BALTIMORE (Stockpickr) -- 2014's stock market performance so far has been a bit, well, uninspiring. Since the calendar flipped to January, the big S&P 500 index has climbed a whopping 1.6%. And drilling down to individual names yields some even less impressive returns.
But the statistics still favor more upside this year, following 2013's huge run higher. Since 1975, there have been only 11 years when the S&P 500 has returned more than 20% in a single calendar year. And in those years, average gains for the following year have come in at a hefty 12.8%.
That means that Mr. Market could still have a lot of catching up to do in the latter half of this year. To take full advantage of the trend, we're turning to a fresh 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 249 weeks, our weekly list of five plays has outperformed the S&P 500 by 76.85%.
Without further ado, here's a look at this week's Rocket Stocks.
First up is Apple (AAPL), a name that's been serving up some market-beating performance in the last few months. In the trailing six months, shares of the technology giant are up more than 15%. And there's good reason for investors to expect more of the same for the next six months.
Apple owns some of the most popular consumer electronic devices on the market today. The firm's physical offerings range from its iPhone and iPad to the Macintosh line of computers. But Apple is also one of the largest sellers of digital content through its iTunes store, a venture that makes Apple the biggest music and video store on the planet. Despite hugely competitive markets for smartphones and tablets, AAPL claims the leading market share of the industry's profits, a fact that gives the firm a deep moat.
Those huge profits have added up to an equally deep war chest for Apple over the last several years. Today, the firm boasts approximately $134 billion in net cash and investments, a cushion that covers approximately 25% of the firm's current market capitalization. Ex-cash, Apple's P/E ratio currently stands at just 10.5, a paltry valuation for the most profitable firm in the business.
This Rocket Stock has more room to run in 2014.
Shareholders of Walt Disney (DIS) have been laughing all the way to the bank for the last year, outperforming the broad market over that stretch by more than double as Mickey Mouse and friends generated gains of more than 20.7% since last summer. Disney's huge collection of valuable assets gives it advantages that can't be replicated by rivals.
Even though Mickey, Donald and Goofy are the first names that spring to mind when most people say the Disney name, those classic characters represent a small chunk of Disney's overall empire today. Disney earned around half of its profits through television networks such as ABC, A&E and the Disney Channel. ESPN, though, is the star of the show: It is the most valuable network in the world, capturing a bigger piece of your cable bill than any other network out there. Smart acquisitions such as Pixar and Marvel give Disney an even bigger collection of IP -- and more important, talent -- that should help produce blockbusters for years to come.
Meanwhile, Disney's theme parks are starting to enjoy the other side of the cyclical downdraft that hindered them during the Great Recession. Because Disney is highly integrated, it's able to take popular characters from a film and move them into TV, theme parks and merchandise, multiplying the value of its efforts and trimming costs. There's a lot to like about Disney's business in 2014.
$25 billion insurance name Allstate (ALL) tips the scales as the second-largest U.S. personal lines and property-casualty insurer. The firm sells automotive, homeowners and life insurance as well as other financial products through a network of approximately 10,000 Allstate agents as well as a network of banks and independent agents. In the insurance business, size comes with some serious advantages, and Allstate is riding those advantages to profit; with a huge customer base, the firm is able to cross-sell multiple policies to its existing customer Rolodex.
That network effect is effectively the only advantage there is in the insurance business these days. Let's face it: the insurance business has become largely commoditized these days. That's why ALL's ability to spread risk across a larger pool of subscribers is crucial to keeping costs low -- and crucial to winning and keeping customers. Allstates reputation and customer service give the firm the ability to be a bit more risk-conscious than many of its rivals, but ultimately ALL needs to remain competitive on price first and foremost.
The firm's decision to trim its homeowner's insurance portfolio has been a step in that same direction. It cuts catastrophic risk in favor of more auto insurance, which is much more quantifiable (and less subject to one-time catastrophes). Look out for earnings on July 28 as a potential rally catalyst.
SanDisk (SNDK) has trounced the broad market in 2014 -- there's just no other way to way it. Since the beginning of January, shares of the $20 billion computer storage stock have climbed 29%. And that momentum isn't showing any signs of waning in May.
SanDisk is one of the tech sector's biggest suppliers of NAND flash memory, a business that gives the firm exposure to a hot market that's been supply-constrained for the last several years. 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.
Despite its huge run this year, SNDK isn't looking particularly expensive at current levels. The firm currently sports more than $4.2 billion in net cash and investments on its balance sheet, enough dry powder to pay for more than 20% of the firm's current market capitalization today. That's a lot of risk reduction for a name that's been rallying hard for quite a while now. With rising analyst sentiment in shares this week, we're betting on shares of this Rocket Stock.
Keurig Green Mountain
Vermont-based Keurig Green Mountain (GMCR) is another name that's posted huge momentum performance in 2014 -- the coffee company has rallied more than 50% this year alone. And while that momentum put a big target on GMCR's back a couple of months ago, as former momentum winner began to roll over, shares have been recovering hard in May.
GMCR'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. With the biggest installed base in the single-serve space, Keurig has some huge advantages over its rivals right now, especially as the firm gets ready to launch its second-generation pod offerings. GMCR operates under the razor/blade model: by giving customers a deal on its brewing machines, Keurig stands to make substantial profits by selling coffee pods on an ongoing basis. Despite the competition in this space, other brands have failed to replicate Keurig's scale...
Make no mistake, Keurig isn't cheap right now. But that hefty price tag comes from a big growth assumption and the potential for transformative new products like the Keurig Cold, which got a big nod from beverage behemoth Coca-Cola (KO) with a huge stake in GMCR earlier this year. The volatility isn't likely over in this name yet, but then again, the gains aren't either.
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.