BALTIMORE (Stockpickr) -- Friday's market session was a shot across the bow for investors: If you still own the momentum names that have worked so well for the last several months, you risk getting sunk.
Anxiety has been ramping up in stocks ever since the Fed spilled the beans that rates could start stair-stepping higher in the near-term. The end of quantitative easing is one thing, but ending the free money party brought on by zero interest rates was quite another. So despite some backpedaling from Janet Yellen at the end of March, the cracks are showing in the market internals right now.
And the biggest victims have been the momentum stocks.
Want to position yourself for a upside in April? It makes sense to shed the weakening names in your portfolio and pick up strength; to do that, we're turning to a brand new set of "Rocket Stocks" for this week.
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 243 weeks, our weekly list of five plays has outperformed the S&P 500 by 81.06%.
Without further ado, here's a look at this week's Rocket Stocks.
First up is Cisco Systems (CSCO), a name that bridges the gap between the formerly hot tech sector and the staid, boring names that have been working well for the last two weeks.
Impressively, Cisco has managed to keep pace with the S&P year-to-dat. That may not sound impressive at first, but when you realize that the average stock in the big index is actually down 7% in 2014, CSCO's ability to hold up with the S&P looks a lot more meaningful.
Cisco Systems is the world's biggest supplier of the equipment and software used to connect devices and networks. As devices become increasingly connected with tech like "the cloud," Cisco's positioning is enviable. Size matters for CSCO; as the biggest name in IP networking, its huge installed base means that IT departments that buy Cisco products often see much lower integration and tech support costs by simply going with another Cisco router or switch. So while more nimble competitors are working hard to steal share from their bigger rival, Cisco's economic moat is hard to ford.
Financially, Cisco is in stellar shape. The firm carries $31 billion in net cash and investments, enough to pay for more than a quarter of its current market capitalization. Cisco's huge cash generation also translates into an impressive 3.35% dividend yield at current prices, a big check for shareholders.
CSCO may not be the high-growth name it once was, but it's a bargain-priced stock that's worth a second look in April.
Union Pacific (UNP) is another name that's not exactly on the cutting edge of growth right now -- it operates in an industry whose heyday was back in 1882. But don't mistake this railroad stock for a dinosaur in 2014; UNP is making some big changes to how it does business, and it's cashing in on its success. In the last year alone, shares of UNP have rallied a whopping 35.7%.
Union Pacific is the largest railroad in North America, with more than 32,000 route miles of track spread across 23 U.S. states, Canada, and Mexico. Even though railroads are hardly a new mode of transport, they're still one of the most efficient, especially at moving bulk commodities great distances. Compared with trucks, rail shipping generally costs around one-fourth as much per ton shipped, which makes trains a critically important part of the nation's transport infrastructure as oil prices linger in the triple-digits.
Like other railroads, UNP has spent the last six years improving its operational efficiency. That's resulted in much higher margins in recent years, particularly as growing freight volumes from a warming global economy ramp up top line numbers. No, Union Pacific isn't exactly a high-growth name, but that's exactly what makes this Rocket Stock look attractive this month.
Tool maker Snap-On (SNA) is benefiting from big tailwinds in the automotive sector right now. That's a big catalyst behind the 37% gains this $6.5 billion firm has booked in the trailing 12 months. Snap-On sells its tools and diagnostic equipment to a diverse mix of customers, most of whom are professionals who work on cars, trucks, planes or other machines. Independent car techs are the biggest buyer of Snap-On products, served by a fleet of 3,200 vans that sell and deliver tools directly to potential client shops.
Quality is king in the professional tool business, and the fact that Snap-On actually manufactures its tools adds quality control that rival brands simply don't have. Likewise, SNA's control over sales and distribution through its huge fleet of sales vehicles adds another level of influence through the entire sales process. With the average car in the U.S. older than ever before, demand for Snap-On's tools is high right now -- but the firm is seeking growth opportunities in other industries (such as mining, defense, and aviation) and in other markets (such as China). That combination of growth opportunities should bode well for investors in 2014.
From a financial standpoint, SNA is in good shape, with a relatively low debt load, and ample cash to deal with any economic speed bumps with ease. This week, with rising analyst sentiment in Snap-On, we're betting on shares.
Even if the name NCR (NCR) doesn't ring a bell, there's a good chance you've been a customer before. That's because NCR makes automated kiosks such as ATMs, point of sale terminals and self check-in kiosks for airlines. While its branding may not be very noticeable, that's sort of the point. And as those devices become more feature-packed, NCR has some big economic tailwinds pushing at its back.
Consumers expect more from the kiosks they interact with. With bank ATMs, for instance, once amazing features like check processing and envelope-free cash deposits are now expected. That's been fueling a big wave of ATM upgrades in recent years. Better yet, those costly upgrades are more easily justified by the banks because they cut down on the labor costs once spent to process ATM transactions. Similar new transaction equipment, like self-checkouts at grocery stores, are becoming commonplace -- and again, the lowered labor costs and improved efficiency make cash a lot easier to part with for grocers.
There's still a lot of new innovation that NCR has the ability to take advantage of. One of the biggest growth opportunities comes from new payment systems, like near-field communication. Retrofitting existing point-of-sale systems and adding NFC capabilities to higher-end transaction kiosks of all sorts should help spur revenue growth in the next couple of years. In the meantime, shares of NCR look cheap; this stock trades for just 13 times trailing earnings. That's a big discount to the rest of the broad market right now.
Last up is CVS Caremark (CVS), a firm that's best known as one of the biggest retail drugstore chains in the U.S.: CVS sports more than 7,000 retail pharmacies spread across the country. But that's only part of the story -- the firm is also one of the biggest pharmacy benefit managers in the country, serving more than 1 billion prescriptions per year. That's a winning combination, especially as other drugstore names have gotten burned by disputes with their benefits partners in the last couple of years.
A rising tide should continue to lift all ships in the pharmacy industry. With aging demographics in the U.S., pharma volume should continue to grow CVS' top and bottom line. Another exciting growth opportunity comes from the introduction of MinuteClinic health clinic locations at around 500 of CVS' existing retail locations. As a cheaper alternative to the doctor's office, MinuteClinic provides a compelling argument for treating minor medical issues.
MinuteClinic is an important offering for another reason: It creates a complete vertical integration of health care provider, benefits management and retail pharmacy, a combination that should keep costs low and incentivize customers to use CVS each step of the way.
So with rising analyst sentiment in this Rocket Stock right now, we're betting on CVS.
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.