BALTIMORE (Stockpickr) -- Volatility is back on the rise in March. In the last week, we've encountered two of the three biggest single-day declines in the S&P 500 index in 2015 and the sixth-biggest single-day rally. Bigger price swings in both directions mean bigger volatility -- and that's making investors nervous as we blast off into another week.
The thing is, increasing volatility doesn't really tell the whole story here. Sure, volatility is on the rise this month, but on an absolute basis, it's still pretty tepid. For instance, the VIX Volatility Index's close at 16.0 on Friday implies that traders expect a maximum move of 4.6% in the S&P 500 over the next 30 days.
No, we're not exactly talking about panic-inducing levels -- at least not yet.
But slightly higher volatility can create some buying opportunities too. So to make the most of this environment, we're turning to a fresh set of Rocket Stocks 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 291 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 83.26%.
Without further ado, here's a look at this week's Rocket Stocks.
Up first is big pharma stock Pfizer (PFE). 2015 has been a pretty lackluster year so far for most stocks -- especially high yielders -- but not for Pfizer. This $208 billion drug maker is up more than 9% since the calendar flipped to January. It's been a while since PFE made the cut for our Rocket Stocks list, so the firm's re-emergence on the screen is telling.
Pfizer is the biggest of the big pharma firms. It owns some of the world's best-known drugs, making household names out of treatments such as Lipitor, Viagra, Celebrex and Lyrica. Pfizer's marketing machine is the stuff of legends -- and a big component of the firm's success. By selling consumers on brand name drugs, the firm has helped to mitigate sale losses as blockbuster drugs (like Lipitor here in the U.S.) fall off patent protection. Importantly, Pfizer's pipeline is strong today. While Wall Street has spent the last decade hand-wringing over patent expirations at big pharmaceutical firms, Pfizer's late state portfolio looks stronger than ever.
From a financial standpoint, Pfizer is in strong shape. The firm currently carries just shy of $17 billion in net cash and investments, enough to help reduce some of the risks associated with shares today. While the potential of a Fed rate hike would do damage to PFE's share price, the firm's 3.29% dividend yield makes it especially attractive for income investors.
eBay (EBAY) is a company in transition. The firm announced last year that it plans on splitting its PayPal unit off from the rest of the eBay empire, a move that investors had been demanding for years to the sound of crickets. But management saw the writing on the wall (and the market valuations that payment stocks are commanding in this market), and changed its tune. The transaction is expected to be completed in the second half of this year.
Meanwhile, eBay's namesake business remains one of the few online retailers that's had limited competition in recent years. While transitioning solely from an online auctioneer to a broader marketplace gave eBay overlap with bigger e-tailers such as Amazon (AMZN), eBay still remains one of the few viable C2C markets online. The firm's 155 million active buyers go to eBay because the site has a huge seller base, and sellers flock to the site for the same reason. The possibility of unlocking more value from its eBay Enterprise commerce and marketing unit adds another meaningful benefit to a spin off in 2015.
PayPal contributed almost half of eBay's total revenue last year, but it has some bumps and bruises. As a standalone payment network, PayPal has historically gotten a big boost from the legacy eBay business, which still amounts to a third of the firm's total volume. Likewise, as new payment competitors sell users on the consumer experience, PayPal has earned a reputation for being unresponsive with its customers, particularly smaller merchants.
The market clearly likes the split-off deal for eBay, and it's pricing this stock accordingly. So with rising analyst sentiment building this week, we're betting on shares.
2015 has treated Salesforce.com (CRM) pretty well. Year-to-date, this customer relationship management software stock has climbed 9% versus a broad market that's just gone negative on the year. And CRM's performance isn't slowing down as we head into the end of the first quarter. In fact, it's starting to pick up again.
Salesforce builds software that enables more than 100,000 customers to run business applications that interact with their customer lists, doing everything from sending newsletters to tracking sales. That's a vital service, and it's one that translates directly into sales growth. That makes paying hefty fees for Salesforce subscriptions a whole lot easier to justify. Because CRM's software packages tend to be deeply integrated in customers' other systems, switching costs are extremely high.
CRM's strategy has historically been "growth at all costs." The firm has spent aggressively in the past to pursue a fatter customer Rolodex, putting revenue higher on the priority list than profitability. That's a perfectly good strategy for as long as investors can stomach it, and so far, shareholders are still proving patient. That patience may pay off soon, as CRM becomes more mature and adds new product lines that it can cross sell effectively (three-quarters of the firm's subscribers end up purchasing multiple products). Earnings hit the mark at the end of February, and after a correction at the start of March, CRM's chart looks like it's ready for another leg up.
Good jobs numbers in recent months and the possibility of a Fed rate hike in the months ahead have been a boon to Paychex (PAYX). That's because this outsourced HR stock's fortunes ebb and flow directly with the employment rate. Paychex provides payroll services for almost 600,000 customers, mainly helping small and medium-sized businesses figure out the labyrinth of forms and regulations needed to get their employees paid.
While Paychex's bread and butter is payroll, the firm branched out during the lean times, adding new services such as 401(k) management, health care and worker's comp insurance to its repertoire. In short, it's become an all-in-one HR services provider. Those add-on services have been a stellar way for the firm to monetize its existing customer relationships -- and that doesn't end as the jobs market continues to improve.
I mentioned earlier that higher rates come with big upside implications for PAYX. That's because this firm historically earned considerable profits on interest from its float portfolio, the huge amount of cash it holds between the time employers deposit it and employees cash their paychecks. While extremely low interest rates have hurt PAYX's float income, the low rates are already priced in, which means there's a huge revenue stream waiting to be unlocked when rates perk back up. That makes this warming economy doubly good for Paychex -- and somewhat of a hedge against the rate hike implications in your income portfolio.
Last up on our list of Rocket Stocks today is computer storage stock SanDisk (SNDK). SanDisk is the biggest supplier of NAND flash memory in the world, stellar positioning as more and more electronic devices move from conventional hard drives to flash-based storage. That's particularly true in the mobile device market, where the use of flash storage is universal, and replacement cycles are extremely short.
Flash has been a supply-constrained market for the last several years, but as manufacturing capacity comes online, costs are coming down. That's why it's so significant that SNDK also owns a robust patent portfolio -- it means that the firm benefits from the overall growth of the NAND flash memory market, regardless of who's manufacturing the memory.
From a financial standpoint, SanDisk is in excellent shape. The firm currently carries $3.32 billion of net cash and investments on its balance sheet, or about 19% of the firm's current market capitalization. That huge cash cushion does a lot to offset the earnings multiple that's currently on shares. With rising analyst sentiment in SNDK this week, we're betting on shares of this Rocket Stock.