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Rocket Stocks: Yum!, Costco, Travelers

From a financial perspective, Yum is an attractive stock. The company sports manageable debt numbers and strong, steady cash flows and enviable net margins. For those reasons, the firm's dividend payout (currently 25 cents per share quarterly) has attracted income investors as well as growth-seekers. While a 48% rally in the last year hasn't made this stock a value play any more, there's still considerable upside potential in Yum! Brands right now.

Costco Wholesale (COST - Get Report) has long been the leader in the club store business model. With average store sales of $135 million per club in 2009, the firm's locations generate nearly twice the revenues per square-foot that Wal-Mart's (WMT) Sam's Club does.

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Much of that success comes from the products that Costco focuses on. The store chain moves a significantly higher volume of big-ticket items, which are more accretive to top-line numbers than smaller items are, and often benefit from higher margins for the store as well.

Costco's key to growth right now is increased spending among U.S. consumers. While the recession has proven difficult for the retailer, the cost efficiencies of buying in bulk and recurring membership fees have at least insulated the firm from seeing its sales freeze. As consumers continue to lose their aversion to parting with cash, Costco should ultimately be a major beneficiary.

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Though crucial, U.S. consumers aren't the only group Costco is betting on for growth. The company is also ramping up its international presence, particularly in Asia and Australia, where economic headwinds aren't as strong, and the club store model intrigues consumers. We're betting on Costco ahead of the company's Dec. 9 earnings call.

As one of the biggest international insurers, Minnesota-based Travelers (TRV - Get Report) saw its share of downside risk in 2008. But this year, shareholders are being rewarded for their patience thanks to double-digit year-to-date capital gains and a respectable dividend payout.

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Travelers was one of the few high-market-exposure financial industry stocks to ultimately record a profit for 2008, a testament to the firm's risk-management abilities. Like other insurers, Travelers is responsible for investing the substantial number of assets it's required to maintain in order to pay out potential claims. While competitors sought to earn outsized profits by making riskier bets, Travelers was able to avoid the temptation of high returns and focus on its core insurance business.
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