Buy These 5 Big Stocks for Summertime Gains

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

July is kicking off in "rebound mode," after U.S. markets spent the last week performing an about-face following the Brexit-fueled selloff at the end of the week before.

All told, the S&P 500 climbed 3.2% higher in the last five trading sessions, recovering almost entirely from the Eurozone-induced selling. As I write, the S&P is sitting just 1.5% shy of all-time highs, putting the market back within grabbing distance of record levels this summer.

Of course, not all stocks look positioned to profit in July - to figure out where you should be investing, we're turning to a fresh set of "Rocket Stocks" worth buying 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 356 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 80.59%.

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

Illinois Tool Works

Up first on our list of Rocket Stocks is $38 billion industrial conglomerate Illinois Tool Works (ITW) - Get Report . ITW is having a banner year in 2016, up more than 13% since the calendar flipped to January, and outperforming the S&P's barely 3% price appreciation by a huge margin. ITW could have even further to move in the second half of this year.

Illinois Tool Works owns a large collection of industrial brands, along with a few notable consumer names; its brands include Sub-Zero and Wolf appliances, Rain-X and Zip-Pak. ITW has been shedding extra businesses in recent years -- while the firm had approximately 800 individual divisions just a few years ago, it's down to 90 of its more profitable today. That honing in on the best of ITW's business shows that management is willing to take a revenue haircut in exchange for a stronger business.

Autonomy has been a critical piece of ITW's success in the past. Historically, managers of all of the firm's units have been given the freedom to run things as they see fit. More recently, though, ITW has been clamping down on costs, consolidating some functions in recent quarters by minimizing duplication of roles like HR and accounting, and gaining leverage in sourcing raw materials. That change should help margins without encroaching too closely on the management freedom that's made this stock successful in the past.

From here, investors should keep an eye out for second quarter earnings, set to hit Wall Street later this month.

Dollar General

$26 billion discount retailer Dollar General (DG) - Get Report  is another stock that's having a blockbuster year in 2016. Year-to-date, Dollar General's shares are more than 30% higher than they started. And as shares kick off the week just below all-time highs, there could be a lot more upside where that came from.

Dollar General is one of the biggest retailers in the U.S., with nearly 12,500 locations in 40 states. As the name implies, Dollar General's business is built around low-cost merchandise at dramatic volumes. When nearly everything in your store costs less than $10, margin discipline is truly critical, and Dollar General has historically done an excellent job of posting attractive returns, converting a higher chunk of revenues into profits than the likes of Wal-Mart (WMT) - Get Report  or Target (TGT) - Get Report , for instance. Dollar General achieves that high level of profitability through a combination of private label brands, expert distribution and lean operations.

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Despite Dollar General's huge store footprint, there's still considerable room for growth here. Management has said in the past that they believe the firm's store count could more than double from here without threatening saturation. Likewise, the firm's cost discipline extends to opening new stores, where relatively small investments can yield profitable locations.

While larger, more mainstream retail rivals will likely increase their pressure on niche players such as Dollar General, DG's best-in-breed operations give it an advantage that investors shouldn't ignore in 2016.

Under Armour

Under Armour (UA) - Get Report  has built a successful business by taking on the incumbents in the hugely competitive athletic apparel business. Now the firm is the growth name in the niche, and it's got a valuation to go with that reputation. Despite the premium price tag shares trade for in 2016, buyers are still clearly in control of the price action in this stock right now.

Under Armour sells everything from clothing to shoes to sunglasses through a network of 191 company-owned stores, an online channel and thousands of other brick-and-mortar retailers. While much larger rivals like Nike (NKE) - Get Report  have struggled to find meaningful growth rates globally, Under Armour has been taking market share from them, competing with much larger companies in a space that's historically been viewed as impossible to break into.

Today, Under Armour is taking its performance-oriented branding, and applied it to other lucrative niches - for instance, the firm's launch of golf and hunting lines in recent years gives it substantial growth potential in the quarters ahead. Recent big investments in technology, like the purchase of MyFitnessPal last year, should continue to make their ways into products, giving Under Armour an "ecosystem effect" that keeps consumers buying products within its lineup.

Coach

After an awful run in 2015, shares of luxury accessory maker Coach (COH)  have finally found their footing again this year. Since January, this $11 billion stock has rallied nearly 25%, leaving the broad market in its dust. And this Rocket Stock's rebound isn't showing any signs of fading in the second half of the year.

Coach is known for its luxury handbag business, but the firm has been putting more resources into other categories more recently, in an effort to leverage its luxury branding across bigger markets. Coach's positioning targets mass-affluent consumers -- the firm's products are high-end, but generally priced below true "couture" brands that court much higher price points. That conscious decision to find its core market in the middle class is one reason why Coach was a standout performer in the wake of the financial crisis of 2008, and why it continues to do well despite market anxiety globally right now. Most important, Coach has been able to hold onto its brand cachet without needing to charge prices found on the higher-end of the spectrum.

Internationally, Coach still lags its competitors. That's actually been a somewhat attractive thing lately, as Coach has simultaneously avoided the drag-effects of a very strong dollar while also retaining significant revenue growth potential if and when it finally pulls the trigger on more meaningful international expansion. Coach's biggest ex-North American market right now is Japan, a space where recent strength in the yen has actually been a net positive for the firm.

Look for the bullish momentum to continue as Coach takes advantage of growth prospects in newer categories like menswear and footwear.

Equifax

Rounding out our list of Rocket Stocks is Equifax (EFX) - Get Report . Even if you've never taken a look at Equifax's financial statements, there's a very good chance they've already seen yours -- that's because Equifax collects and analyzes credit data on more than 800 million consumers and 88 million businesses around the world. That huge store of data makes Equifax the number one operator in the U.S. market, and tops in almost every other country that it operates in.

Equifax is enjoying massive tailwinds from the push to use "big data" for more applications. Not long ago, credit data was only used to make lending decisions. Today, however, it's also used by insurance underwriters, employers, property management firms and scores of other applications where organizations are trying to quantify risk. Equifax's business also scales well in emerging markets, where consumer debt is becoming an increasingly popular tool for burgeoning populations of middle class consumers.

The core of Equifax's assets are its credit databases, of course. Those databases are relatively low-cost to maintain, yet incredibly difficult to replicate, making it far easier for other firms to simply license Equifax's data rather than attempt to create their own databases. Even better, credit bureau use is rarely mutually exclusive, meaning that even if a customer pulls data from a rival credit bureau, they'll probably still pay to pull it from Equifax too.

With rising analyst sentiment in this data stock, we're betting on shares this week.

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

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