BALTIMORE (Stockpickr) -- U.S. stocks are making another run for new highs this week, after the big S&P 500 index closed Friday at its highest level ever.
Generally speaking, last week was a great one for stocks. All told, three-quarters of S&P 500 components ended the week higher than they started -- and some big names ended things quite a bit higher. Despite early trading pointing lower this Monday, it looks like the wind is going to be at investors' backs this week too.
To make the most of it, we're turning to a fresh set of Rocket Stocks that look ready for blastoff in May.
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 299 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 81.65%.
Without further ado, here's a look at this week's Rocket Stocks.
Sometimes, second place isn't so bad -- just ask MasterCard (MA). MasterCard is the No. 2 electronic payment network in the world, just behind top-dog Visa (V) in transaction numbers. MasterCard is well-positioned to benefit from the ongoing shift away from cash and towards electronic payments. With the vast majority of transactions worldwide still being made in cash, the opportunity is very real. That's why MA was able to grow its transaction volume by a very substantial 12% in the last year.
Much of that growth potential comes from overseas, particularly in emerging markets. The recent decision in China to allow third-party payment networks has potential to move the growth needle meaningfully beginning this summer. Elsewhere, barriers to entry remain high for new payment schemes, and the security and convenience of MasterCard gives it a well-fortified moat.
Because MA is the card network, not the card issuer, it doesn't face adding credit risk to its balance sheet to increase its scale. While rival Visa has been more successful in the debit card space, it does have a significant installed base of debit card users. Ultimately, the payments business is a positive feedback loop. Consumers carry MA-branded cards because of high acceptance rates at stores, and stores accept the cards because customers carry them. That makes it hard to unseat the incumbent payment companies any time soon.
Athletic apparel maker Nike (NKE) has been another stock that's been benefiting from a rising tide of worldwide consumer spending in the last few years. Nike is the biggest athletic footwear, apparel and gear maker, and it owns one of the most valuable brands in the business. The firm's iconic "Swoosh" emblem automatically hikes the price of any item it's printed on.
Nike sells through a network of more than 50,000 retail customers, plus about 850 company-owned stores and a web portal. Nike's own retail sales efforts are significant; they accounted for about a quarter of total revenues last year. Presently, emerging markets add up to about 23% of total sales, a number that should continue to rise as a burgeoning middle class in countries such as India and China looks to acquire attainable status symbols such as brand-name apparel.
From a financial standpoint, Nike is in excellent shape. The firm carries approximately $4 billion in net cash on its balance sheet, enough to cover about 5% of the firm's total market capitalization today. That lack of balance sheet leverage gives NKE the ability to weather economic hiccups better than most. Look for this stock to continue to outperform in May.
Diversified manufacturer Honeywell (HON) owns a collection of businesses that range from manufacturing aircraft components to making home thermostats. That wide spectrum of end-markets means that HON is less susceptible to business challenges in any single unit harming the firm's overall performance. And Honeywell isn't stopping there. The firm continues to snatch up attractive buyout targets, most recently closing the purchase of barcode label printer firm Datamax-O'Neil in March.
Because of its wide expertise, Honeywell's fortunes tend to ebb and flow with the overall economy. And that's been a very good thing of late, with economic growth on tap. Strategic investments in areas such as automation and energy have been paying off, and total revenue has been higher in each of the last five years.
In a lot of ways, the real story at HON in recent years hasn't been its external products. Instead, the firm's internal changes have provided a major boost, increasing profit margins and entrenching its moat in core areas like aerospace, where HON enjoys a leadership position.
With rising analyst sentiment in shares of HON this week, we're betting on this Rocket Stock.
Delta Air Lines
After a pretty stellar performance in 2014, Delta Air Lines (DAL) has been correcting a bit this year. But the long-term trajectory has been pretty hard to miss. With jet fuel prices down about 34% in the last year, Delta's biggest cost has been cut substantially, freeing the firm to spend cash on service improvements and returning cash to investors. (To that end, the firm announced last week that it will return about $6 billion to investors through buybacks and dividends by the end of 2017.)
Delta is one of the best-run airlines in the business, and it's enjoying a cyclical upswing in the airline business. The firm is one of the country's legacy carriers and one of the largest airlines on the planet, serving about 250 mainline destinations with a fleet of more than 789 aircraft. Delta recently rebranded its in-cabin products, getting rid of its top-tier BusinessElite brand and renaming it Delta One. The firm also increased the services offered to its premium economy customers, a product now called Comfort+. It's early to tell whether the efforts will be well-received by passengers.
Another major change for Delta came last year, when it introduced a system of racking up frequent flyer miles based on dollars spent rather than trip length. That system rewards Delta's most lucrative passengers with perks and should go a long way in making sure that the top spenders are the ones getting the most redeemable benefits.
Delta looks like it's making a move back towards prior highs this month. We're betting on shares.
2015 has been a great year for shareholders of Delphi Automotive (DLPH). While the S&P 500 is only up about 3% since the calendar flipped to January, this $25 billion auto components maker has rallied 20% over that same stretch. And despite speculation over the future of interest rates (and overtures by the Fed), historically low borrowing costs and an aging global car fleet should keep new vehicle sales strong in 2015.
Delphi builds car components used from bumper to bumper by OEMs building cars. The firm's specialties include products used for vehicle safety, engine management, and electronic systems. Because DLPH's systems are deeply integrated into vehicles' designs, the firm's customers have very high switching costs -- it's rarely cost effective (or timely) to move to a different supplier for a mission-critical part like a powertrain. Likewise, DLPH has a deep relationship with former parent General Motors (GM), which contributes about 20% of total revenues.
Just like the airline business, auto component manufacturing tends to be very cyclical. But, like the carmakers on its customer list, Delphi has been enjoying the upswing of the cycle in recent years. As long as consumers keep buying new vehicles (both here and abroad), DLPH should continue to see sales growth.