BALTIMORE (Stockpickr) -- Should you sell in May and go away in 2015? Like most things involving the stock market, the answer isn't a simple yes or no.
Generally speaking, May hasn't been a great month for stocks in the last decade. On average, over the last 10 years, the big S&P 500 index has lost 0.48% in May. Considering the fact that the S&P has averaged 5.7% gains over that 10-year stretch, May has historically had some pretty bad underperformance.
In fact, the S&P has only been positive in three of the last 10 Mays. But not so fast.
The thing is, two of those up years for May were 2013 and 2014 -- and with 2015 correlating highly with last year's price action, we could be due for another up month this May. To stack the deck in our favor, we're turning to a fresh set of Rocket Stocks worth buying this month.
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 297 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 81.7%.
Without further ado, here's a look at this week's Rocket Stocks.
First up on our list is gigantic pharmaceutical firm Pfizer (PFE). Overall, the health care sector has been a pocket of strength in 2015, and Pfizer has been a great example of that. Year-to-date, this $200 billion drug maker has rallied 9.4%, stomping the rest of the market by comparison. After spending the last week correcting, PFE looks ready to resume that outperformance in May.
Pfizer is the largest pharmaceutical firm in the world, moving about $50 billion in prescription drugs each year. A lot of Pfizer's past success comes from its effectiveness as a marketing machine -- the firm owns some of the world's best-known drugs, making household names out of Lipitor, Viagra, Celebrex and Lyrica, among others. While patent drop-offs continue to be a concern for big pharma firms, strong brand names have helped to mitigate revenue loss from patent expirations.
It hasn't stopped the revenue loss, however. PFE has seen its top line shrinking in the last several years, but that trajectory should start reversing as the late-stage therapies in Pfizer's pipeline become commercially available.
Pfizer has the wherewithal to get those new drugs to market effectively. As of this writing, PFE sports $22 billion in net cash and investments on its balance sheet, enough dry powder to handle any unexpected speed bumps along the way.
With rising analyst sentiment in shares of Pfizer this week, we're betting on this Rocket Stock.
PepsiCo (PEP) doesn't need much in the way of an introduction. This $141 billion snack and beverage stock lays claim to a big chunk of the shelf space at your local grocery store -- and a big chunk of consumers' mindshare as a result. PEP is really two businesses: The firm's namesake Pepsi arm is the world's number-two beverage company, and its Frito-Lay unit is the biggest snack food manufacturer. The firm's huge portfolio of brands includes everything from Pepsi to Gatorade and Tropicana on the beverage front and Lay's, Doritos and Quaker on the snack side.
The duality of Pepsi's business has been something of a sticking point of late. Activist shareholders have fought to split the firm apart, arguing that there's value to be unlocked by breaking drinks and snacks apart. Management, for its part, hasn't agreed. Instead, it argues that the ability to cross-promote and share distribution and negotiating leverage is worth keeping PEP unified. Until we see a meaningful misstep from a performance standpoint, management is likely to keep the benefit of the doubt from investors.
Pepsi generates about half of its sales here in the U.S., a fact that the firm has been working to change as emerging markets start consuming higher snack and soda amounts per capita. Meanwhile, in PEP's core U.S. market, management has been boosting efficiency and investing in new sweetener technologies for its diet drinks. Both of those efforts could start moving the needle meaningfully in 2015.
eBay (EBAY) is another firm that has received investor pressure to split apart recently -- and in eBay's case, the activist investors won out. EBAY will officially spin off its PayPal subsidiary by the end of this year, likely unlocking meaningful shareholder value in the process. But eBay looks likely to hand investors upside well before that yet-to-be-announced spin-off date.
eBay is one of the largest electronic marketplaces in the world. The firm started off as an auction site, but it's gone on to include a variety of other transaction types, acquiring other, complementary marketplace sites in the process. That business made payments a logical side business, spurring the firm's decision to acquire PayPal in 2002. Today, though, PayPal isn't so much of a side business anymore. The payment network contributes about 45% of overall revenue, handling one out of every five dollars transacted online. The rising tide of electronic payments should continue to be an important tailwind at PayPal, and investors should expect this stock to trade for a premium once it's on its own.
Back at eBay's legacy marketplace business, the firm gets a big edge from its size. With more than 155 million active buyers registered on eBay's network, the firm has the ability to attract sales volume. After all, sellers go where the buyers are. As more of the firm's sales volume moves off of its namesake site, there's a big growth opportunity for EBAY shareholders. An increasing number of businesses making their livelihoods on EBAY's network is another important growth driver in 2015.
It may be surprising to see $17 billion aluminum manufacturer Alcoa (AA) on our list of Rocket Stocks this week. After all, Alcoa's performance hasn't exactly been inspiring in 2015. Since January, AA has actually shed about 10% of its market value, but it is starting to show signs of a reversal, and that means that long-suffering shareholders could be in for a reprieve as this stock hits "Rocket" status.
Alcoa is the largest manufacturer of aluminum and alumina, producing about 10% of the world's total supply of the metals. That means that even if you've never heard the Alcoa name before today, there's a very good chance you've come in contact with the firm's wares if you've ever drank from a soda can or flown in an airplane. Spot aluminum prices are starting to look bullish again, as global industrial demand perks up and the strong dollar takes a breather. LME aluminum prices are up about 10% from their lows back in March, and as AA collects higher prices for its products, profits should move in step.
Scale comes with some advantages for Alcoa. The firm is one of the lowest cost producers of aluminum and aluminum oxide, which means that it benefits disproportionately from an uptick in aluminum prices at market. Because it's an integrated producer, Alcoa also has the ability to squeeze extra margin out of each step between mining and wholesaling. The technical picture in AA looks solid, a fact we saw in the price action with Friday's 5.4% rally. Shares should extend that breakout move as we head into May.
Last, but not least, on our list of Rocket Stocks is credit bureau Equifax (EFX). Anybody who's ever applied for a loan before knows the Equifax name. The firm's credit reporting data is used by every major financial institution to manage risk and detect fraud. That mission-critical nature of EFX's product gives it a deep, wide economic moat.
Equifax has limited competition in the credit bureau business. Even better, credit bureau use is rarely mutually exclusive, as lenders look at multiple sources of data in making decisions and often pass credit reporting costs on to borrowers, who aren't as price-sensitive as a wholesale data subscriber would be. As more industries begin using credit-worthiness data more regularly for their own risk management, EFX opens up a big new market.
Increased use of credit bureaus in emerging-market lending is a big, valuable trend for Equifax. Growing middle class populations are beginning to borrow more than ever before, particularly amid this record-low global interest rate environment. Growth opportunities abound at EFX in the years ahead, and while shares aren't exactly cheap right now, buyers are clearly in control of this stock's momentum as we head into may.
With rising analyst sentiment in shares, we're betting on Equifax this week.