The earnings announcements for the second quarter of 2012 start with Alcoa's (AA) earnings call after the closing bell today, ushering in a truckload of fundamental data for investors who've been waiting to see what kind of financial performance companies are turning out in this environment. At this point, analysts aren't expecting much.
In the last couple of months, analyst revenue growth estimates for the second quarter have swung from positive to negative, providing expectations that are actually a good thing for the market right now. With so much negative sentiment among analysts, firms should be able to handily beat estimates with only perfunctory performance. In the last year, corporate earnings consistently beat analysts' estimates, but this quarter, with sentiment skewed bearish, positive earnings surprise could spur a meaningful rally this summer.
That's why we're taking a look at a new set of Rocket Stock names for 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.
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In the last 158 weeks, our weekly list of five plays has outperformed the S&P 500 by 81.44%.
With that, here's a look at this week's Rocket Stocks.
A rising tide is lifting all ships in the payment card business; last week, top rival MasterCard (MA) was one of the names on our Rocket Stocks list, returning an impressive 4.83% for the week. This week, Visa popped onto our screen, so it's time to look at what's going on with the top name in the industry.
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More and more, electronic payment cards are taking the place of cash and checks in consumers' wallets. And Visa's dominance (its logo is on more than 60% of debit and credit cards worldwide) ensures that it can capture the most growth from those industry tailwinds. That trend also mitigates the negative impacts of a downturn in consumer spending. Even if consumers are dropping less cash at the mall in 2012, they're putting more of what they do spend on their Visa cards and less on cash.
One of Visa's most attractive attributes is the fact that it doesn't carry any credit risk on its balance sheet. Visa is the network, not the card issuer, so it gets a small fraction of each transaction rather than relying on interest fees. As a result, Visa was one of the first networks to embrace the debit card, a critical move once consumers started deleveraging in 2008.
Keep your eyes on this stock: Visa announces earnings after the closing bell on July 25.
Visa, one of Warren Buffett's holdings, shows up on a recent list of 10 New Stocks on All-Star Fund Managers' Lists.
How many commercial agriculture equipment firms have household name status? John Deere(DE) has carved out an impressive share of the heavy equipment business over the last 175 years, currently boasting more than half of the North American ag market. Deere's machines can also be found on construction and landscaping sites. While those industries got hit hard in the wake of the "Great Recession," they're bouncing back now -- especially internationally.
Deere is actively gaining share in markets like India and China, where spending on infrastructure and agricultural improvements are growing the need for Deere's equipment. While Deere has never been a cost leader, it's focused on being a technology leader instead, pioneering precision agriculture equipment that can effectively drive itself using advanced GPS systems.
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Like many car companies, Deere owns a captive finance unit. That unit enables the firm to offer attractive financing options for farmers and construction firm -- and solid underwriting policies have kept nonperforming loans minimal despite serious hiccups in the credit market over the last few years. While the presence of a finance unit does increase the risks of an investment in Deere, it's a critical part of the firm's strategy.
Watch out for DE's earnings on Aug. 15.
Whole Foods Market (WFM) has rallied more than 36% since the first day of January, stellar performance that's a stark contrast to the 8% that the average grocery store stock has slid in 2012. But then again, Whole Foods has never tried to align itself with the rest of the industry.
The firm is the biggest retailer of natural and organic foods, boasting more than 300 stores (mostly in the U.S.) and more than $10 billion in annual sales. By focusing on mass-affluent consumers who can afford to pay a premium for higher-cost grocery items, Whole Foods has done a stellar job of harnessing a new wave of health consciousness that's been sweeping the county. Increasingly, consumers are willing to part with more cash if it means that they're getting healthier, more environmentally safe food products.
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One result of that is significantly deeper net margins than a traditional grocer could hope for. By providing a selection that conventional stores can't compete with, WFM's growth trajectory should continue.
That's not to say that WFM doesn't face some competition. Conventional grocers have responded to the success of Whole Foods by revamping their own store layouts, and offering a higher end experience with larger natural and organic food sections. But while those moves may slow attrition from standard stores, they're not going to stop folks from shopping at WFM instead. Ultimately, selection wins out.
WFM posts its fiscal third quarter earnings on July 25.
Whole Foods, one of SAC Capital's holdings, shows up on a list of the 10 Best-Performing S&P 500 Stocks in the Second Quarter.
Apparel retailer Gap (GPS) owns a handful of brands in addition to its self-named store chain -- Old Navy, Banana Republic and Athleta are just a few of them. All told, Gap owns more than 3,000 stores in North America, Europe and Japan. And the firm franchises another 200 locations in emerging markets like the Middle East and Southeast Asia.
The Gap is in a tough business. The apparel industry is extremely competitive, particularly among mall retailers, and firms have to stay a step ahead of consumer tastes. In many ways, tastes correlate with price points, so Gap is able to drag fashions from the high end of the scale (Banana Republic or Gap, for instance) down to the lower-prices of its Old Navy chain with great success. That's part of the reason why GPS has been able to expand its margins so successfully in the past few years.
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Another reason for improved financials at Gap is the restructuring that the store chain pulled off in the wake of the recession. I also like the fact that trickier emerging market stores are franchised, rather than owned. While it may mean lower margins at those locations, it spares The Gap from the risks of poor execution in unfamiliar lands.
Speaking of which, we'll get our next look at the firm's financial data during Gap's second quarter earnings call, currently scheduled for Aug. 18.
As of the most recently reported quarter, Gap was one of the top holdings at Steve Mandel's Lone Pine Capital.
Sallie Mae originates, services, and collects on student loans for more than 25 million borrowers spread across the country. And while few could argue that the costs of college are getting astronomical, the big question is whether students have a choice in the matter. As long as college boards continue to hike tuition payments, demand for SLM's products will continue to climb.
Because student debts are among the first big obligations that newly-minted grads take on, they're higher up on the list of payout priorities, a good thing for lenders like SLM. Traditional private loans have default rates that are in line with credit cards, for instance. Because SLM's loans are primarily made through the (now paused) Federal Family Education Loan Program, most of its balance sheet is Federally insured. Also, because student debt can rarely be expunged through bankruptcy, SLM is less susceptible to young people's credit mistakes than credit card issuers are.
SLM has been handily profitable since the recession wore off, and the firm currently sports a 3.07% dividend payout. Investors get their next glimpse at this firm's financial performance on July 19.
To see all of this week's Rocket Stocks in action, check out the Rocket Stocks portfolio at Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
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