Last week's usually quiet truncated trading session was anything but uneventful, as the big stock market averages all managed to close at new all-time high prices by Black Friday's 1 p.m. close.
The odds favored a retry of the S&P 500's high-water mark at some point during the statistically bullish period between Thanksgiving week and the end of the calendar year -- albeit not quite so soon. Clearly, the buyers are back in control of this market. And the good news for investors is that owning equity leaders could hold the keys to even bigger stock gains as we round out the year.
To find the stocks that look predisposed to outperform here, we're turning to a new set of Rocket Stocks worth buying for gains.
In case you're not familiar, 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 375 weeks, our weekly list of five plays has outperformed the S&P 500's record-breaking run by 81.29%.
So, here's a look at this week's Rocket Stocks.
Up first is Verizon Communications (VZ) . Verizon has been a clear-cut example of a stock market leader in 2016 -- while the S&P just crossed the 10% total return threshold for this year, megacap Verizon is up materially more, handing investors 14.6% total returns since the calendar flipped to January. And after spending the past couple of months correcting, Verizon is rebounding in an attempt to retake the 52-week highs it hit back at the end of the summer.
Verizon is the biggest cellular carrier in the country, with more than 113 million retail wireless connections. That mobile business is Verizon's cash cow -- it contributed 93% of Verizon's operating income last year. The firm is also the local phone company for about a fifth of the U.S., providing fixed-line phone, TV and Internet services. Verizon owns valuable infrastructure as consumers increasingly move to "cut the cord." Because TV is a secondary service for Verizon's fixed-line unit, the firm is a net winner when consumers opt to upgrade to its FiOS high-speed Internet service even if they don't purchase a high-end cable plan.
Because of its size, Verizon has a big advantage over competing mobile and fixed-line carriers. For instance, it's able to invest far more into its network, ensuring that it has a quality advantage that provides some semblance of an economic moat in a marketplace that's been creeping towards commoditization in recent years. Faster, more reliable coverage in more places is something consumers are clearly willing to pay a premium for -- and the subscriber numbers show that Verizon is uniquely able to offer that.
Keeping with the cellular theme brings us to shares of mobile chipmaker Qualcomm (QCOM) . Qualcomm has been a massive outperformer in 2016, rallying more than 36% on a price basis since the start of the year. But Qualcomm isn't looking terribly overextended despite the size of the move -- in fact, it's more of a rebound trade from 2015's prolonged correction, still sitting well below its $100 lifetime high price. And Qualcomm looks like it has higher ground ahead of it in the final stretch of the year.
Qualcomm makes semiconductors used in mobile devices. The firm's processors can be found in many high-end smartphones, and its components are ubiquitous in the industry (Qualcomm provides the radio modems used in the new Apple (AAPL) iPhone 7, for instance). In a nutshell, if there's a smartphone in your pocket, there's a good chance Qualcomm got paid somewhere along the way. That's still also true even if there isn't any Qualcomm hardware inside your phone. The company owns a massive intellectual property portfolio, licensing its patents and collecting royalties for pretty much every 3G and 4G LTE device that is sold worldwide.
That dominance has gotten Qualcomm in some trouble, as recent rulings in China and South Korea have threatened the value of its royalties from device makers there. Despite the speed bumps, Qualcomm's intellectual property remains a hugely valuable piece of the overall company. Likewise, Qualcomm holds $20.6 billion in net cash and investments, a cushion that covers more than a fifth of Qualcomm's market capitalization at current levels. While the firm's pending purchase of Action Alerts PLUS holding NXP Semiconductors (NXPI) will reduce its balance sheet cash, it's also getting investors excited about growth potential under the combined company.
Deere (DE) is having a great week. The $33 billion heavy-equipment giant rallied more than 12% during last week's shortened trading span, bursting higher following fourth-quarter earnings and 2017 guidance numbers that were much better than Wall Street had been expecting. That upswing in Deere pushes this stock's performance to 36% gains in 2016, excluding dividends.
Don't worry if you've missed out on that price run in Deere, though. This stock's momentum isn't showing any signs of slowing as we approach year's end.
Deere owns one of the most valuable brands in the heavy-equipment business. Even if you've never set foot on a farm before, the Deere name and its signature color scheme is unmistakable -- and that brand awareness goes hand in hand with Deere's dominance in the North American agricultural market, where the company controls more than half of the market. That strength has been spreading to important agriculture centers like Brazil, where Deere now takes about a fifth in new tractor sales.
The ebb and flow of the soft commodity market has a critical impact on Deere's business. Higher commodity prices (and a weaker dollar) mean that farmers have more spending power to upgrade their equipment. After a sustained stretch of weak agricultural prices, the tide is finally turning for farmers, and, by extension, for Deere.
One final consideration is the fact that Deere owns its own captive finance unit, a critical tool that gives it the ability to subsidize finance costs in order to move machinery, much like an automaker. That financial unit should become an increasingly important sales tool if and when interest rates start materially climbing again.
Cyber Monday is likely to translate into some very tangible sales wins for virtual payment network PayPal (PYPL) . The firm operates one of the biggest independent closed-loop payment networks on the planet, with more than 188 million active users worldwide. Despite that huge scale, last year's Cyber Monday volume was enough to cause periodic service interruptions to PayPal, a frustration that the company doesn't plan on repeating this year.
PayPal stands to be one of the big beneficiaries from the global push away from cash and toward electronic payments. The company provides solutions for consumers and merchants, handling more than $282 billion in total payment volume last year. Since PayPal is an independent payment network, rather than an offshoot of an entrenched player, it's able to work with banks, merchants and credit card companies which might otherwise be leery of a competitor's payment offerings. The push toward more bricks-and-mortar exposure (in retailers like Home Depot (HD) , for instance) has the potential to materially move PayPal's transaction volume higher.
The firm has a short lifespan as an independent company, but it's managed to pull off some smart acquisitions like payment processor Braintree (which included peer-to-peer payment service Venmo), that have given it a vast customer Rolodex of bricks-and-mortar sellers.
Finally, PayPal's balance sheet is exemplary, with more than $6.3 billion in cash and investments and zero debt. That cash cushion offsets nearly 13% of PayPal's market capitalization at current price levels, providing a big investment risk reducer for shareholders. We'll see how the seasonally important fourth quarter fared at PayPal when the company reports its numbers at the end of January.
We're rounding out our list of Rocket Stocks with one that's been anything but rocketing in recent months. Twitter (TWTR) has been a consistently high-volume stock in 2016, but it hasn't been a very good one for shareholders, shedding more than 21% of its market value since the start of January.
That's the bad news. The good news is that Twitter is finally starting to find its footing this fall.
Twitter is a microblogging platform that's become one of the most popular social media outlets on the web, going so far as to take a critical role during the presidential election as both candidates took to tweeting to interact with voters.
Twitter is primarily an advertising platform, with around 90% of revenue coming from ads served on the site. The balance of sales come from data licensing. While user growth has been slowing at Twitter, more than 300 million users worldwide mean that it's achieved the critical mass needed to remain an important part of users' social lives.
Twitter has been struggling to figure out monetization strategies that work well with the short, real-time nature of its messages. The deal to stream Thursday night NFL games has been popular, but it's too early to tell whether it and other sports streams could meaningfully change the way consumers watch media (and the way advertisers spend their ad budgets).
That said, shares have been ticking higher since the end of the summer, and the uptrend remains intact here despite last week's correction in the price action. With rising analyst sentiment in shares of Twitter this week, we're betting on this stock.