5 Rocket Stocks to Buy as Stocks Sell Off

BALTIMORE (Stockpickr) --Well, the worst week for stocks since November 2008 is finally over, but that doesn't mean that the selling is.

Watching last week's 7.19% slide in the S&P 500 was a lot like watching a train wreck; even when the selloff seemed over, it still had more to go. The selling officially shoved the S&P 500 into negative territory for 2011, a major psychological blow for investors who've been holding out for higher ground. Let's not forget that just a few weeks ago, major indices were taking a stab at multi-year highs -- today, we're breaking records in selling and volatility.

Standard & Poor's downgrade of the U.S.'s AAA credit rating is bound to be the biggest driver of the equity markets as a new week kicks off. While the potential for a downgrade to AA+ had already been priced into stocks, some knee-jerk reaction from investors should be expected this week. We're already seeing it take shape early in today's trading.

Related: 2 Pair Trades for a Volatile Market

That doesn't necessarily mean that you should step away from stocks right now. We've got the recipe for outsized gains right now: it's all about the Rocket Stocks.

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 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.

It's a strategy that's been working out pretty well. In the last 115 weeks, Rocket Stocks have outperformed the S&P 500 by a very material 78.9%.

With that, here's a look at this week's Rocket Stocks.

McDonald's

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The first stock this week is actually a holdover from last week: fast food giant McDonald's ( MCD). McDonald's earned its stripes as a best-in-breed selloff stock back in 2008 when shares pushed higher in spite of a broad market selloff. Today, this stock is showing similar relative strength, with shares only giving back 1.62% amid last week's selling.

McDonald's makes sense as a recession-resistant name. For starters, the company's market position is absolutely unmatched both domestically and abroad, and the company works hard to defend its position as the No. 1 fast food name. Innovative new offerings such as the McCafe concept and the Big Mac Snack Wrap are pulling in repeat customers -- and doing so at heftier margin premiums.

Another factor in McDonald's recession defenses is the company's belief that cash is king. McDonald's generates substantial recurring cash flows from its franchisees, cash that the firm uses to pay out a nearly 3% dividend as well as repurchase treasury shares, two actions that directly add shareholder value. Skittish investors should be looking for stability in McDonald's name this week.

McDonald's, one of Cramer's Default Preparation Stocks, was also recently highlighted in " 5 Blue-Chips to Ride Out a Double-Dip."

Johnson & Johnson

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Johnson & Johnson ( JNJ) is one of the largest health care products companies in the world. The $170 billion firm manufactures everything from popular consumer products (think Band-Aids and Tylenol) to major pharmaceuticals. With an attractive drug pipeline in tow, and some of the world's most successful consumer healthcare brands under its belt, Johnson & Johnson looks primed to outperform the rest of the broad market this week.

While many pharmaceutical firms eschewed their consumer products businesses in recent years, Johnson & Johnson stuck to its core competencies, buying up consumer health care operations from big pharma peers who were looking to stick with prescription drugs. As a result, JNJ's consumer business is unmatched in 2011. The company's pharmaceutical arm is no slouch either, with a mature pipeline of drugs and comparatively limited patent concerns in the next few years (the worst patent expirations have already come).

Like McDonald's, Johnson & Johnson is a cash flow machine. The firm's free cash flow currently rings in at nearly 20% of revenues, a lofty number that supports JNJ's 3.64% dividend yield. And unlike the U.S. government, Johnson & Johnson still holds S&P's AAA credit rating.

Johnson & Johnson, one of Warren Buffett's top 10 dividend stocks, shows up on a list of 6 Low-Volatility Stocks in a Rising Volatility Environment.

Visa

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As rough as the stock market has been lately, 2011 has still been a solid year for shareholders in payment processing giant Visa ( V). The firm's stock price has rallied more than 18% since the first trading day of January. Even though consumers are being pressured in both the U.S. and Europe, Visa's dominance in the electronic payment business should ensure that the firm continues to perform as a high level.

Visa is currently the league leader in the credit and debit card game, with its logo on more than 60% of the world's payment cards. That exposure to the credit card business doesn't mean that Visa's balance sheet is exposed to credit risk, however. While the company processes payments over its network, third parties actually issue the cards.

Because of that, Visa's primary driver for growth is actually the proliferation of electronic payments, not increased consumer debt. That means that even as credit card use declined in late 2008, Visa's dominance over the debit card market still meant dollar volume growth for the company's transactions.

While this company is more exposed to consumer spending than most, investors need to remember that a considerable chunk of consumer spending is inelastic to recessionary headwinds. In other words, people still need to buy groceries and gas when the market's moving lower. With analysts liking Visa this week, we're betting on shares.

Visa shows up on a recent list of 8 Top-Rated Stocks to Buy.

Baxter International

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Another health care name we're looking at this week is Baxter International ( BAX), a giant in the medical delivery market, where the firm specializes in injectable therapies. Baxter is also a significant developer of treatments for renal and immune system diseases.

Baxter's combination of pharmaceuticals and medical devices insulates the firm from the typical patent concerns faced by a pharma firm, and adds significant profit margin potential not seen by a medical device firm. While combining those two businesses is far from a unique idea, Baxter's execution is excellent.

International expansion in emerging markets is the growth avenue that Baxter is pushing for right now. Because the firm already has successful product lines in place, bringing its offerings overseas is likely the path of least resistance toward meaningful growth in 2011.

This week, it's time to get behind shares with analyst sentiment in Baxter on the upswing.

Baxter is also one of the top-yielding health services stocks.

Deere

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Agricultural and construction equipment maker Deere ( DE) is also benefitting from a push to expand its offerings to emerging markets. As infrastructure needs expand alongside agricultural demand in countries such as China, India and Russia, Deere's brand recognition and product lineup make it a major contender for a share of those attractive markets.

Even though Deere struggled in 2008 as sales slumped and the firm's credit arm came suddenly looked riskier, the company bounced back just as quickly as emerging market sales started to flow in. Investors shouldn't underestimate the importance of that business right now.

Farming and construction equipment has changed immeasurably over the course of the last few decades, and Deere's commitment to embrace new technologies (such as precision GPS-driven driving) should help keep the company in the top spot on its home turf as well. After all, North American sales still account for two-thirds of Deere's total revenues. Even as that percentage shifts, North America remains a highly lucrative (and competitive) battleground for Deere and its competitors.

A strong balance sheet should help to mitigate any recessionary headwinds from taking a bite of Deere's business. So should soft commodity prices, which have been on the upswing for the last couple of years. As farmers' crops yield more cash in the marketplace, Deere should continue to do well.

Deere shows up on a recent list of Jim Cramer's Long-Term-Trend Stocks.

To see all of this week's Rocket Stocks in action, check out the Rocket Stocks portfolio at Stockpickr.

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At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.

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