5 Rocket Stocks to Pick Up for Fall Gains

These stocks have both short-term gain catalysts and longer-term growth potential.
By Jonas Elmerraji ,

Global financial markets are beginning the week on an anxious note, following Friday's cowardly terror attacks in Paris.

Already, the big market averages aren't coming from a particularly strong position. The big S&P 500 index, for example, gave back nearly 2.7% last week, with 440 individual components ending the week lower than they started. That's some pretty one-sided price action. And between the headline risk from last week and the headline risk from this week's Fed meeting minutes, November is becoming a challenging environment for investors.

But that doesn't mean that you should sit out this fall. The counterpoint to last week's correction in stocks was the fact that dozens of large-cap names actually managed to rally in the face of lots of pressure to the downside. So to make the most of a tough market, 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 324 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 77.88%.

Without further ado, here's a look at this week's Rocket Stocks.

Microsoft

Up first on the list is $422 billion tech giant Microsoft (MSFT) - Get Report . Microsoft has been a strong performer so far in 2015, paying out total returns of just over 16%. For comparison, the S&P has shed about 1.7% of its market value over that same stretch. And there's reason to expect more upside ahead from Microsoft, as shares sit within grabbing distance of all-time highs for the first time in more than a decade.

Microsoft is the incumbent in the computer software business. The firm's Windows operating system and Office productivity suite are its big cash cows, providing the lion's share of the company's profits. And while those businesses have historically subsidized Microsoft's other business ventures, particularly on the consumer side, a shift to focus more revenue opportunities "in the cloud" is creating real growth opportunities at Microsoft and getting investors invigorated again.

Financially speaking, Microsoft remains in excellent shape, with approximately $72 billion in net cash and investments. That's enough to pay for about 17% of Microsoft's market capitalization at current levels and is a big risk reducer right now.

With buyers clearly in control of Microsoft's momentum in November, we're betting on shares.

BlackRock

Bigger is better -- at least when it comes to the asset management business -- and that's a very good thing for $56 billion investment manager BlackRock (BLK) - Get Report . BlackRock is the biggest money manager in the world, with more than $4.5 trillion in assets under management, a scale that gives the firm the ability to spread costs across a much wider pile of assets and outcompete on fees. That's exactly what the firm is doing now with its iShares Core ETFs, which saw fee cuts last week.

Historically -- that is, pre-financial crisis -- BlackRock has been considered a fixed income shop. While fixed income assets have dipped to just 32% of total assets following some big acquisitions, a potential return to a higher rate environment bodes well for that side of the business, where BlackRock has a standout reputation. There's something to be said about the nearly 50% of assets that are currently in equities too. With the broad market heading into year eight of a bull run, rising equity prices have boosted the asset base that BlackRock is able to earn management fees on.

The introduction of "robo-advisors" is probably a strong trend for BlackRock. The firm's big exposure to the ETF world means that it'll generate fund growth even as conventional retail-facing advisers see their businesses shrink. That said, a return to more risk-taking among investors would be a major boon to BlackRock. Actively managed funds provide a much bigger share of fees than the more conservative passive funds that currently make up the majority of AUM.

Investors get their next update on BlackRock's financials in the new year. Meanwhile, the uptrend from October's lows remains intact.

Southwest Airlines

At a glance, it doesn't look like Southwest Airlines (LUV) - Get Report  has done much in 2015 -- shares are up mid-single digits since January. But shift your timeframe a bit, and Southwest's momentum story suddenly starts to look very impressive: between the beginning of July and today, this $30 billion air carrier has seen its shares rally more than 40%.

Southwest is the leading low-cost carrier, operating a point-to-point route network that reaches nearly 100 destinations. That niche focus has paid off for the company. Measured by passenger volume, Southwest was the No. 2 airline on the planet last year. In an industry that's notorious for is cyclical nature, Southwest also holds the distinction of generating positive operating profits for the last four straight decades. With low oil prices and the decision not to hedge jet fuel costs, Southwest is well-positioned to take full advantage of an industry that's rallying off of a cyclical low.

Southwest has been expanding its route menu, adding more lucrative vacation destinations such as Hawaii, Cancun and Cabo. International and long-haul routes are among the most profitable and supply constrained, and they should help boost LUV's margins in a meaningful way in 2016.

Southwest is cents away from all-time highs heading into this week, and that makes it a strong way to play momentum in this environment.

Laboratory Corp. of America

If you've had to get blood drawn or take a drug test in the last few years, you may have visited one of the 1,700 locations of Laboratory Corp. of America (LH) - Get Report . LabCorp is the No. 2 independent clinical lab chain in the country, providing scores of testing products for patients, physicians, and employers.

LabCorp benefits from the network effect. With one of the largest lab networks in the country, the firm is able to benefit from patient proximity. Doctors are likely to refer patients to whichever lab is most convenient, so big firms like LabCorp tend to win out. More recently, the firm has been working to expand its moat beyond its geographic footprint, offering newer and more advanced testing products that competitors don't have. The firm's growth-by-acquisition strategy has been a cost-effective way to expand that testing menu in the past.

Another way to get an edge in the diagnostic testing market is by getting test results to doctors in the most convenient way possible. The firm's Beacon software does that, although it's not alone in offering medical professionals online access to test results. While medical reforms in the U.S. still challenge some of LabCorp's profitability on more routine tests, the firm has fewer low-margin contracts than its big rival, Quest Diagnostics (DGX) - Get Report .

With rising analyst expectations in shares of LabCorp this week, we're betting on shares.

United Rentals

Last up on our list of Rocket Stocks is United Rentals (URI) - Get Report . United Rentals is one of the biggest equipment rental chains in the U.S. and Canada, with more than 830 locations across North America. In a nutshell, United Rentals' business is built on helping industrial and commercial customers stay flexible with their capital spending. The firm provides much-needed equipment capacity without the huge capital costs of leaving a forklift sitting idle in the corner of a warehouse for 10 months out of the year.

That's a business that's only going to become more valuable in a rising rate environment. While low rates have made it easier to justify spending more on equipment at extremely low rates, higher costs of capital make any firms on the fence more likely to rent from United Rentals and its peers.

United Rentals' focus on courting specific niche operators' need for specific tools should help it maintain a leg up on other equipment rental operators. Even though the recent weakness in the oil industry has hurt United Rentals' big focus on providing oilfield equipment, energy sector rentals have been turning higher again as operators look to produce cash flow from wells even at these lower prices.

The potential catalyst of higher rates could help right the ship at United Rentals this fall.

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

Loading ...