5 Rocket Stocks Ready to Launch Higher

BALTIMORE ( Stockpickr) -- Last Monday's market misstep -- the largest down day of 2012 -- proved to be less a catastrophe for investors than many expected. Instead, Mr. Market rallied to close the week off, leaving the S&P 500 sitting 0.09% higher by Friday's closing bell.

Even though most investors are shrugging off the selling this week, it's important to pay attention to the cues that came with it.

For starters, last week reminded us that there's still a lot of investor anxiety in the market. That's something that's been indicated by treasury levels for the last few months. In a strong market, we'd expect Treasuries to pull back while stocks rallied. Since Treasuries are still at high levels, it tells us that investors are still loath to part with the security of treasuries right now.

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There is a positive side to that anxiety, though. Because there's a ton of cash in treasuries right now, we know that there's plenty of capital ready to be shoveled into stocks once investors become more confident in this rally. All of that dry powder could keep propelling stocks for a long time in 2012 -- especially if fundamentals continue to justify higher share prices.

To take advantage of that trend, we're turning to a brand new set of Rocket Stock names 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 143 weeks, our weekly list of five plays has outperformed the S&P 500 by 82.66%.

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

Home Depot

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Home improvement retailer Home Depot ( HD) is having a strong year in 2012. Already year-to-date, the firm has seen its shares rally more than 14%, besting the S&P's performance by more than a third. And there's reason to believe that this Atlanta-based firm could offer investors more of the same for the rest of the year.

Home Depot is the largest home improvement chain in the world, with 2,250 stores spread across all three countries in North America as well as China. Investors' concerns that Home Depot's fortunes were tied to the housing market proved to be overblown in the wake of the recession, leaving the firm with an opportunity to restructure its debt and improve its supply chain. Strong home improvement spending has provided HD with an attractive tailwind in the past few years, and this stock has made repeat performances on our Rocket Stocks list as a result.

Overly aggressive growth was Home Depot's biggest problem in the last few years -- and management learned important lessons as a result. Going forward, the firm should be able to avoid repeating history while growing its geographic footprint more cautiously. Exposure to emerging market countries such as China should provide organic growth while the firm continues to enhance its operations stateside.

A 2.41% dividend yield --it's one of the highest-yielding retail stocks -- should keep investors interested in the meantime.

Home Depot, one of D.E. Shaw's top holdings, shows up on a list of Consumer Discretionary Stocks Bought and Sold by Hedge Funds for the most recently reported quarter.

Lockheed Martin

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As the largest defense contractor in the world, there have been some big black clouds hanging over Lockheed Martin's ( LMT) head. Investors are concerned that the $29 billion firm could see its revenues decline in the face of a defense department budget cut. Thus far, though, those worries haven't panned out. Still, LMT has been preparing for them.

For the last few years, Lockheed has been building out its IT services arm, looking to fill contracts with other government agencies and diversify away from its reliance on the defense budget. While revenue diversification is always welcome, the mission-critical nature of Lockheed's fighter jets and weapons systems should spare the firm from the brunt of the cuts. So should international exposure. Lockheed has consistently been allowed to sell to our allies, diversifying its sales away from Uncle Sam's pocket book.

Lockheed is in strong financial health right now, with strong cash generation abilities and a very attractive 4.5% dividend yield (it's one of the top-yielding aerospace and defense stocks). While retirement costs are likely to eat into the firm's margins over the next several years, it shouldn't threaten profitability in a meaningful way.

With analyst sentiment on the upswing for Lockheed, we're betting on shares this week.

Lockheed was also recently featured in " 7 Dividend Stocks Promising Growth and Protection."

Mattel

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It's all fun and games for Mattel ( MAT) shareholders in 2012. So far this year, shares of the toy maker have rallied more than 20%, doubling the already impressive gains that are being doled out by the broad market. And the world's biggest toy maker may still have a few more tricks up its sleeve this year.

Mattel owns an impressive portfolio of toy brands, ranging from Barbie to Fisher-Price and Hot Wheels. The firm also has licenses to produce toys under popular franchises such as Batman, Disney and Dora the Explorer. The combination of the firm's own portfolio of established brands and attractive licenses means that Mattel is able to keep its offerings front-of-mind for parents and secure attractive space on retail shelves.

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Financially, Mattel is in solid shape. The firm has what's effectively a debt-neutral balance sheet, with long-term debt almost fully covered by cash on hand. The firm enjoys deep margins and throws off considerable cash from its operations -- both of those factors help to support another impressive dividend payout in this stock.

While Mattel is essentially a pure play on consumer spending, the rising tide in consumer spending numbers should continue to lift shares in 2012.

Mattel is also one of the top-yielding consumer durables stocks.

Intuitive Surgical

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Medical device maker Intuitive Surgical ( ISRG) develops robotics used to perform minimally invasive surgeries. The firm's da Vinci platform is used in more than 2,000 hospitals by surgeons who wouldn't otherwise be able to perform the same functions by hand.

Robotic surgery means smaller incisions and quicker recovery times, factors that both doctors and patients want. As the league leader in its niche, ISRG is putting plenty of ground between it and potential rivals.

One of ISRG's biggest advantages is its massive installed base. With da Vinci systems at more than 2,000 facilities, the company is able to earn revenues by selling disposable instruments and upgrades, and its economic moat increases when surgeons invest time into learning how to use the da Vinci. A robust patent portfolio should mean that if rivals want to attract doctors familiar with the da Vinci system's operations, they'll need to license the technology from ISRG.

Intuitive's attractive financial position comes from a strong cash position and zero debt. That wherewithal should help smooth out economic headwinds if hospitals are reluctant to invest in pricey robotic surgery systems for extended periods. That certainly doesn't seem to be a problem for the firm right now, though.

Intuitive Surgical, one of the Top 10 Stocks of the Past Decade, shows up on a list of Health Care Stocks Bought and Sold by Hedge Funds.

Tractor Supply

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Brentwood, Tennessee-based Tractor Supply ( TSCO) sells a whole lot more than its name suggests. The retailer operates more than 1,000 stores in 44 states, offering up everything from clothing to home and garden products, to pet care items. And yes, the company sells tractors too.

Tractor Supply has enjoyed linear growth for the past several years, growing its margins as economies of scale sent a larger chunk of sales down to the firm's bottom line. While most retailers took a knock to revenues during the recession, Tractor Supply actually managed to grow its numbers. Geographic footprint is a key success factor for this firm. The company builds its locations in rural communities outlying major metropolitan areas, positioning that offers enough consumer concentration to support a store with the demographics that will want the products Tractor Supply sells.

Even though TSCO has built out a big network of stores, the firm is still a small player in the retail market. With just over $4.2 billion in revenues last year, the firm pales in comparison to the $70 billion that Home Depot grossed during that same period.

That small size should give TSCO plenty of room to grow in the next few years -- we're betting on shares in the short-term as well.

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

-- Written by Jonas Elmerraji in Baltimore.

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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.