Despite that drop in stocks catching investors by surprise, the fact that interest rates are being held steady does create some upside opportunities in the big-name stocks. To grab on to the stocks likely to see upside this week, we're taking a look at five Rocket Stocks worth buying after the Fed decision.
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 316 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 77.9%.
Without further ado, here's a look at this week's Rocket Stocks.
Apple
Up first on our list this week is Apple (AAPL - Get Report) . Apple has spent most of 2015 trading sideways, churning after what was a pretty constructive 2014 for investors. But it's a mistake to think that the stock has peaked at this point.
Shares are trading at a hefty discount today, particularly relative to the rest of the tech sector. And a slew of new products hitting the market in time for the holiday sales should fuel top-line growth at the world's biggest consumer electronics company.
Shares are trading at a hefty discount today, particularly relative to the rest of the tech sector. And a slew of new products hitting the market in time for the holiday sales should fuel top-line growth at the world's biggest consumer electronics company.
Apple needs little in the way of an introduction. The firm is an absolute giant in the tech sector. Apple is the company behind the super-popular iPhone and iPad lines of handheld devices, as well as the Macintosh computer. In a time when rivals are competing with paper-thin margins, Apple has been leveraging its tightly integrated hardware and software to collect the majority of the industry's profits.
That's no small feat. For instance, owning the hardware and software means that Apple can squeeze better performance out of lesser specs than competing hardware. Likewise, high levels of interoperability between devices and sunk costs in app purchases help to encourage loyalty.
That's no small feat. For instance, owning the hardware and software means that Apple can squeeze better performance out of lesser specs than competing hardware. Likewise, high levels of interoperability between devices and sunk costs in app purchases help to encourage loyalty.
Say what you will about Apple's recent product launches, the firm has a spectacular track record of executing. Apple carries nearly $150 billion in net cash and investments on its balance sheet, enough to cover nearly 24% of its very hefty market capitalization at current price levels. That means, ex-cash, Apple trades for a P/E multiple of just 9.9-times earnings today. Compared with peers, that's a huge discount at current valuations. And as Apple continues to execute well in 2015, its share price is going to need to start catching up with its performance once again.
With rising analyst sentiment in shares of Apple here, we're betting on this Rocket Stock this week.
With rising analyst sentiment in shares of Apple here, we're betting on this Rocket Stock this week.
Johnson & Johnson
We're sliding down the market capitalization spectrum -- but not by much. Mega-cap health care stock Johnson & Johnson (JNJ - Get Report) secures the No. 2 spot on our Rocket Stocks list this week. Here's why this blue-chip darling deserves to be on your buy list this week.
Johnson & Johnson is the biggest health care stock in the world, with major consumer brands such as Band-Aid, Tylenol, Neutrogena and Acuvue under its belt. But it's Johnson's non-consumer pharmaceutical and medical device units that are the real revenue drivers for J&J.
That split between consumer products, medical devices and pharmaceuticals does make Johnson a unique stock in the healthcare sector. It also helps to diversify the firm's income statement, spreading risk across a broader range of businesses than most peers and giving the firm less exposure to patent losses.
Johnson & Johnson is the biggest health care stock in the world, with major consumer brands such as Band-Aid, Tylenol, Neutrogena and Acuvue under its belt. But it's Johnson's non-consumer pharmaceutical and medical device units that are the real revenue drivers for J&J.
That split between consumer products, medical devices and pharmaceuticals does make Johnson a unique stock in the healthcare sector. It also helps to diversify the firm's income statement, spreading risk across a broader range of businesses than most peers and giving the firm less exposure to patent losses.
J&J generates significant cash flows, which the firm is able to reinvest in its product lines and hand back to investors. That big cash-generation capability is a big part of why Johnson & Johnson currently pays out a 3.2% dividend yield at current levels. While shares have been under pressure alongside the rest of the market this year, J&J is starting to carve out a bottom from a technical standpoint, setting shares to outperform this week.
Looking longer-term, we'll get out next update on Johnson & Johnson's performance four weeks from now, when the firm reports third-quarter performance numbers.
Looking longer-term, we'll get out next update on Johnson & Johnson's performance four weeks from now, when the firm reports third-quarter performance numbers.
Carnival
Cruise ship operator Carnival (CCL - Get Report) continues to have a strong year in 2015. Carnival is the biggest company in the cruise business, with 10 brands spanning approximately 100 ships globally. The firm's banners include names such as Carnival, Holland America, Princess and Cunard lines, among others.
