BALTIMORE (Stockpickr) -- Mr. Market is in the final stretch of earnings season this week. As I write this morning, 452 names in the S&P 500 have already reported their results to Wall Street. And overwhelmingly, those earnings have been bullish. More than 75% of the names that have already reported have beaten analysts' expectations for the quarter.
That's a solid gauge for the fundamental performance that's happening behind the scenes in 2014.
But it's not the whole story when it comes to factors impacting equities this week. A lot of pressure is coming from a technical correction in the big indices, a selloff that's taken a material chunk out of the S&P's year-to-date performance since the calendar flipped to August.
What's the best way to stay on the right side of price action this week? Focus on the "Rocket Stocks."
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 261 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 80.55%.
Without further ado, here's a look at this week's Rocket Stocks.
Up first is online travel aggregator Priceline Group (PCLN). Priceline, one of the biggest online travel sites, has come a long way from its roots as the most popular "Name Your Own Deal" site. Today, the firm's specialty still comes from connecting bargain-hungry consumers with hotels' and airlines' excess inventory. The big difference is the fact that PCLN is building an impressive moat by adding value-added content to its empire...
The travel business has become incredibly commoditized in recent years. And while that's been a good thing for consumers, it's been a real problem for conventional travel agents. Ot's far too easy for a retail travel shopper to find a contractually guaranteed lowest price online at a site like Priceline in a short amount of time. To differentiate itself from the competition, PCLN acquired Kayak last year in an effort to build a content moat around its business; that effort should be rewarded as competition remains high here in the U.S.
Other Web properties include Booking.com, rentalcars.com and Agoda. The acquisition of OpenTable last month adds a complementary restaurant booking engine to Priceline's suite of offerings. It could bring some interesting results if the firm is able to integrate that restaurant engine with its more conventional travel booking tools.
Priceline has much lower-hanging fruit overseas. The firm has driven much of its stellar growth in recent years with underpenetrated markets such as Europe and China, places where travel wasn't as commoditized as here at home -- and where Priceline could step in as the immediate market leader. Those markets should continue to drive double-digit growth rates at PCLN. That's something we're seeing hold true with this morning's earnings beat.
$39 billion defense and aerospace stock General Dynamics (GD) is another Rocket Stock to watch this week. GD is one of the biggest defense firms in the world, manufacturing everything from submarines to armored vehicles and IT networks. On the civilian side, GD owns private jet builder Gulfstream, one of the biggest bizjet makers in the world.
Despite those big offerings, GD is still on the smaller side of the defense giants. That means that the firm has been more tactical in terms of how it runs its business. For instance, a concerted effort on growing margins over revenues means that every incremental effort builds more value for shareholders. Rather than become the biggest defense name, GD has worked on entrenching itself in spaces where it can build an economic moat. A perfect example of that strategy is the submarine business, where the firm is one of only two U.S. firms that's capable of producing nuclear-powered submarines.
Expect Gulfstream to contribute an increasing chunk of revenues over the coming years. The firm is one of the largest medium to large private jet manufacturers in the world, and the industry is finally coming off of cyclical lows. All of those business combine to build a backlog of $71 billion (or 2.5 times sales), the largest it's been since the Great Recession. GD has been a big performer year-to-date, and investors should expect more of the same in the second half of the year.
2014 has been a solid year for $26 billion insurance firm Allstate (ALL). Since the calendar flipped to January, this big name has climbed 10% higher, double the performance of the S&P 500 over that same stretch. And with rising analyst sentiment in this Rocket Stock this week, we're betting on shares.
Allstate is the second-largest personal lines and property-casualty insurer in the U.S. The firm sells automotive, homeowners and life insurance as well as other financial products through a network of approximately 10,000 Allstate-exclusive agents, plus a network of banks and independent agents. That big network gives Allstate the ability to sell a more hands-on product to customers who are more likely to package all of their household coverage under a single brand. On the other side of the spectrum, the acquisition of Esurance in 2011 adds exposure to the low-touch discount insurance business, a place that's previously been a pocket of growth in the insurance world.
Allstate has pared down its exposure to homeowners insurance in recent years, instead focusing on building its automotive portfolio. That move reduces the risks of catastrophic losses to ALL's portfolio. Since homeowners policies are about managing random chance risks, while automotive is more a science, the transition lets Allstate spread its risks better. As a result, the firm should continue to book impressive levels of profitability in 2014: last quarter, Allstate turned 6.85% of its top line into profits.
Truck builder Paccar (PCAR) is taking advantage of big industry trends in 2014. The firm is the name behind the Peterbilt, Kenworth and DAF brands, a collection of marques that manufactures everything from light trucks to 18-wheelers. With low interest rates and an aging worldwide commercial trucking fleet ripe for replacement, PCAR is well positioned for growth right now.
Paccar owns a whopping 25% share of the U.S. heavy trucking market through Peterbilt and Kenworth, a pair of brands that have built a reputation for quality and reliability. Paccar's business isn't just in the U.S., however – the firm has a 15% share of the European market for commercial trucks, with factories in Holland and the U.K. The replacement cycle for commercial vehicles is a big part of PCAR's growth potential right now. Because older trucks burn more fuel and have higher maintenance and downtime costs, the justification for upgrading is far more objectively necessary than in the case of passenger cars.
From a financial standpoint, PCAR is in solid shape. While truck manufacturing is capital-intense, the firm's $5.2 billion debt load is halfway offset by a $2.5 billion cash position. Historically, PCAR has sported thick margins for its efforts -- and as growth opportunities in emerging markets continue to look attractive, that should translate into material cash generation for investors in the year ahead.
Last up on this week's Rocket Stocks list is Gap (GPS), the $20 billion apparel name. Gap is another stock that's shown investors some market-beating price action so far in 2014: since the first session in January, GPS has rallied 9%, besting the S&P by a big margin. International sales should be the factor that propels that performance in the second half of the year...
Besides its namesake Gap stores, GPS owns Old Navy, Banana Republic, Piperlime and Athleta -- more than 3,100 company-owned stores in all. Those locations span the U.S., Canada, Europe, and Japan, with another 375 franchised stores in emerging markets like the Middle East, Asia, and Eastern Europe. That hybrid store model means that Gap earns big returns in safe markets that it knows best, and it gets sales exposure to growth markets without the risk.
The changing tides of consumer fashion choices are typically a big risk for apparel brands, but Gap has proven adept at staying in front of them. Much of the firm's success comes from excellent demographics: the firm has made a huge business out of courting upscale mass affluent consumers, a golden goose for most firms. Because the consumers
Gap targets tend to spend more per capita than the norm, it gets more from the traffic that comes into its mall locations. Zero debt and $1.7 billion in cash round out the financial picture in Gap right now. With rising analyst sentiment in this Rocket Stock 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.