oriented tech sector names, ORCL is less liable to destroy shareholder value with whatever it does in my view.

Ex-cash, Oracle's currently trading for a price-to-earnings ratio of just above 10. While that's not exactly a deep value price tag, shares look cheap considering ORCL's growth potential and cash-generation capabilities over the next few years. With analyst sentiment on the upswing in Oracle again, we're betting on shares.

To see all of this week's Rocket Stocks in action, check out the Rocket Stocks portfolio at Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.


Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to
TheStreet . Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily , and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

Follow Jonas on Twitter @JonasElmerraji

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