Scale matters in the capital-intense cruise business, and Carnival's scale is second-to-none. This year, the firm expects to serve more than 10 million vacationers.
Scale matters in the capital-intense cruise business, and Carnival's scale is second-to-none. This year, the firm expects to serve more than 10 million vacationers.
Tumbling oil prices have been one obvious positive for the cruise industry. As fuel prices plummet, so too do one of Carnivals' biggest operating costs. Likewise, there's a big demographic story at play in the cruise business: While the appeal of cruising has been becoming broader in recent years, it's still especially popular among older consumers. An aging population of cruise-hungry baby boomers should continue to boost demand for cruises as they hit retirement age.
That trend is extending beyond Carnival's core Western demographic too. In recent years, Carnival has been moving ships to Asia, where growing middle class populations in emerging markets such as China are traveling like never before. About half of China's million expected cruise ship passengers in 2015 will sail on a ship owned by Carnival -- that's a huge position in a nascent market.
Look for Carnival to capitalize on lower costs in the final stretch of 2015.
Look for Carnival to capitalize on lower costs in the final stretch of 2015.
Realty Income
O data by YChartsWe're piggybacking on the success of $11 billion real estate investment trust Realty Income (O - Get Report) today and giving this big commercial landlord a spot on our Rocket Stocks list for a second straight Monday. Realty Income was one of the best ways to play the lack of a rate last week, rallying 5.4% between last Monday's open and Friday's close. And today, we're betting on that momentum to carry over into this week.
Realty Income is one of the biggest real estate investment trusts in the country, with ownership positions in nearly 4,400 properties in 49 states and Puerto Rico. The firm's portfolio is primarily made up of free-standing single-tenant commercial properties.
But the key word for this large-cap REIT is "income." The firm rents its properties on a triple-net basis, which means that tenants are on the hook for insurance, maintenance, and taxes. In exchange, Realty Income collects a predictable rent check, which provides a high level of stability over the firm's hefty 4.8% dividend payout.
But the key word for this large-cap REIT is "income." The firm rents its properties on a triple-net basis, which means that tenants are on the hook for insurance, maintenance, and taxes. In exchange, Realty Income collects a predictable rent check, which provides a high level of stability over the firm's hefty 4.8% dividend payout.
Flat interest rates are a very good thing for REITs such as Realty Income, which become more attractive when they boast a higher relative yield than the rest of the market. Likewise, low rates are good for Realty Income because they mean that the debt service on the firm's $5.3 billion debt load remains low.
That's a double whammy of good news for investors in this stock as we head towards the end of September -- and investors are paying attention now.
That's a double whammy of good news for investors in this stock as we head towards the end of September -- and investors are paying attention now.
AutoZone
Last up on our Rocket Stocks list is AutoZone (AZO - Get Report) , another big-name stock with a big macro story behind its price action. AutoZone has enjoyed some solid buying pressure in 2015, rallying more than 17% since the calendar flipped over to January. And that momentum isn't showing any signs of slowing down as we inch closer to the start of the fourth quarter.
AutoZone is the biggest auto parts retailer in the world, with more than 5,390 locations spread across the U.S. and Mexico, plus a smaller footprint in Brazil. About 70% of the firm's locations also include commercial centers, which provide parts sourcing for independent auto shops, dealers and other professionals.
Older cars have been a major macro trend at AutoZone in recent years. The median age of a car on the road in the U.S. is 11.4 years, the oldest it's ever been. So as consumers work to extend the lives of their automobiles, AutoZone is well-positioned to benefit.
Older cars have been a major macro trend at AutoZone in recent years. The median age of a car on the road in the U.S. is 11.4 years, the oldest it's ever been. So as consumers work to extend the lives of their automobiles, AutoZone is well-positioned to benefit.
Most of AutoZone's sales are to consumers, rather than wholesale customers. While many analysts see that as a negative, the fact that the vast majority of AutoZone's sales are to higher-margin customers (rather than high-volume, low-margin shops) isn't a bad thing at all. Instead, this retail stock should continue to produce net profit margins in excess of 10% in the quarters ahead, leaving other retail competitors in its dust.
With rising analyst sentiment in AutoZone, we're betting on shares this week.
With rising analyst sentiment in AutoZone, we're betting on shares this week.
By Jonas Elmerraji
Source: http://www.thestreet.com/story/13295311/1/5-rocket-stocks-to-buy-now.html?kval=dontmiss
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