BALTIMORE (Stockpickr) -- Just like that, it's earnings season again. Earnings season officially kicked off on Wednesday, with Aloca's (AA) first-quarter call, and the numbers are starting to trickle in. So far, 22 S&P 500 components have released their numbers to Wall Street.
Earnings season is important because it provides investors with the quarterly sneak peek at what's really going on in the companies in their portfolios. And while we're still waiting on the majority of firms to report their first-quarter data, the early indications look good. So far, 81% of firms have beat analysts' expectations.
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To take full advantage of the heightened market activity surrounding earnings season, we're turning to a fresh set of Rocket Stocks to buy 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 294 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 81.72%.
Without further ado, here's a look at this week's Rocket Stocks.
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We're kicking things off today with grocery store gain Kroger (KR - Get Report), a $37 billion retail chain that's been a major momentum winner already in 2015. Since the calendar flipped to January, Kroger has rallied more than 20%, beating the rest of the S&P 500 by a factor of 10. And that trajectory isn't showing any signs of slowing down as we get further into the second quarter.
Kroger operates 2,600 supermarkets spread all over the country under a handful of different brands. Kroger also operates 750 convenience stores and 325 jewelry stores. Besides the Kroger name, the firm's brand portfolio includes Harris Teeter, Kwik Shop, Fred Meyer and Fry's. Kroger's core grocery business is admittedly low-margin, but the firm has made up for that in scale. By acquiring tuck-in store chains, Kroger has been able to meaningfully move the needle on earnings growth in the last few years, more than doubling its bottom line in the last four years.
That's not to say that Kroger isn't working on boosting margins too -- it is. Approximately one in four products on store shelves are higher-margin private label brands, and two-fifths of those are actually manufactured by Kroger itself. In short, Kroger is cutting on the middleman on a big chunk of its merchandise.
Look out for earnings in the middle of June.
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Skyworks Solutions
Skyworks Solutions (SWKS - Get Report) is another big stock that's had a spectacular start to 2015. Year-to-date, this $20 billion semiconductor firm has rallied a whopping 37%. That huge run comes from Skyworks' attractive market positioning. SWKS makes analog chips used in everything from cell phones to avionics to defibrillators. The firm's biggest customers are in the mobile device market, an application that's particularly attractive thanks to mobile device growth and extremely short replacement cycles.
From a financial standpoint, Skyworks is in outstanding shape, with more than $1 billion in cash on its balance sheet and zero debt. That's enough available cash to pay for approximately 5% of SWKS' outstanding shares right now. Make no mistake, Skyworks isn't a bargain at current valuations, but it's warranted that premium price tag so far.
Earnings could be another important catalyst as shares test new highs this week. They hit at the end of the month.
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Nucor
Basic materials haven't been a particularly attractive place to park your money in recent years. Not even counting the plummet in oil prices, a rally in the U.S. dollar has been pressing down on other commodity prices, weighing on earnings for companies with exposure to them. That's been a challenge for Nucor (NUE - Get Report), the biggest steelmaker in the U.S.
Compared with its biggest peers, Nucor scales well. That's because it operates mini-mills running electric arc furnaces, which can output steel products at a significantly lower cost than conventional blast furnaces. The firm's production capacity of 27 million tons creates some big-scale advantages at Nucor, as does its low-cost scrap processing arm. Impressively, Nucor has only posted one annual loss in the last five decades, a fact that speaks to NUE's business structure.
Increased construction and infrastructure spending should be a boon to NUE in 2015. The firm's hefty exposure to the U.S. markets makes it cyclical, but we're heading into the lucrative side of the cycle right now. Nucor's earnings hit on April 23; with analyst expectations tempered by the macro factors at the start of the year, the firm is well positioned to post an earnings beat.
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Rackspace Hosting
There's no hotter buzzword in the tech sector than "the cloud" right now. There's good reason for that -- cloud computing has been growing at a breakneck pace in the last few years. And as firms throw cash at solutions to bring their data into the cloud, one of the biggest beneficiaries has been managed hosting provider Rackspace Hosting (RAX - Get Report).
In short, Rackspace helps its customers get their data in the cloud. The firm sells space on its servers, along with the infrastructure and know-how that keeps those servers online 24/7. By using Rackspace for their co-location and cloud storage needs, firms can save considerable money versus doing it all in-house. Beyond basic hosting, more niche cloud services now contribute a full third of RAX's revenues, even better, those more complex services come with fatter margins and higher customer retention.
Rackspace's customers run the gamut, but it has been particularly successful in courting small and medium businesses, whose projects lack the size to warrant full-time in-house hires to operate. Because more and more enterprise data and services are moving online, a rising tide is lifting all ships in the hosting space, particularly those with specialized and value-added offerings that RAX can provide.
This is another stock that's far from cheap, but it's been able to stay on investors' good sides in 2015, up more than 13% year-to-date. Expect that trajectory to continue in April.
Global Payments
Global Payments is a $6.6 billion payment processing firm that basically acts as a middleman between merchants and banking institutions, to enable credit card transactions. The business is built on collecting fees from merchants, plus a minuscule piece of each transaction GPN processes, which totaled more than $2.5 billion in revenues last year.
GPN has some big tailwinds at its back right now -- namely the global push toward electronic payments. While GPN has exposure to 29 countries, 70% of revenues still come from North America. But as developing economies dramatically increase their payment card usage, the firm is very well positioned in markets like Eastern Europe, Asia, and Brazil.
New innovations in mobile payments could accelerate the switch away from cash, especially as high-profile offerings (such as Apple Pay) aren't trying to replace existing payment card infrastructure -- just the consumer experience. With rising analyst sentiment in shares of GPN this week, we're betting on this Rocket Stock.
By Jonas Elmerraji
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