Stocks kicked off the New Year on the right foot. The S&P 500 added 1.76% last week to the big index's ending price for 2016.
While that might not sound like much of a rally at first blush, it actually works out to an annualized return of 148.6% if kept up for the other 51 weeks of the calendar year. It was a very solid week.
Just as importantly, last week's start-of-the-year pop brought the big market indices to new all-time highs in 2017. That new high watermark for stocks puts investors on a pretty attractive footing as we get deeper into the new year. Buyers are clearly still in control of the price action in January, a pretty stark departure from the corrective price action investors had to deal with a year ago.
To take advantage of the bullish bias in the stock market right now, we're turning to a fresh set of Rocket Stocks that look ready for blastoff this week.
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 381 weeks, our weekly list of five plays has outperformed the S&P 500's record-breaking run by 78.11%.
So, without further ado, here's a look at this week's Rocket Stocks.
Shares of $120 billion biotech giant Amgen (AMGN) started 2017 on a strong note, adding more than 7% to the market value following news that the company won a court ruling blocking Sanofi (SNY) and Regeneron Pharmaceuticals (REGN) from selling their cholesterol-lowering drug Praluent, which is tied up in a patent dispute.
Before that, Amgen had actually been a bit of a laggard. But last week's bullish price trajectory was magnified by what looks like an important technical reversal in shares. More on that in a moment.
Amgen is a big name in the biotechnology business. The firm's stable of drugs includes a handful of treatments that each bring in over $1 billion in annual sales, and it's been leveraging that portfolio to expand its range of offerings. The purchase of Onyx Pharma added a big therapeutic oncology pipeline to the mix, and innovative purchases like Decode are changing the way the firm invests in new pipeline candidates through genetic analysis.
While many of Amgen's older treatments are vulnerable to the biosimilars market, Amgen has been working to cut costs in its own manufacturing in order to compete with off-label rivals.
Amgen is a free-cash-flow machine, and those recent cost cuts have only bolstered that financial performance, with around 40% of sales converted in to free cash in the most recent quarter. The technical picture in this stock looks very attractive in January, following last week's breakout through the $150 level. With that former price barrier now out of the way, expect Amgen to make up for lost time in 2017.
A commodity rebound is translating into positive price performance for shares of $36 billion railroad stock CSX (CSX) . CSX has rallied almost 45% in the last year, and as shares push into new lifetime highs, there's still plenty of upside left in this stock in 2017.
One of the oldest modern travel technologies could hold the key to the biggest gains in the year ahead.
CSX is one of the biggest railroad operators in the U.S., with more than 20,800 miles of track focused on the eastern half of the country. The firm has huge commodity exposure, both in its operating costs and its shipment volume. CSX actually benefits from high commodity prices. That's because about 40% of the firm's shipment volume comes from coal and commodity chemical products, which drive more rail shipment demand when prices are high. Meanwhile, rail transport is typically a quarter the cost of truck shipping per ton, a differential that becomes particularly significant when oil prices are high.
In particular, the prospect of upward movement in coal prices under a Trump administration would bode well for CSX. Coal made up nearly a quarter of the firm's shipment revenue last year, and producers become less cost sensitive as commodity prices tick higher.
With rising analyst sentiment in CSX this week, we're betting on shares.
EBay (EBAY) is rallying hard in 2017. Shares climbed 4.6% higher last week, propelling themselves to within grabbing distance of lifetime highs just above the $33 mark. That puts this $36 billion online marketplace operator in prime position to let momentum pull shares even higher this January.
EBay is one of the biggest e-commerce companies in the world, accounting for approximately 5% of all e-commerce transactions last year. Unlike e-tail peers such as Amazon (AMZN) , eBay doesn't actually sell products to consumers. Instead, it's strictly the platform that pairs off buyers and sellers.
Size is everything in the marketplace business, and eBay's 162 million active buyers and 800 million live listings create a virtuous cycle where buyers flock to eBay because of its huge number of listings, and sellers use the site because it's where the buyers are.
First-to-market status still counts for something, and that has cemented eBay's ownership of the lucrative online auction space in most of the world. At the same time, an overwhelming chunk of eBay's transaction volume is now fixed-price, giving the firm an attractive combination of sales types. While PayPal (PYPL) is generally seen as the growth side of eBay's former business, the now-standalone marketplaces unit has actually been the better-performing stock in the last six months by a factor of two-to-one.
As consumers continue to value the unique sales offerings eBay provides in 2017, expect the firm to continue its uptrend.
Essex Property Trust
Contrary to popular belief, the Fed's decision to hike interest rates last month wasn't a death-blow to yield-centric stocks like real estate investment trusts. Case in point: Essex Property Trust (ESS) , a $15 billion housing REIT that's actually up 7.1% on a total returns basis since Janet Yellen and company announced the hike.
This REIT looks well-positioned to keep on outperforming in 2017, an observation that comes from its best-in-class positioning.
Essex Property Trust is a residential REIT that owns more than 59,240 units spread across 243 properties. Because it's a residential REIT, Essex has some differences vs. a conventional commercial REIT. For instance, housing landlords don't lease units on the long-term triple-net bases that are common in the industry. Instead, the firm's units are generally leased on an annual basis in locales that tend to have tenant-friendly housing laws. Despite that, demographics make Essex's portfolio particularly attractive in the expensive West Coast real estate markets where the firm operates. Strong demand in places like coastal California and Seattle have kept occupancy rates high as homebuyers remain priced out of the market or reluctant to take on the risk of home ownership in extremely hot markets.
Essex currently pays a 2.7% yield. And while the firm's residential focus means it has less available cash to pass on to investors, that relatively smaller yield has helped shares survive the current market environment better than most of its peers. The buyers are still squarely in control of the price action in Essex.
Norwegian Cruise Line Holdings
Last on our list of Rocket Stocks for this week is Norwegian Cruise Line Holdings (NCLH) . Since bottoming back at the end of the summer, the entire cruise industry has been looking attractive -- and Norwegian's positioning as the No. 3 player in the industry comes with some notable advantages in the year ahead.
Norwegian operates a fleet of 24 ships under the Norwegian, Oceania, and Regent Seven Seas banners, sailing to more than 510 vacation destinations around the world. But while the firm's 40,000 berths make it much smaller than its other publicly traded peers, the firm is growing faster than the rest thanks to four new ships on order with delivery by 2020. Likewise, Norwegian is following its bigger rivals into growth territory by reentering the Asian cruise market after a decade and a half absence.
The long-term tailwinds affecting the cruise industry are straightforward. Prolonged low oil prices coupled with an aging baby boomer demographic means that costs remain relatively low at the same time demand in the industry's core customer age group is rising. With a newer fleet and a differentiated product, Norwegian looks well-positioned to achieve growth in the year ahead. In the meantime, analyst sentiment is on the upswing this week, and we're betting on shares.