U.S. markets ended the first quarter of 2016 in the black, a feat that most investors probably didn't think Mr. Market would be able to pull off just a month or so ago. A lot has changed since the broad market found a bottom back in the middle of February.
And the newfound bullish trajectory for stocks bodes well as we head into April. From a seasonality standpoint, April is typically one of the strongest months of the calendar year from a performance standpoint. In fact, over the course of the last decade, the worst April for the S&P 500 was 2012's 1.48% decline -- the month is otherwise skewed far in favor of the bulls.
To make the most of a seasonally strong month for investors, 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 343 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 78.52%.
Without further ado, here's a look at this week's Rocket Stocks.
Leading things off this week is tech giant Apple (AAPL - Get Report) . Like most stocks, Apple started 2016 on shaky ground -- but it's been making up for lost time since February. As of Friday's close, Apple is up 4.5% year-to-date, pulling ahead of the rest of the S&P by a meaningful margin. And Apple's rebound isn't showing any signs of slowing as the calendar moves into April.
Apple's businesses range from mobile devices (like the iPhone and iPad) to PCs (the Macintosh) to wearables (Apple Watch) to the world's biggest music store, and everything in between. The key to the Apple ecosystem is that its products complement one another and add functionality, encouraging consumers who already own Apple devices to keep buying them. And buy them they have -- Apple posted record earnings in the most recent quarter…
Apple's size is its biggest detractor. At $615 billion in capitalization, investors apparently have had trouble justifying higher prices for this stock. But that's resulted in valuation metrics that indicate Apple is trading on the cheap this spring. The firm currently carries $152.8 billion in net cash and investments on its balance sheet, an utterly massive cash cushion that pays for about 27% of the firm's outstanding shares at current price levels, and gives Apple an ex-cash P/E ratio of 8.5. With shares finally playing catch-up, this looks like a good time to be an Apple buyer.
Real estate prices are on the rise -- and that's been an important sales driver for home improvement retailer Home Depot (HD - Get Report) . Home Depot is the biggest in the business. The firm currently has 2,274 big box store locations in the U.S., Canada and Mexico. Higher home equity values mean that consumers are getting more comfortable investing in new home improvement projects.
Home Depot's ties to home prices don't just come from DIY projects. Besides the consumer-facing business, Home Depot also has a thriving wholesale construction supply business. Supplying wholesale building materials to contractors doesn't boast quite the same margins as selling to DIY consumers, but it's money that Home Depot had been leaving on the table, or letting rivals fulfill, before. Those stronger relationships with contractors also help give it an edge in its new service offerings – Home Depot can pair consumers off with service providers who use only Home Depot-supplied products, and collect fees in the process.
Like Apple, Home Depot has been picking up some steam in recent months. Since this stock bottomed back in mid-February, shares are already up nearly 20% on a total returns basis. That means that buyers are clearly back in control of this stock. We're betting alongside them this week.
Without a doubt, 2016 has been a strong year for shares of Constellation Brands (STZ - Get Report) . Since the calendar flipped to January, this alcoholic beverage stock has rallied 7.5% on a total returns basis, outperforming the rest of the market along the way. More importantly, Constellation is one of the few large-caps that have actually spent most of this year in the black -- shares have been strong performers all year long.
Constellation is an alcoholic beverage company that owns some of the country's most popular booze brands. The firm's labels range from Arbor Mist and Robert Mondavi wine to Corona beer, Svedka vodka and Cook's champagne. But Constellation has been a name in transition for a while now -- and beer is the firm's new focus. Constellation's recent acquisition of craft brewery Ballast Point late last year for approximately $1 billion gives the firm instant exposure to the red-hot craft beer market and expands Constellation's beer business to more than half of total earnings.
Craft beer is the hottest corner of the American alcoholic beverage market, and Constellation's recent double-down on beer appears prescient at this point. Currently, the firm sells more beer than it is able to produce in-house, creating ample opportunity to ramp up supply in the next few years. The ability to wring deeper margins out of Ballast Point by boosting production and low-cost distribution through Constellation's existing network, and then selling at craft beer prices, bode well for this stock.
Alaska Air Group
Alaska Air Group (ALK - Get Report) is another stock that's undertaking some transformative M&A. This $10 billion air carrier made the headlines last week when news hit that the firm was one of two major bidders in the running to acquire relative upstart domestic airline Virgin America (VA) . Reports have Alaska Air announcing a signed $2.5 billion acquisition deal for Virgin America as early as today.
Buying Virgin would be an important expansion opportunity for Alaska, which currently ranks as the country's seventh-largest airline. As of this writing, Alaska Air operates two air carriers: Alaska Airlines and Horizon Air. The pair runs a combined fleet of 142 Boeing 737 and 52 Bombardier Q400 aircraft that fly to more than 100 cities, and connect Alaska with the lower 48 states and vacation destinations such as Hawaii and Mexico. Acquiring Virgin America would give Alaska more competitive positioning to challenge incumbent legacy carriers with a more national presence; historically, Alaska Air has been primarily focused on the West Coast of the U.S. in addition to its namesake state.
The recent rout in oil prices has provided a huge benefit for Alaska Air. Jet fuel is any airline's biggest variable cost, so the fact that fuel prices are dramatically cheaper today than they were a year ago means that Alaska Air is able to generate some impressive margins right now, even if they're only temporary. If the VA bid goes through, it would mean a bigger fleet of newer, more efficient aircraft that can keep average fuel costs lower if oil costs rebound. It's a good idea to keep a close eye on how the bidding drama ensues early this week.
Last up on this week's Rocket Stocks list is video game maker Electronic Arts (EA - Get Report) . EA is the sole laggard on our list this week -- since the start of 2016, Electronic Arts has lost about 4% of its market value, trailing the rest of the broad market this year. But shares finally look like they could be about to make up for lost time; shares spent all of March consolidating sideways after an earnings-induced decline back in late January.
Electronic Arts is one of the biggest video game companies in the business. The firm's blockbuster franchises include titles like Madden, Battlefield, and Need for Speed. The episodic nature of EA's big franchise titles means that development cycles are relatively quick and games are sold into an existing fanbase, helping to drive more consistent revenues than hit-or-miss competitors. Mobile gaming is finally becoming mature -- and EA has been able to parlay its well-known branding into the mobile space to the tune of $163 million in the most recent quarter, up 17% from the prior year.
Besides the growth of mobile gaming, EA has an important tailwind coming from the next-gen consoles. The increasing adoption of the PlayStation 4 and Xbox One are spurring a fresh game buying cycle for consumers. With rising analyst sentiment in shares of Electronic Arts, we're betting on shares.