Last week's "5 Stocks to Watch" performed fairly well, as four of the five selections traded higher. For this week's edition, I am hoping to have continued success as I choose five stocks in five different industries that are all showing signs of a breakout higher. Each stock below is trading with a great deal of momentum yet range in company size and has seen a variety of different performance levels. With that said, let's get started and take a look at five stocks that could rally in the immediate future.
After Breaking $50 this Stock Looks Poised to Trade Higher
For what it's worth, I hate to be a fair-weather fan, but shares of Citigroup (C) are rocketing higher with a complete change in sentiment and I am starting to like it more than my long-time favorite Wells Fargo (WFC). Last week the stock exploded from $48.50 to a price over $51 and then pretty much hovered around new 52-week highs of $51.50 for the last three sessions. This is a company that has seen its valuation increase 94% over the last year, yet is still $11 short of its book value per share.
Here's the thing, people automatically look at Citigroup's performance over the last year and assume that the housing market boom is priced into the stock and that future gains will be minimal. Obviously, it has greatly outperformed the market over the last year. Yet if you look back since January 2011, the S&P 500 has outperformed Citigroup by three-fold! This is a company that was kept too cheap for way too long on fear and speculation; thus creating large gains.
Now, investors must account for the psychological importance of "10" for a stock trading at $51.50. It's no secret, if a stock's $2, then investors are more cautious every $0.50, when its $5, we place more importance on multiples of $1, and for a stock such as Citigroup, the psychological relevance of $50 is highly important (multiples of $10). With the stock surpassing this level and being fundamentally cheap, I wouldn't be surprised to see a push higher next week.
The Strength of the Economy Is Finally Trading Like It
As I said with Citigroup, there are certain levels of psychological importance that a stock must exceed. With Ford Motor Company (F), that price is undoubtedly $15. If you look at its chart, it hasn't seen $15 in over a year. The price of $15 puts Ford in a whole new level, psychologically, in the upper-echelon towards $20; leaving the $10-$15 range in its dust.
Aside from psychological or technical reasons that Ford could trade higher, the company is executing its business plan to near precision. On Friday it rallied more than 3% as consumer sentiment reached multi-year highs, which then bodes well for automakers; especially Ford with its fresh new product line. This is a company trading at just 10.25 times earnings with a price/sales of 0.42, and with a yield of 3%!
The company continues to produce solid growth in an industry that is among the few true strengths of our economy. Yet the problem has always been Europe, because although it posted gains of 52% in the last year, it has actually lost 8% of its value since January 2011 (compared to a 30% gain from S&P) as fears of European exposure have weighed heavily on its stock. During its last quarter, Europe showed some stability, and with the stock breaking $15, I think we could see strong demand for shares of this great company.
A Potential Breakout Past $100
The Boeing Company (BA) has rallied 41% in the last year, with 31% coming in 2013. The stock has exploded with market leading performance, due to its connection in the transportation sector, a space in which I am invested heavily. On Friday, Boeing closed with gains of 2.40% as it created new 52-week highs and is now fast approaching all-time highs over $100.00.
Boeing's uptrend has just about been continuous and has accelerated after crossing $95 earlier this month. Much like Citigroup and Ford showing levels of resistance, Boeing "could" experience trouble in crossing $100. However, the stock is very close at $98.92 and I think if it can exceed that level at any point next week, then it could breakout higher, like Cummins Inc. (CMI) late last year. The company is now delivering its 787s without any issues, and thus has the potential to create free cash-flow of $18 billion over the next few years. Right now, the company is clicking on all cylinders and is trending higher, therefore I expect it to continue.
This Stock is Just Warming Up
I chose Rite Aid (RAD) last week and it exploded with gains of 7% on Friday to create new 52-week highs. As I've said on "countless occasions," this is just the beginning of this stock's rally: It is simply too cheap! Over the last month, Rite Aid has followed a pattern where it would create new highs (by about $0.01-$0.03) and then pullback. But on Friday, it reached $2.80, which was $0.12 higher than its previous high, meaning this move had momentum and authority behind it. As a result, I expect a very rapid push higher towards $3.00 in the next leg of this momentum stock.
Chances are you've read one of my Rite Aid articles, and are fully aware of the story I'm telling. However, in case you have not, I bought the stock at $1.20 after its first quarterly profit and have been bullish ever since. This is a company that is trading at just 0.09 times sales, which is 5-6 times cheaper than competitors Walgreen and CVS. It is now profitable after years of inefficiency, and I think that because it is becoming more efficient, we will see a continuous trend higher until the stock trades at a multiple that is fairly valued compared to its industry (which I believe is around $7). Therefore, with it breaking out to $2.80, and with high margin generics continuing to overload its shelves, I'd watch next week for a $0.20 move higher; and then even further gains throughout the year.
An Unknown Small Cap Growth Stock to Consider
Bonanza Creek Energy (BCEI) is a company that I have never covered on Seeking Alpha, but disclosed buying twice this year, including a large position after the company posted Q1 earnings earlier this month. It is an energy company, one that is growing rapidly and is undervalued. The stock illogically traded lower after posting Q1 earnings, a quarter where it grew revenue by 64% and saw a 76% rise in sales volume.
Looking ahead, the company is projecting production growth of 60% in 2013, meanwhile trades at just 11.50 times next year's earnings with a price times next year's sales of 3.70. Therefore, it should come as no surprise that the stock has recovered rapidly since its post-earnings drop. The stock has traded higher by 182% since its IPO in December 2011, and has always created new highs once an uptrend is created. The stock is now $4 from new highs, after its 7% gain last week. With the stock being so cheap, and the company growing so fast, I anticipate yet another new high in the immediate future.
Every week I remind readers that I am not a technical short-term trader, but rather a situational value investor, meaning I invest in companies that present value for undisclosed periods of time. In these weekly articles, I choose stocks that I believe are presenting value, but it's hard to determine "when" a stock will rise. Hence value investors make the majority of their money by being patient. With that said, I can't call the precise day of a breakout, but in the case of these five stocks, all are cheap and are trading in a manner that suggests momentum and a positive sentiment; which usually indicates short-term gains.