BALTIMORE (Stockpickr) -- The scores of investors that piled into U.S. stocks at the beginning of March would actually have been better off sitting on their hands for the last two months. Over that span, the S&P 500 has managed to move about two basis points higher. That's a paltry 0.02% move for anyone who's not used to counting performance in hundredths of a percentage point.
But that's actually painting a pretty rosy picture of the current situation. While the big index is sitting a mere 1% off of its all-time highs, J.C. Parets at Eagle Bay Capital points out that the average stock in the S&P is actually off more than 12% from its high water mark at the end of last week.
So no, stocks aren't coasting sideways right now; they're grinding. And investors are getting more frustrated by the day.
That's all the more reason to cut out the emotion and take a look at five fresh Rocket Stocks for the week ahead.
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 248 weeks, our weekly list of five plays has outperformed the S&P 500 by 77.21%.
Without further ado, here's a look at this week's Rocket Stocks.
Johnson & Johnson
First up is health care behemoth Johnson & Johnson (JNJ), a name that needs no introduction. JNJ has been a strong performer in 2014, rallying more than 10% since the calendar flipped to January. Contrary to popular belief, that rally hasn't been due to a flight to quality. Instead, the upside has really been driven by JNJ's hefty 2.8% dividend payout -- the asset performance numbers indicate that we're actually experiencing a flight to yield. The difference between the two may be subtle, but it has everything to do with making money in this market.
Johnson & Johnson tips the scales as the world's biggest healthcare company. The firm earned more than $71 billion in revenues last year, spread out across pharmaceuticals, medical devices, and consumer products. That also makes JNJ the most diversified name in the health care sector. Even though you may be most familiar with household names such as Band-Aid, Tylenol, Neutrogena and Acuvue, it's the non-consumer side of the business -- pharmaceuticals and medical devices -- that provide the majority of JNJ's sales.
The decision to invest heavily in medical devices was transformative for JNJ starting in 2012, when the firm moved to shift its revenue mix more towards medical devices (and less in pharma) with the $20.2 billion acquisition of Synthes. Financially, JNJ is a prototypical blue chip. The firm generates considerable cash -- enough to fund a net cash position of more than $10.4 billion at last count. That's a lot of dry powder as we head deeper into 2014, and that's one characteristic that investors are rewarding of late.
$27 billion coatings and glass maker PPG Industries (PPG) is proof positive that a business doesn't need to be particularly exciting to generate exciting returns. In the last 12 months, PPG has gained more than 29%, besting the S&P's performance over that stretch by a wide margin. And there are some big reasons to think that the outperformance is far from over.
PPG manufactures a wide-ranging group of coatings, ranging from car and house paint to more specialized coating products used in building construction and aircraft manufacturing. It's the specialty group that provides the biggest advantages for PPG, as proprietary coatings give the firm pricing power (and thus deeper margins). More than a quarter of PPG's sales currently come from emerging markets at the moment, an indication that the firm has established sales channels in attractive markets, but a lot of room to grow as well.
PPG's balance sheet is attractive. The firm carries $3.4 billion in debt, a relatively low degree of leverage that's entirely covered by cash and long-term investments. With rising analyst sentiment in PPG this week, we're betting on shares.
Independent energy exploration and development firm Devon Energy (DVN) is another name that's enjoying an attractive run in 2014: DVN is up more than 14% since the start of this year. Oklahoma City-based Devon owns oil and natural gas properties in the U.S. and Canada, totaling more than 3 billion barrels of oil equivalent. The firm also owns a large midstream business that includes transportation, storage, and marketing of the assets that DVN pulls out of the ground.
The decision to cut loose overseas assets was strategically wise for DVN. Not only does it concentrate the firm's expertise in North American energy production, but it also wipes away any geopolitical risk that come from owning projects in less countries that are less friendly to foreign energy interests.
Prolonged energy prices near historic highs continues to drive solid margins at DVN, which owns an interesting array of both conventional and unconventional properties. As nat gas prices appreciate in 2014, the potential for a surprise boost to earnings is a very interesting reality for investors. Independent E&Ps continue to shine in this market, and DVN is one of the biggest and most attractive plays in the space.
Glassmaker Corning (GLW) is one of the largest manufacturers of glass and ceramic substrates for digital displays, fiber optics and a variety of more conventional glass products. Notably, the firm's Gorilla Glass has been a huge growth driver for GLW, constrained by supply as smartphone and tablet makers snatch up the impact-resistance display glass as fast as Corning can produce it. As churn rates on mobile devices remain high, that growth engine should continue cranking in kind.
Innovation is central to Corning's success. As rivals attempt to tap into a hot market for display glass, Corning's intellectual property portfolio -- and its ability to develop new, more able glass technology -- is the main protector of the firm's economic moat. The decision to acquire its non-owned interest in Samsung Corning Precision at the start of this year should drop the costs of materials and greatly increase LCD panel manufacturing capacity this year. Removing the supply bottleneck from GLW's income statement could be a very big profit driver in 2014.
Still, Corning remains relatively cheap. With nearly $4 billion in net cash on the book, GLW's ex-cash price-to-earnings ratio weighs in at a tepid 14.5. Coupled with seemingly perennial high short interest in this stock, the risk/reward is stacked to trigger a sudden move higher in this stock. The next potential catalyst event is earnings at the end of July.
Last up is $17 billion auto parts retailer AutoZone (AZO). AutoZone is the biggest after market car parts store in the Americas, with a network of more than 4,600 stores here in the U.S., 321 stores in Mexico and a growing handful of locations in Brazil. AutoZone also operates a large commercial parts business, with business-to-business centers wholesaling parts to garages and dealers within more than 3,000 of its stores.
Big macro tailwinds have propelled AutoZone to some big gains in the last several years. As I write, the average age of the North American car fleet is higher than it's ever been before. As drivers try to extend their vehicles' lives longer and longer, parts stores like AutoZone stand to continue to benefit. For AutoZone, the network effect matters -- the firm's larger store footprint means it's able to catch a bigger piece of the market than its smaller rivals.
As growth slows in the U.S., Latin America holds a lot of promise for AZO. That's due in large part to the fact that trends of lengthening cars' useful lives are magnified south of the border there due to a much older average car fleet. So, as rising sentiment comes in to AZO this week, we're betting on shares of this Rocket Stock.
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.