Buckle your seatbelt, because earnings kick into full swing this week. All told, 118 S&P 500 components are set to report their numbers to Wall Street by Friday, supplying a quarterly update for nearly one in four stocks in the big market index.
That "data dump" is bound to come with some surprises -- and if history is any indication, most of those surprises will be good ones. So far, three-quarters of S&P 500 earnings surprises have been positive this earnings season. Keep in mind that you don't necessarily need to buy the actual stocks that are reporting earnings to profit from them; big earnings surprises tend to help move the whole market, not just the stocks that are reporting their numbers.
To take advantage of the bullish sentiment in stocks this week, we're turning to a fresh set of Rocket Stocks worth buying.
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 320 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 77.18%.
Without further ado, here's a look at this week's Rocket Stocks.
Up first on our list is big pharma firm Pfizer (PFE - Get Report) . Pfizer has actually had a pretty solid run so far in 2015. Since the calendar flipped to January, this $212 billion drug maker has managed to move 10% higher. Compared with the S&P 500's slight loss year-to-date, that's some enviable price action. And there's reason to believe that Pfizer's trajectory will hold up in the final stretch of this year.
Pfizer is one of the biggest pharmaceutical companies in the world. A lot of the credit for that goes to Pfizer's marketing department. Its most successful drugs are also the ones that have "household name" status. Blockbuster treatments include brands such as Lipitor, Viagra, Celebrex and Lyrica. That name recognition also helps to mitigate some of the downside risk when those drugs fall off-patent. But it's the names that haven't achieved household status (yet) that should get investors the most excited about the future at Pfizer. In the last few years, treatments like Xeljanz and Eliquis have hit the market, and both have big off-label implications that are likely to see FDA approval down the road.
From a financial standpoint, Pfizer is in excellent shape. The firm currently counts nearly $12.8 billion in net cash and investments on its balance sheet, a level of financial wherewithal that helps to ensure that Pfizer can handle any unexpected financial hiccups easily.
Meanwhile, the firm is also handing some of that cash to its investors. Pfizer currently pays investors a solid 3.25% dividend yield.
Visa (V - Get Report) is another example of a blue chip that's been outperforming all year long. This $184 billion payment giant is having a strong year, up approximately 16% since the start of 2015. Visa is the standard bearer in the payment card business -- and as more payments become electronic, Visa is well-positioned to capitalize on that growth.
Visa's card network enjoys a positive feedback loop: Consumers get Visa-branded cards because they're accepted almost anywhere, and merchants opt to accept Visa because so many consumers carry the card. That network effect makes it extremely difficult for new competitors to step in and steal dollar volume from Visa.
Some of Visa's biggest growth opportunities are overseas. Globally, approximately 85% of payments are still made using cash, and that's true disproportionately in emerging markets, where consumers are just starting to come around to the security and convenience advantage of electronic payments. Meanwhile, new technologies in established markets -- such as Apple Pay -- have helped to cement Visa's role in the transaction chain.
Keep an eye out for fiscal fourth-quarter earnings numbers later this month.
Even though you may not realize it, there's a good chance you've used products made by Analog Devices (ADI - Get Report) . This semiconductor stock makes the analog, mixed signal and digital signal processing chips found in scores of high-end consumer electronics, from smartphones to cars to communications infrastructure. All told, the firm boasts more than 60,000 customers worldwide.
Analog Devices' exposure to a niche corner of the semiconductor space has helped to spare this company from the pressures that have been weighing on less nuanced peers. Half of the firm's sales come from the industrial and automotive markets, the latter providing an especially attractive positioning considering growing car sales and the increasing complexity of the vehicles rolling off automakers' assembly lines today. Because Analog Devices' chips are just a necessary afterthought in most consumer devices, competition is relatively low. OEMs would rather just buy them than engineer and build them.
Financially speaking, ADI is in excellent shape. The firm currently boasts more than $2.2 billion in net cash on its balance sheet, enough to cover more than 11.8% of its market capitalization. That's a huge cash cushion -- and it helps to reduce the risks of owning for investors thinking of buying in today.
Toolmaker Snap-On (SNA - Get Report) is having a pretty good year itself in 2015. Since January, Snap-On has rallied 17%, leaving the rest of the broad market in its dust. That's quite a performance for a year where performance has been hard to come by.
Snap-On is one of the strongest brands in the tool business, thanks to a reputation for quality that drives attractive pricing power. The firm sells through a network of franchisees, whose more than 3,000 vans in the U.S. drive to auto repair shops, maintenance hangars and industrial facilities all over the world. Approximately half of sales are generated outside the U.S. today.
Snap-On's unique selling proposition is all about control -- quality control, that is. The firm manufactures approximately 70% of its tools in-house, significantly more than other competitors who sell to the same markets, and that give it tight quality tolerances that outsourced manufacturing can't provide. Likewise, Snap-On's direct sales model means that customers have longstanding and consistent relationships with salespeople, a big factor in driving stickiness.
Snap-On's popularity among professionals gives it extra credibility among the high-end prosumer market, where car enthusiasts and the like are willing to pay up for professional grade tools. Growth opportunities exist in emerging markets, especially as the first wave of growth in those countries' automotive industries drives demand for maintenance work.
With rising analyst sentiment in shares this week, we're betting on Snap-On.
Last up on our list of Rocket Stocks today is $7.7 billion online brokerage firm E*Trade Financial (ETFC - Get Report) . E*Trade has undergone some significant transformations in the last decade and change. What started as one of the original discount brokerages has morphed into a bank holding company with more than $287 billion in assets.
Declining trading volumes have been a major issue for brokerage firms in recent years. Post-2008, retail investor participation has been extremely low, and commission revenues have suffered. But the tide appears to be turning. Revenue-generating trades are up more than 20% in the last year, and E*Trade even managed to book a record high trading day for the firm in late August. At the same time, the possibility of higher interest rates provides an attractive macro story for E*Trade. With margin borrowings at multi-year highs, E*Trade's ability to generate revenue from margin lending moves with interest rates, making a rate hike a very good thing for this broker and its peers.
After shrinking post-2008, revenues finally started turning the quarter in 2014, as E*Trade finally posted year-over-year sales growth. And the firm is on track to overtake that year's numbers again in 2015. Shares are up double digits so far this year -- and investors should expect that upside story to resume now that E*Trade's summer correction has run its course.