BALTIMORE (Stockpickr) -- With the first few trading sessions of May behind us, should you follow the old mantra of "sell in May and go away?"
Well, with the benefit of hindsight, selling in March and going away would have proven pretty fruitful. The S&P 500 index is no better off than it was more than two months ago, showing investors the first meaningful sideways slug in more than a year. As for May, the well-worn selling advice is more superstition than prudent market timing.
For instance, last May, buying stocks was actually a very good move the S&P 500 climbed 2.3% for the month. And with the broad market effectively sitting at the end of a two-month sideways correction, the deck is stacked in buyers' favor this month.
To make that most of that cycle swing, we're turning to a new set of "Rocket Stock" names worth buying 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 247 weeks, our weekly list of five plays has outperformed the S&P 500 by 79.41%.
Without further ado, here's a look at this week's Rocket Stocks.
First up is Berkshire Hathaway (BRK.B), a name that's been getting attention thanks to first quarter earnings last week and the firm's famous shareholder meeting this past weekend. At the meeting, Warren Buffett spokes against paying a dividend, arguing that a dividend payout actually polled less popular than ousting him as CEO. So much for income seekers interesting in buying Berkshire -- the firm is still after internal growth.
Berkshire Hathaway is a holding company that owns a wide array of businesses, ranging form Geico and BNSF Railway to NetJets and Fruit of the Loom. Ultimately, its probably most accurate to call Berkshire Hathaway an insurance company. While Berkshires subsidiaries include everything from prefab housing manufacturers to candy companies, insurance and reinsurance make up the lions share of BRKs performance, and the firm's huge $77 billion float is the basis for many of Berkshire's investments.
Over multiple decades, Berkshire Hathaway has built up an enviable moat of businesses, and those individual units throw off considerable cash. The firm's decentralized model gives individual managers enough rope to hang themselves with, an approach that's yielded some spectacular results in the past.
Don't discount Berkshire's ability to outperform, especially as in a more bearish scenario for the broad market.
Chip giant Intel (INTC) is the league leader in the microprocessor business -- the firm manufactures four out of every five microprocessors sold, in fact. That leading share of a lucrative business has helped to propel Intel to an enviable market position, with the most advanced chip foundries, the biggest R&D budget and a mountain of cash on hand.
Intel has remained one of the few parts of the PC component business that's retained its margins. While moat-less PC makers watch their profitability get whittled away, Intel's profit margins remain deep in the teens. In the years ahead, there's a big untapped opportunity in the mobile device market. Intel's strategy is built on taking its powerful computer processors and scaling down their power needs. As the Atom family of chips makes its way into more devices, Intel should benefit immensely.
Financially, Intel is in spectacular shape. The firm currently carries more than $13.7 billion in net cash on its balance sheet, a war chest that covers more than 10% of the firm's current market capitalization. Coupled with a 3.4% dividend yield, Intel is much more of a bargain than most investors give it credit for.
With rising analyst sentiment in shares this week, we're betting on this Rocket Stock.
Anyone who's been underwhelmed by stock performance in 2014 doesn't own Rite Aid (RAD) yet -- since the calendar flipped to January, shares of the $7.65 billion drugstore chain have rallied more than 55%, stomping the broad market's sideways meandering. And there's good reason to keep betting on Rite Aid outperformance for the rest of the year.
Rite Aid is one of the biggest drugstore chains in the country, with more than 4,600 stores spread across 31 states and the District of Columbia. Much of Rite Aid's recent performance can be attributed to the fact that this firm was so poorly positioned coming out of the Great Recession -- shares traded at a big discount thanks to all of the risks of owning RAD. But that discount is long gone in 2014; momentum has been the name of the game in Rite Aid for the last several years.
One side effect of that rally is the fact that shares now sport a rather lofty valuation. That doesn't mean that investors should avoid shares, though it only means that it's critical to be nimble when momentum starts to roll over in RAD. With an aging population that has increased access to healthcare coverage, prescription drug sales among RAD's huge retail footprint should continue to make an upward trajectory. Perhaps more importantly, RAD is a pocket of hard-to-find relative strength in a tough stock market.
Yahoo! (YHOO) is another name that's performed well recently. Despite a correction in 2014, shares of the tech giant have still managed to climb more than 47% over a 12-month time horizon. And as new eyes come back onto Yahoo thanks to the forthcoming IPO of Alibaba, Yahoo! is worth a second look.
It's tempting to cast off Yahoo! as a relic of internet rallies past -- the firm's best days are certainly behind it. But that's a big disservice to the business that Yahoo still brings today. After all, Yahoo! is still one of the biggest destinations on the internet, and its brand looks more than capable of returning to a more prominent place in users' Web browsers. CEO Marissa Mayer has been working hard to turn the ship around since she took the helm, adding popular platforms like Tumblr to the firm's lineup of offerings.
Conventional valuation metrics are less useful for Yahoo! now, because a very large chunk of the firm's worth is tied up in investments in Alibaba and Yahoo! Japan. The Alibaba IPO in particular should unlock significant value for YHOO, since many investment bankers expect the potentially record IPO to be oversubscribed. As long as Yahoo! can avoid making big dumb acquisitions, it should continue to be a deceptively cheap tech name that throws off a lot of cash.
HD Supply Holdings
Last up on our Rocket Stocks list is HD Supply Holdings (HDS), a mid-cap industrial distributor name that went public last summer. HD Supply sells materials used for building and infrastructure construction and maintenance. That's been attractive exposure for the last few years as public infrastructure project and commercial real estate prices both saw upward traction. As HD Supply's customers thrive, so too should this supply stock.
HD Supply is the fourth-largest industrial distributor, but it's many times larger than its next smaller peers. The firm benefits in big ways from that scale -- it's able to stock a massive catalog of products (more than 925,000 at last count), it's able to cater to larger national accounts, and it's able to sell at big enough volumes that it can win on cost. While HDS is still considerably smaller than its own bigger rivals, the industry is still fragmented enough that HDS is able to grow materially in the years ahead.
By focusing on niche areas like facilities maintenance, water treatment, and power, HDS can offer more specialized service than those larger, more generalist rivals. The industrial supply business is capital intense, but HDS sports a manageable amount of leverage at $5.5 billion in debt. Earnings on May 26 could be the next big catalyst for this stock; with rising analyst sentiment this week, 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.