BALTIMORE (Stockpickr) -- What a week. The S&P 500 climbed more than 2.3% in the last five trading sessions, the biggest single-week bounce for stocks in recent memory.
That upside wasn't hugely surprising. In fact, it was coming due. So now that stocks are back in "rally mode," it makes sense to be betting on more upside in February. That doesn't mean that we're back to a "buy everything" environment. Not even close.
To make the most out of the momentum for a short trading week, it makes sense to focus on the "Rocket Stocks."
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 236 weeks, our weekly list of five plays has outperformed the S&P 500 by 85.48%.
Without further ado, here's a look at this week's Rocket Stocks.
If there's a good example of a momentum stock from this past year, Priceline.com (PCLN) is it. The online travel site has been rallying hard lately, up more than 82% over the last 12 months alone. More important, it's shoved its way to new highs in 2014, when the rest of the market was in correction mode. From a relative strength standpoint, it's hard to beat Priceline's current positioning.
Priceline is one of the biggest online travel sites. The firm started off as the most popular of the "Name Your Own Price" sites, connecting bargain-hungry consumers with hotels' and airlines' excess inventory. Today, PCLN's reach has expanded beyond its original pricing model and beyond U.S. borders. As travelers abroad embrace online travel booking (particularly in markets like Asia and Latin America), PCLN is seeing its revenue climb.
The commoditization of the travel business hasn't been too much of a threat for PCLN to date. The firm acquired Kayak last year in an effort to build a content moat around its business. That and the heftier margins left in emerging markets bookings should keep PCLN's margins stout in 2014.
Even after Priceline's prodigious rally this past year, shares aren't looking insanely priced. They're expensive, but they're not obscene for a growth stock. That fact should leave plenty of clear runway ahead as this Rocket Stock pushes higher.
After a very shaky start to the year, Kimberly-Clark (KMB) is getting a boost this month. KMB started things off looking toxic, but a breakout to the topside of shares' recent range changed the $42 billion paper company's prospects dramatically in the last few trading sessions. Now it's looking like a purebred Rocket Stock in February.
Kimberly-Clark is a tissue and paper towel company that owns some of the best-known household names on store shelves; Kleenex, Scott and Huggies are just three of the biggest examples. And while the paper products business isn't the most exciting, the firm's profitability certainly is. KMB converted around 10 cents of every revenue dollar into profit last quarter, and it's hit that mark consistently.
Like with Priceline, one of Kimberly-Clark's most exciting opportunities comes from the emerging markets right now. As burgeoning middle class populations increase purchases of consumables like disposable diapers and paper towels, KMB should be able to grow its top line materially in the years ahead. Meanwhile, the firm has been actively unloading units where it doesn't see growth opportunities. That should unlock considerable value for shareholders in this frothy market for equities.
In a lot of ways, buying private equity firm Blackstone Group (BX) is like a leveraged bet on the stock market. And with markets in rally mode in 2014, I can think of some worse bets to make right now. In the last 12 months, BX has rallied more than 61%, but shares could be in store for even more upside in the sessions ahead.
Blackstone Group is all about alternative investments -- around $250 billion worth, to be precise. It's best known for running one of the biggest private equity businesses out there, but the firm's investment menu also includes asset classes such as real estate and strategy investments like hedge funds. A rising tide is lifting the values of all assets this year, and with the fee premiums that Blackstone claims for exposure to alternatives, they're able to benefit more than most asset managers.
BX shines particularly well in its private equity business. Because BX can afford to shell out bigger investments in private firms, it's able to pursue deals alone that potential rival bidders would need partners for. The firm's expertise in guiding privately held portfolio companies has also borne a lucrative advisory business, a high-moat business that newcomers can't simply hold out a shingle and expect to succeed in.
With rising analyst sentiment in Blackstone this week, we're betting on shares.
Netflix (NFLX) is one of the most well-known names on our list of Rocket Stocks this week, and not just because season two of "House of Cards" overshadowed Valentine's Day for millions of people last weekend. Netflix has executed extremely well in the last couple of years -- so much so that it's easy to forget that the firm's biggest business used to be mailing DVDs to customers. And despite no shortage of challengers in 2014, NFLX still looks well-positioned to move higher.
With a huge base of more than 44 million subscribers, Netflix has the scale that's absolutely critical to make its model succeed. A big subscriber pool means that Netflix can get TV and gaming console makers to spend money to integrate the service's streaming video, and it can negotiate big-dollar content deals (and even original content now) that upstarts simply can't. The fact that 16% of NFLX's subscribers streamed at least one episode of the new season of "House of Cards" on Friday is telling, indicating that NFLX customers are engaged and that they're hooked on the service's exclusive content.
The challenges ahead for NFLX are plentiful. Rivals such as Amazon.com's (AMZN) streaming video service are trying to lure customers at a loss. And policy changes at major ISPs could start throttling Netflix bandwidth to customers. But neither of those hurdles matters much as long as the firm can keep its 44 million users ravenous about its content.
Make no mistake, Netflix isn't undervalued here -- it's an expensive stock -- but buyers have momentum on their side this week.
Michael Kors Holdings
Last up is Michael Kors Holdings (KORS), the $20 billion apparel stock that's been on a tear of its own lately. Year-to-date, KORS has managed to move more than 21% higher -- and that's during a time when most stocks were correcting, mind you. So with analyst sentiment pushing higher this week, we're betting on KORS.
Thanks to the high profile of its celebrity designer namesake, Michael Kors has established itself as a desired high end apparel and accessory brand. KORS' niche focus on mass-affluent consumers puts it in the sweet spot of luxury spending. The firm has done well catering to a population of spend-happy young professionals, a coveted group of super consumers. As the firm's footprint grows with standalone stores (more than 300 of them worldwide at last count), margins should swell in kind. The wholesale business that put KORS' products in more than 1,000 department stores was kind to the firm, but the real margins are in its own retail stores.
Most important, Michael Kors' growth has been pulled off with a pristine balance sheet intact. Right now, the firm carries no debt, but it's built up more than $828 million in cash. That's around 4% of the firm's market capitalization at current prices. KORS' approach of growth at the right cost is very attractive in 2014.
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.