BALTIMORE (Stockpickr) -- U.S. stocks are pointing flat this morning, holding their ground after the big S&P 500 index shoved its way to a new all-time high on Friday. Year-to-date, the S&P now sits on 6.2% gains in 2014, a number that's starting to look a whole lot more solid after a slow start to the year for stock performance.
Despite the wide performance gap between this year and last (the S&P was up 16% by this time last year), nothing has changed from a big picture perspective in the big indexes. The S&P is still bouncing its way higher in the same well-defined uptrending channel that it's been in for the last 19 months or so. And while a small correction is starting to look more likely as the S&P approaches the top of that channel, we're still in a "buy the dips market."
To take full advantage, we're turning to a fresh set of Rocket Stocks worth buying to beat the market 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 254 weeks, our weekly list of five plays has outperformed the S&P 500 by 78.17%.
Without further ado, here's a look at this week's Rocket Stocks.
It's easy to forget that, ultimately, Google (GOOG) is an advertising company. The $382 billion tech firm might have its hand in a wide spectrum of different businesses ranging from searches to smartphones, but at the end of the day, the firm's goal is to get more eyes on the paid ads that contribute around 80% of Google's total sales. It's been a slow start to the year for GOOG: Since the calendar flipped to January, Google has effectively traded flat.
Google currently captures approximately 60% of the world's Web search traffic, an astounding market share that gives Google some important advantages over the competition. Part of that success comes from the technology that Google has been able to deploy in a "post PC world." By giving users high quality experiences with apps and mobile devices, it's able to keep users playing within the Google sandbox, all the while serving them ads.
Desktop search remains the holy grail of Google's business. Unlike the ad networks, in which case Google must pay a royalty to content owners, sponsored search comes with huge margins and customer acquisition costs are effectively nil thanks to the strength of the Google brand. While any new investments will likely come with some level of margin dilution, high levels of profitability today and a whopping $59 billion cash and investment position help to offset the risks.
Make no mistake, Google isn't "cheap" right now -- but it's well-positioned to get even less cheap in the coming months.
All these years after the financial crisis, Wells Fargo (WFC) continues to stand out as the best-in-breed of the big banking stocks. The San Francisco-based financial firm boasts more than $1.5 trillion in assets, and with a market cap of $279 billion, it's the biggest U.S. bank by capitalization. Scale comes with some significant advantages in the banking business, and WFC should continue to benefit from its size in 2014.
Wells stood out from its peers back in 2008 by holding on to a much larger commercial and retail banking business than most. The firm put less focus on exotic securities, and more focus on building fee-based businesses such as wealth management and credit cards, and the relatively simple state of the firm's balance sheet is evidence of that. In short, Wells Fargo benefits by lending money for more than it costs to borrow, so the firm's huge base of dirt-cheap deposits makes it a cash cow.
Prolonged low interest rates have put a ceiling on banks' profitability in the last several years. But with Janet Yellen hinting at forthcoming rate hikes, the potential for WFC to earn a bigger spread on its loan book is starting to look promising.
For now, with rising analyst sentiment in shares of WFC, we're betting on this Rocket Stock this week.
Garmin (GRMN) is enjoying a spectacular run in 2014. Since the start of the year, shares of the GPS giant are up more than 30%, outperforming the S&P 500 by a factor of five. A lot of that outperformance has to do with the fact that investors have been getting this stock so wrong for so long.
Garmin is the biggest consumer GPS maker, operating in a business that's seen its main wares commoditized as rivals began offering cheaper car navigation units and GPS chips started becoming ubiquitous in cell phones and other devices. But Garmin's business isn't predicated on its lowest-moat product -- the real story starts at its most expensive offerings. Because Garmin spends considerable R&D dollars on its bigger ticket aviation and marine navigation systems, it's able to develop exciting technologies that can flow down to its lowest-common-denominator automotive GPS business at minimal cost.
Financially speaking, GRMN is in solid shape. The firm currently carries nearly $3 billion in cash and investments, enough to cover 25% of the firm's current market cap. Likewise, a 3.2% dividend yield makes this Rocket Stock a strong income payer at a time when investors are actively pursuing yield.
Phillips 66 (PSX) is holding its own as a large independent oil refiner and natural gas processor. Among other assets, the firm owns 15 refineries, 61 natural gas processing facilities and more than 62,000 miles of natgas pipelines. Phillips 66 came about in 2012, after then-oil-and-gas-supermajor ConocoPhillips (COP) spun off its less margin-friendly downstream assets into PSX. While the move might have made a lot of sense at the time, this name has been a solid performer ever since it came into its own.
Diversification is the name of the game at Phillips 66. By owning a larger variety of assets than most other refiners (such as retail gas stations and a very robust chemical arm), PSX is able to avoid being overexposed to commodity prices, and it's able to generate much larger margins than a typical refiner could. In fact, calling the firm a refiner could soon be inaccurate: in the next three years and change, PSX expects the refining business to contribute less than a third of total revenues.
Despite a whopping 45% rally over the course of the last year, Phillips 66 still looks reasonably priced. The firm sports a P/E ratio of 16 times earnings, a 2.3% dividend yield and $9.1 billion in net cash -- so while it's no fire sale price tag, PSX could certainly rally materially from here without throwing off too many red flags.
With rising analyst sentiment in shares right now, we're adding Phillips 66 to our Rocket Stock list.
Last, but far from least, is Wynn Resorts (WYNN), the $20 billion casino resort operator. Wynn has enjoyed a 54% rally of its own over the last 12 months, and while shares have cooled since the calendar flipped to 2014, this stock looks well-positioned for a second rally leg heading into the second half of this year.
Wynn operates luxury casino resorts in Las Vegas and in China. While the firm's name may be synonymous with Vegas, its profits aren't. Instead, around 70% of revenues actually come from Macau, the high-end Chinese gambling district. Macau is Wynn's crown jewel in large part because the firm is one of the few that's been granted a gaming license from the government. Wynn has two properties in Macau, with a third on the way in the region's Cotai strip.
Wynn's luxury positioning in Las Vegas is helping it to benefit better than most from the recovery that's been underway in Sin City for the past several years. Increasing consumer spending, coupled with record low interest rates, is fueling a resurgence in Las Vegas spending (last quarter notwithstanding), and Wynn's luxury positioning gives it exposure to the most free-spending clientele.
Look for earnings at the end of next month as a potential catalyst for this gaming 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.