BALTIMORE (Stockpickr) -- Three down, one to go for 2012. The end of the third quarter may have come and gone rather unceremoniously, but it means something important for investors: earnings season is right around the corner. Officially, corporate earnings kick off a week from tomorrow with Alcoa's (AA) third-quarter numbers.

That spurt of fundamental data is a big deal for stocks. Generally, investors get just four big data points per year, one every quarter. So it's no big surprise that stock prices can react in a big way to earnings surprises, be they positive or negative.

>>5 Stocks Under $10 Set to SoarFundamentally, there are still a lot of bargain stocks out there. The average P/E ratio for the S&P 500 is still holding lower than it's been anytime since 1990, and a number of dividend metrics offer equity buyers similar stats right now. More positive data over the course of earnings season could be just the spark stocks need to keep the rally going into the end of the year.That's why we're looking at a brand new set of Rocket Stocks 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.

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In the last 170 weeks, our weekly list of five plays has outperformed the S&P 500 by 76.69%.

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


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First up is French drug maker Sanofi ( SNY - Get Report). While shares of Sanofi have gotten knocked around by the recent drama in the EU, this stock is still faring well against the S&P 500 this year -- the stock is up close to 18% since the first trading day in January. Now, with analyst sentiment on the upswing, we're betting on shares.

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Sanofi is one of the big pharma names with the lease exposure to the U.S. Only around 30% of the firm's sales are generated stateside, with another 30% earned in the EU. That diversified income statement is a good thing for SNY shareholders because it reduces the potential for regulatory headwinds that could impact sales of SNY's drug portfolio. Hefty exposure to emerging markets also bodes very well for Sanofi shareholders, given the pace that developing countries are consuming new drug treatments.

While competition is tough in the pharma business, Sanofi has done an enviable job of focusing more on unique drugs that have more defensible moats. The firm's acquisition of Genzyme was pricey, but it adds some attractive biopharmaceutical names to SNY's pipeline. That also helps to offset the patent expiration cliff that many of Sanofi's peers are facing right now.

A 3.92% dividend yield sweetens the pot for investors looking for a mix of value and income right now.

Sanofi also shows up on a recent list of 9 Stocks to Buy for a European Recovery.


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Ametek's ( AME - Get Report) enjoying similarly market-beating performance in 2012, buoyed by strong earnings this year. The $9 billion electronic instruments company builds electronic components that range from temperature sensors to specialty motors used by original equipment manufacturers. That niche business affords AME a sticky customer base with a high switching cost, two critical factors for success in the manufacturing sector.

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Ametek is the perfect example of a "boring" business that continues to perform at a strong rate. While the firm's electric motors may not garner the same consumer excitement as Apple's ( AAPL) new iPhone, they have helped to spur substantial fundamental growth for shareholders over the past few years; since 2007, Ametek has managed to grow its top line at average double-digit rates. That and deep net profit margins have helped to secure Ametek's spot as a strong performer, particularly overseas where manufacturing continues to be the bread and butter industry.

By and large, the firm sports less debt than the typical growth-by-acquisition play, picking up smaller names to add to the AME corporate umbrella using cash from operations more often than debt. That positioning is part of the reason that Ametek bounced back so quickly from the Great Recession, and it's also part of why the stock continues to look attractive today.

I also featured Ametek earlier this month in " 5 Rocket Stocks Ready for Blastoff."


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Aerospace giant Textron ( TXT - Get Report) owns some of the industry's best brands, including Cessna airplanes and Bell helicopters. The firm is a major manufacturer of civil and military aircraft, as well as the parts that they need to keep running and an industrial arm that reaches beyond the aviation industry.

So far this year, Textron has climbed 41%. That puts relative strength on our side this fall.

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The name "Cessna" may conjure up images of tiny single-engine airplanes, but the unit's biggest product is business jets. Cessna's Citation line of jets is the league leader in the corporate aviation world, ranging from the tiny owner-operated Citation Mustang to the all-new Citation Ten. While the jet business is extremely cyclical, new advances in engine technology are increasing the cost argument for upgrading corporate flight departments, particularly as the cost of fuel climbs and premium airline fares rise with them. Even though Textron's defense business has been under a big magnifying glass in the wake of the ongoing budget debate on Capitol Hill, the firm has managed to maintain the lion's share of the dollars coming in from the Department of Defense.

Textron's captive finance arm was a big reason for the firm's major drop in the wake of the recession. The decision to cut the extra lending activities at Textron Finance was a good one - the firm needs to stick to its core business. At this point, the finance business is stronger, more liquid, and cheap than it ever was before, and that sets the stage for a Textron rebound in 2012.

Lululemon Athletica

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Lululemon Athletica ( LULU - Get Report) fits the bill of a momentum stock right now. The $11 billion apparel name has rallied more than 58% so far in 2012, besting most large-cap names over the same period. LULU's core business is in yoga wear, a niche that the firm carved out at the same time that the exercise started ballooning in popularity.

Lululemon took advantage of that fortuitous timing to expand its offerings to include other fitness gear as well as menswear. Today, the Vancouver-based firm also boasts more than 190 retail stores spread across the U.S., Canada, Australia and New Zealand.

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Lululemon's success has everything to do with demographics. By entering the yoga wear business first, LULU targeted a market of generally affluent consumers who are willing to pay premium pricing for quality, and are viewed as trendsetters by others. That positioning has been a big part of the firm's success in arcing from yoga to more general athletic apparel; the sportswear business is a saturated, competitive market, but by starting in a successful niche, the brand was able to establish itself quickly.

To keep that pace going, the firm may want to consider invest in the sort of proprietary technology that bigger rivals hang their marketing campaigns on. After all, it's far too easy for Nike ( NKE) to churn out yoga pants. LULU needs more defensive product catalog.

In the meantime, the brand is having no problem sustaining itself, and the firm continues to earn hefty net profit margins. We're riding this stock's momentum this week.

Polaris Industries

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Another recreation name is Polaris Industries ( PII - Get Report), the firm behind the ATVs and snowmobiles of the same name. Polaris also owns storied motorcycle brands Victory and Indian, and GEM light electric vehicles. With more than 1,600 dealers in North American alone, Polaris owns a significant chunk of the power sports industry, churning out more than $2.6 billion in sales last year, and net profit margins approaching 10%.

Most of Polaris' offerings are essentially toys -- and that's just fine, especially as the housing market makes palpable steps towards recovery and interest rates skim along historic lows. For consumers who were considering buying a vacation home a few years ago, opting to buy an ATV and make a daytrip to ride it may be a lot easier to stomach. And the readily available credit from partner banks mean that they can buy ATVs cheaper than before without adding any credit risk to Polaris' books.

Financially, Polaris is in solid shape. The firm carries nearly $290 million in cash on its balance sheet, easily offsetting $107.6 million in total debt. And now, a more svelte operating profile means that PII is better suited to deal with future economic hiccups than it was a few years ago when its debt load was higher and cash was harder to come by.

The firm announces its third quarter numbers on Oct. 18, but we're betting on shares of this Rocket Stock this week.

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