BALTIMORE (Stockpickr) -- A quarter of a percent -- that's all that stands in the way of the S&P 500 and all-time highs as of this morning. A measly 15 points separate the big index and that all-time high water mark from January.
So after rallying with serious enthusiasm since the first week of February, stocks are getting their first real test to end the month.
If equities can hold their heads above this year's earlier highs, it'll be an important piece of confirmation that this rally is far from over. That's a very different message than most investors felt just three weeks ago.
To take full advantage of the sentiment shift, we're looking at five new "Rocket Stocks" today.
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 237 weeks, our weekly list of five plays has outperformed the S&P 500 by 85.49%.
Without further ado, here's a look at this week's Rocket Stocks.
Juniper may be the smaller firm, but it's managed to deliver significant outperformance in 2014. While Cisco is basically flat on the year, JNPR is up almost 24%. And now this stock looks well positioned to extend its lead.
Juniper designs and sells hardware and software that enable IT infrastructure to communicate and remain secure. Telecom companies are one of Juniper's most important customers. As telcos invest heavily in growing datacenter capacity, the firm should be able to continue to achieve meaningful growth rates. While the scale difference is substantial between JNPR and Cisco, that also means that any market share Juniper steals from its rivals matters more for it.
Financially, Juniper is in excellent shape: the firm sports more that $3 billion in net cash and investments. While that's not quite the war chest that Cisco sports, it's enough to cover around 20% of JNPR's market capitalization at current share price levels.
With momentum on this stock's side, we're betting on shares of Juniper this week.
Suddenly, Rite Aid (RAD) is relevant again. A couple years ago, the drugstore chain was effectively written off by Wall Street, left to languish while it's larger peers executed on exciting post-recession growth prospects. But a beaten-down valuation in RAD meant that this name had plenty of clear runway for shares to accelerate on -- and as fundamental factors have improved, that's a big component of the 309% rally shares have seen in the last year.
Yes, you read that right. Rite Aid has rallied 309% in the last 12 months.
Rite Aid is the third largest drugstore chain in the U.S., with more than 4,600 locations. Like other pharmacy chains, Rite Aid's revenues come predominantly from prescription drugs, with the balance generated with retail purchases. A strong relationship with pharmaceutical distributor McKesson (MCK) should help Rite Aid keep costs in check at the same time that pharmaceutical sales are getting more competitive than ever. Despite the competition, tailwinds from an aging demographic of U.S. consumers should make the challenge more about maximizing margins than merely scuffling over customers.
Debt has been Rite Aid's Achilles heel for the last few years, but management is doing an enviable job of demonstrating it can keep liquidity on the firm's balance sheet. RAD may not be a deep value play anymore, but it is a momentum name that's looking buyable this week, especially as analyst sentiment swings higher.
Safeway (SWY) is another retail name that's making our list of Rocket Stocks this week. Safeway is one of the largest grocery store chains in U.S., with more than 1,300 stores spread across the country. And now the firm is for sale.
Last week, management announced that it was in talks to sell the company. A number of private equity firms have been sniffing around the $9 billion firm for months now, and contributing to its 13% rally in 2014. With ownership stakes in former gift card subsidiary Blackhawk Network Holdings (HAWK) as well as several international store chains, the firm's distinct assets make it easier for a PE firm to swallow than most.
It doesn't hurt that Safeway has one of the best-in-breed businesses in the grocery industry. Despite the extremely thin margins of the grocery business, SWY has been able to earn return considerable value to shareholders in recent years. With relatively high short interest in Safeway's stock right now, an exodus of short sellers in the wake of a deal announcement could make owning this stock very interesting in the near-term.
Satellite TV provider DirecTV (DTV) boasts the most attractive portfolio of businesses in the Americas. Its namesake TV service reaches 20 million customers in the U.S., while ownership stakes in Sky Brazil, Sky Mexico and PanAmericana add another 17 million high-growth names to its customer Rolodex. The one-two punch of a mature high-dollar U.S. subscriber base and the high-growth opportunities in Latin America make DTV far more compelling than conventional cable utilities.
DirecTV's size is important. It means that the firm can pen big-dollar deals with television networks and content providers like the NFL, an organization that's established itself as a cash cow for TV carriers. At the same time, DTV's higher-end positioning means that its average customer pays for packages that cost 18% more than the average cable customer. As the Latin American business grows, DirecTV has a pretty lucrative target to work towards.
Meanwhile, DTV's biggest detractor is the firm's lack of physical infrastructure it owns. As high-speed internet becomes an increasingly important content delivery mechanism for consumers, cable providers' ability to bundle TV with internet is a big advantage. The flip side of that equation is the fact that DTV faces much lower equipment maintenance burdens than its conventional peers do. The firm has been delivering solid earnings in recent quarters, and analysts expect the trend to continue deeper into 2014. We're betting on shares this week.
Green Mountain Coffee Roasters
Last, but certainly not least, is Green Mountain Coffee Roasters (GMCR), the company behind the Keurig line of coffee brewers. Green Mountain has been one of the momentum stories of 2014, spurred on by the announcement at the start of the month that Coca-Cola (KO) was buying a 10% stake in GMCR and collaborating on the firm's Keurig Cold home beverage system. But the party isn't over at GMCR's Vermont headquarters.
Green Mountain's Keurig brand of coffee brewers and single-serve K-Cup pods have been a phenomenon -- and they're not showing any signs of slowing. Despite entrants like Starbucks (SBUX) in the single-serve brewing category, Keurig hasn't been unseated. With stellar sales of Keurig machines, the hard work is out of the way consumers invest big sunk costs in acquiring the equipment and accessories, so they're more likely to stick with Keurig than they are to jump ship to a competing product.
Fears over the expiration of the K-Cup patent are overblown, particularly as the firm's second-gen cups come to market. But it's the cold beverage system that stands to potentially change the game for GMCR's revenues. A big equity investment from a name like Coke shouldn't be ignored either. While Green Mountain's shares are far from cheap, the growth potential justifies the premium in my view.
Short sellers are perennially involved in GMCR, which seems a whole lot like stepping in front of a freight train. We're getting behind it instead by adding this name to our list of Rocket Stocks on the heels of mounting analyst sentiment.
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.