BALTIMORE (Stockpickr) -- The S&P 500 ended last week 0.81% higher, putting an end to the worst month for stocks since the first half of 2012. One thing's clear from this recent correction: Investors have forgotten what it's like to see downside.
In fact, while January "felt" like a major move lower for stocks, the selling only moved U.S. markets around 5% off from all-time highs. A catastrophic selloff this wasn't.
But the good news is that it didn't have to be. The correction in stocks was as predictable as last week's bounce was. Now, with the S&P coming off the heels of two strong buying days on Thursday and Friday, we're in for a bounce week.
So it makes sense to bring out your buy list today. To do that, we're turning to a new set of "Rocket Stock" names worth buying.
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 235 weeks, our weekly list of five plays has outperformed the S&P 500 by 84.47%.
Without further ado, here's a look at this week's Rocket Stocks.
First up is Walgreen (WAG), the nation's biggest retail pharmacy chain. The last year has been stellar for shareholders of the $58 billion drugstore. In the last 12 months, shares of WAG have rallied more than 47%, largely on the strength of the overall healthcare sector. But it's early to say that Walgreen's relative performance is over.
It may not seem like it, but your local drugstore is at the center of a major shakeup. That's because the business has had to react to major regulatory changes thanks to health care reform, it's dealt with consolidations of the country's biggest pharmacy benefit managers, and it's shifted to put a lot more emphasis on service revenue from in-store clinics. But all of those changes should be net positives for Walgreen shareholders. More than two-thirds of WAG's sales come from prescription drugs, a substantial concentration given the fact that most of each Walgreen's store is dedicated to other items. The more grocery, health and beauty items WAG sells, the better its defenses from regulatory headwinds become.
Walgreen's biggest defense is its store footprint: The firm has approximately 8,600 stores spread across the U.S., casting a big enough net to reach three quarters of the population. Because pharmacy customers tend to be sticky for individual brands, that scale gives WAG some big advantages.
With rising analyst sentiment in shares of Walgreen this week, we're betting on shares.
Facebook (FB) is another name whose fortunes are tied to its reach. The $163 billion social network is visited by more than 750 million people each day -- and they spend more time on the site than any other. In 2014, Facebook is all about monetizing that huge user base more effectively.
There's an important difference between the model at Facebook and the models of other ad-driven Internet businesses such as Google (GOOG) or LinkedIn (LNKD). While those companies' ads help users find what they're looking for, Facebook's business is predicated on distracting users from snooping on their friends. That's a difference that, in my view, warrants a discount on FB shares vs. peers. But what FB lacks in its model, it makes up for in size -- and added emphasis on direct revenue drivers (such as games) should help improve where the firm is lacking.
Likewise, the extremely targeted information Facebook owns about its users should help the company command premium prices for advertisers courting more specialized niches. Mobile is a critical growth avenue for Facebook right now. The firm was knocked for not embracing mobile users quickly enough, but growth in mobile has been breakneck ever since. Most significantly, its mobile advertising efforts have caught up with its mobile platform offerings. Expect mobile to continue to matter most in 2014.
Video game giant Activision Blizzard (ATVI) capped off last week with big gains, after reporting fourth-quarter results that stomped investors' expectations. The start of a new console cycle with the Xbox One and PlayStation 4 should be a big tailwind for console game makers such as Activision. Historically, new console offerings translate into dramatic increases in game sales.
Activision Blizzard is the largest video game publisher in the world, a crown it wears thanks to blockbuster franchises like Call of Duty, World of Warcraft, and Diablo. More than size, Activision's model is what really sets it apart. The firm is the leader in subscription-based online multiplayer games such as World of Warcraft -- with WoW, around 8 million subscribers pay a monthly fee to play the game online with other players in real time.
That subscription component provides ATVI with recurring, high-margin revenues. Those revenues are sticky too, since players have huge sunk costs in building characters and attaining status in a game. If Activision can successfully bring that model to other franchises that have been successful with conventional sales, expect big things.
ATVI has been working hard to return value to shareholders, even at the expense of its short-term balance sheet positioning. In October, it closed a deal to purchase 40% of its outstanding shares from Vivendi for $5.8 billion. While the move wiped out Activision's huge net cash position, the firm's high levels of profitability should get that manageable debt load paid down quickly.
Beverage behemoth Coca-Cola (KO) made big news last week, when it announced that it was acquiring a 10% stake in Green Mountain Coffee Roasters (GMCR) and penning a deal to exclusively market Coke pods in GMCR's upcoming Keurig Cold drink appliances. For now, at-home Coke machines are a side business. Coke's mainline beverage business is still the force to be reckoned with.
Coca-Cola is the largest beverage company in the world. Each day, 1.65 billion Coke products get consumed, an impressive feat that's accomplished thanks to a distribution network that's second to none. Coke's distribution network reaches more than 200 countries, giving the firm infrastructure that's extremely difficult to replicate and provides for lower per-unit distribution costs for new product offerings.
Right now, Coke's most exciting prospects are in emerging markets. As middle class populations continue to swell in countries like China, India and Brazil, average consumption of branded beverages is swelling too. And even though Coke's scale is immense right now, the untapped market in developing countries is enough to materially impact the value of shares in the years ahead.
With rising analyst sentiment in Coke this week, we're betting on shares.
Don't discount Yahoo! (YHOO). Yes, the $37 billion internet giant has made some very conspicuous mistakes in the past, and no, the ship hasn't been as quick to turn as many investors were counting on. But that doesn't change the fact that Yahoo! remains an immensely valuable business in 2014.
Yahoo! still owns some of the most heavily trafficked websites on the internet. While the firm lost its title as the standard bearer in web searches long ago (and since then offloaded its developing search algorithms to Microsoft (MSFT)), the firm still makes 36% of its revenues from search ads. Another 43% of sales come from display ads on web properties like Yahoo! Mail and Tumblr. Despite all its detractors, Yahoo!'s legacy business still makes a lot of money.
So do its investments. The firm's 24% stake in Alibaba Group has been a major coup -- it's helped to solidify Yahoo's balance sheet, and frankly make the firm's revenue generation abilities a whole lot less relevant. Despite an acquisition spree under CEO Marissa Mayer, Yahoo still sports a net cash position of $7.2 billion, enough to pay for nearly 20% of the firm's outstanding shares at current prices. That's a whole lot of risk reduction for investors, even after an 81% rally in the last 12 months. Look for that momentum to carry over into this year.
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.