BALTIMORE ( Stockpickr) -- April trading is on the horizon, and that means investors could be due for a big shift in market direction after a sideways churn in March.
"New month, new market" has been a mantra of sorts for Mr. Market over the last 15 months -- and 2014's trading has been a perfect example of it. Stocks went straight down in January, went straight back up in February and consolidated sideways for the entire month of March. The question now is which market phase we'll get in April.
The good news is that we won't have to wait long to find out. And better still, we've got a plan that's purpose-built to outperform the S&P 500's moves no matter which direction it moves in: our Rocket Stocks. This week, we're taking a look at five brand new Rocket names worth buying.
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 242 weeks, our weekly list of five plays has outperformed the S&P 500 by 81.82%.
Without further ado, here's a look at this week's Rocket Stocks.
First up is industrial conglomerate United Technologies (UTX), which owns a diverse collection of construction and aerospace businesses, ranging from air conditioners and elevators to helicopters and jet engines. The company's well-known brands include marques such as Carrier, Pratt & Whitney, and Sikorsky. And there are some big growth opportunities in the markets that UTX serves in 2014.
United Technologies' offerings have one thing in common: They're all big-ticket, capital-intense machines. The upside to that is the fact that globally interest rates are scraping along record lows right now. That exceptionally cheap cost of capital has driven sales in the cyclical industries that UTX calls home. Construction revenues in emerging markets and growth in aircraft deliveries (particularly in rotary wing, where Sikorsky owns an important niche) have been fueling organic growth at United Technologies for the last several years, and those engines aren't showing any signs of slowing.
From a financial standpoint, UTX is in solid shape. The firm carries $5.75 billion in cash and investments on its balance sheet, offsetting its $20 billion debt load. That's a reasonable amount of leverage for such a capital-intense business -- especially considering the transformative acquisition of Goodrich in 2012.
Watch out for first-quarter earnings on April 21.
It's good to be No. 2. Just ask payment network giant MasterCard (MA), the second-largest payment network on earth after top rival Visa (V). MasterCard's logo graces around 31% of the world's payment cards, a big share that exposes MA to huge transaction volume without exposing it to any credit risk. After all, MasterCard is the network, not the card issuer.
As more consumers across the planet make the move from cash to electronic payments, MasterCard is well-positioned to benefit alongside its peers. Today, 85% of transactions around the world are still made using cash -- that's bumped higher by emerging markets. For that reason, a rising tide should lift all ships in the electronic payments business. Barriers to entry are still pretty high for newcomers, and that's a big benefit to MasterCard. Since consumers are more apt to use an established payment network for security and convenience reasons, MA has a well-fortified moat around its business.
Consumer spending growth, especially in MasterCard's more established markets, is fueling big fee revenue at the firm. That stair-step growth has, in turn, built up a fortress balance sheet with more than $6.5 billion in cash and investments, and zero debt. So with rising analyst sentiment in shares of MA this week, we're betting on this Rocket Stock.
Legacy internet stock Yahoo! (YHOO) has been getting attention this month, following news that Alibaba Group (which YHOO owns 24% of) was planning on going public this summer in one of the largest IPOs in recent years. That IPO in a frothy equity market could spell a very successful exit for Yahoo!, which will be selling 10% of Alibaba's equity in the offering.
Yahoo! is the underdog in the online search business. Even though it owns some of the most popular Web sites on the Internet, and even though advertising revenues fuel 79% of sales, it's easy to discount Yahoo! as a dinosaur. CEO Marissa Mayer has been trying to turn the ship around since joining Yahoo! in 2012, and if nothing else, investors have made a lot of money on her watch. But if Yahoo! can continue to make medium-sized strategic acquisitions, it should quietly build its advertising revenue at a time when most investors are distracted by its investment portfolio.
Alibaba isn't Yahoo!'s only big side-business. The company also generates significant earnings from its 35% stake in Yahoo! Japan. The existence of that big publicly traded equity position on its balance sheet reduces a lot of risk for YHOO shareholders. So does cash. Yahoo! currently carries $3.4 billion in cash, bringing its total cash and investment balance to $8.4 billion in the most recent quarter.
A lot of Yahoo!'s upside is predicated on how well the Alibaba IPO goes this summer. But as long as no major cracks appear in this market's long-term rally, it should be a historically excellent time to offer Alibaba's shares to the public. That should parlay into a sizable exit premium for YHOO in 2014.
SanDisk (SNDK) is having a strong year in 2014. Since the calendar flipped over to January, shares of the $18 billion computer storage stock have rallied more than 14%, compared with a measly 0.5% rally in the S&P 500 over the same period. Looking forward, the rally may be far from over in this Rocket Stock.
As one of the biggest suppliers of NAND flash memory, SanDisk is benefitting from a supply-constrained market. SNDK's memory is used in all sorts of electronic devices today, and quick replacement cycles in mobile devices and rising demand from enterprise users are helping to propel demand (and margins) for the firm. Better still, a robust patent portfolio means that the firm benefits from the overall growth of the NAND flash memory market, regardless of who's manufacturing the memory.
SanDisk is another cash-rich Rocket Stock. It carries almost a billion dollars in net cash, a position that pays for more than 5% of SNDK's outstanding shares. With plenty of dry powder to fuel capacity SNDK should be able to continue generating high-quality earnings growth this year.
Last up on today's list of Rocket Stocks is Polaris Industries (PII). Polaris makes toys for grown ups -- the firm manufactures ATVs, motorcycles and snowmobiles, selling through a network of more than 1,650 North American dealers as well as distributors in more than 100 countries.
Polaris has been a big beneficiary of warming consumer spending. Combined with extremely low interest rates, Polaris is seeing breakneck sales and profit growth. Revenue is up a whopping 89% since 2010, while profits are up more than double thanks to widening margins. The firm isn't just relying on organic growth to boost its top line -- Polaris has also been buying complementary brands to its stable, such as the purchase of Indian Motorcycle and small electric vehicle makers.
The firm is in growth mode right now, investing in new manufacturing facilities in Poland and India that should reduce costs of getting vehicles to overseas consumers. While that means levering up the firm's balance sheet to do it, PII's strong execution in recent years makes the decision a no-brainer. This week, with rising analyst sentiment in Polaris, 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.