BALTIMORE (Stockpickr) -- Almost halfway through 2015, and 2.7% is all that investors have managed to wring out of the big S&P 500 index. Take dividends out of the picture, and that performance number drops to a barely-there 1.7% gain year-to-date.
But things aren't quite as they seem. While, at a glance, it may look like the S&P hasn't done much, the reality is that plenty of individual stocks are making meaningful moves this year. In fact, despite the measly performance numbers that the S&P 500 has put up this year, a full 43% of S&P 500 components are at least 10% higher or lower than they started on Jan. 1.
The fact is that a big chunk of the broad market is making moves. You just won't see those moves translate to the market averages right now.
So, to find the big stocks primed for more big moves in June, 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 303 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 76.56%.
Without further ado, here's a look at this week's Rocket Stocks.
Here's a fact that may surprise you if you've been following the energy sector in recent months: Oilfield service giant Schlumberger (SLB) is actually up in 2015. In fact, shares are up more than 6.7% on a total returns basis since the calendar flipped to January.
That's some pretty significant outperformance for a stock that most people had probably already written off for 2015. And Schlumberger looks well-positioned to keep that trend going this summer.
Schlumberger is the biggest oilfield service provider in the world, offering oil companies a menu of niche services such as seismic surveys and well-drilling and positioning. Basically, Schlumberger's job is to help energy producers pull energy commodities out of the ground as efficiently and cheaply as possible. The firm consistently spends more than a billion dollars a year on R&D, a fact that gives Schlumberger the ability to out-engineer rivals and customers.
While the recent crunch in crude oil prices has certainly been a negative for Schlumberger, it's been mitigated somewhat by the fact that low oil prices mean that
E&Ps need to pull oil out of existing projects as efficiently as possible. If Schlumberger can justify its fees by boosting production numbers, then it should continue collecting paychecks from oil companies. That's a big part of why this stock has been able to rebound in 2015.
With rising analyst sentiment building in shares this week, we're betting on this Rocket Stock.
$92 billion investment bank Goldman Sachs (GS) is another big stock that's been in "buy mode" in 2015. Since the start of the year, Goldman's shares have rallied 10%, leaving the rest of the S&P 500 in its dust.
Goldman's performance shouldn't come as a huge surprise. We're in the midst of a multi-year rally that has propelled nearly every asset class, and that, in turn, has had a profoundly positive effect on Goldman's core businesses.
Goldman Sachs has its hand in nearly every corner of the financial world. Besides its legacy investment bank, the firm is engaged in everything from wealth management to prime brokerage. With global M&A dollars up more than 21% year-to-date, Goldman is enjoying an environment where it's able to earn meaningful returns on capital. While it's true that converting Goldman to a bank holding company in 2008 caused margin erosion by constraining the amount of risk that the firm is allowed to take, the move was necessary at the time. Likewise, the potential for rising interest rates with the Fed brings the potential for higher returns at leverage-restricted firms like Goldman Sachs.
Higher interest rates could also help to fuel increased debt underwritings in 2015. As Goldman's clients fear paying more for capital, they may be more eager to issue new debt while money is cheap. That, coupled with a buoyant equity market, put Goldman Sachs in a good position heading into the summer.
In 2013, Adobe Systems (ADBE) made a pretty gutsy announcement for a software company: It decided to stop selling its most lucrative software titles. Instead, Adobe announced that it was taking its market-leading content creation programs -- including Photoshop, Acrobat, Dreamweaver and After Effects -- to the cloud, converting to a software-as-a-service business. Two years later, Adobe's transition to its Creative Cloud suite has been stellar, and investors have reason to be happy.
Adobe's conversion to a subscription business model makes a lot of sense. For starters, it helps to smooth revenues at Adobe, spreading sales across the business cycle and not just when a big new upgrade hits store shelves. Adobe's software came with big price tags, and the Creative Cloud solves that issue too. Under the SaaS model, access to perpetually updated versions Adobe's apps can cost as little as $50 a month. That should take a big dent out of the piracy that's historically been a big issue with cost-sensitive consumers.
That smaller barrier to purchase means that it's easier than ever for Adobe to retain its status as the platform of choice for creative professionals, cementing a sticky customer base. Even though Adobe's business change-up has been going on for quite some time now, the firm still sees itself in a transition. Look for meaningful top-line growth as more users move from aging (but still widely used) versions of Adobe's software for Creative Cloud subscriptions.
If there's been one sector in 2015 that's been a standout performer, health care is it -- and $35 billion health insurer Cigna (CI) has been one of the big beneficiaries of that upside. Shares of Cigna have rallied more than 33% so far this year. Who says insurance stocks have to be boring?
Cigna is one of the biggest health insurers in the country, with more than 14 million medical participants. Technically, Cigna's biggest business isn't insuring its subscribers. Instead, it manages policies for employers in exchange for a fee. That seems like a small distinction, but in fact, it means that the risks of those health insurance plans fall on the shoulders of employers rather than Cigna's balance sheet.
That huge pool of patients comes with some big advantages. Because of its size, Cigna can negotiate low costs with health care providers, making it an attractive place to turn for HR departments seeking out the best bang for their benefit dollar. Recent long-term changes in the health insurance business have put the squeeze on margins at health insurance companies, converting them from higher-margin businesses to bigger-volume, low-margin businesses. Not so incidentally, that's a model that Cigna is basically purpose-built to compete in.
With rising analyst sentiment in Cigna, we're betting on shares this summer.
Even if you've never heard of $14 billion software stock Red Hat (RHT), there's a very good chance you've come in contact with the firm's products if you're an investor. That's because the company estimates that more than half of the world's financial trades are processed on its systems. Everyone from airlines to the Federal government uses Red Hat's its Linux operating system and enterprise software tools.
But here's the kicker: Red Hat has a novel business model. It gives away its products for free.
Instead of selling software licenses, Red Hat makes its money through training, maintenance and tech support fees that it charges businesses that use its platform. For IT departments concerned with getting the most for their budget, free software makes a compelling case, especially considering the fact that customers rave about working with Red Hat's solutions. Even though competition is fierce in the enterprise software space, Red Hat commands more than 60% of the Linux server market.
From a financial standpoint, Red Hat is in good shape, with more than $1.8 billion in cash and investments offsetting a manageable $715 million debt load. That means that about 7.5% of Red Hat's market capitalization is currently covered by net cash in the bank, a big risk reducer right now. Investors will get their next update on Red Hat's performance when the firm reports earnings this Thursday.