5 Rocket Stocks Worth Buying This Week

5 Rocket Stocks Worth Buying This Week

BALTIMORE ( Stockpickr) -- The S&P 500 gained a measly 0.38% last week, hardly anything worth writing home about, so you'd be forgiven for missing the big market forces that were in play last week. But make no mistake -- some big things are happening on and off Wall Street right now.

Investors are slowly starting to realize that stocks could move up from here. Even though the S&P 500 is up 15% since the start of the summer, the big index is still trading at a double-digit discount to its historic valuation average. And that uptrend in the S&P is pushing it to new post-crash highs in January.

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The professionals are taking note too. Hedge funds have levered up their portfolios the most since 2004 according to data from Bloomberg, indicating a flip from a short bias to a long position in the market. It doesn't hurt that a lot of shorts had to cover in the last couple of months, as many heavily shorted names got squeezed higher into the new year.

Now, with earnings season in full swing, we're starting to get some added fundamental backup for a rally in stocks. That's why we're taking a look at a new set of Rocket Stock names today.

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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 184 weeks, our weekly list of five plays has outperformed the S&P 500 by 73.4%.

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

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Giant payment network Visa ( V) is no stranger to our Rocket Stocks list -- and that's for good reason. This stock has rallied more than 30% in the last six months, and more than 6% so far in 2013 alone. Visa's market leading position in a strengthening economy points to even more upside for this stock for months to come.

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Visa is the standard bearer in the payment network business. The firm's logo is printed on more than 60% of the world's credit and debit cards, giving it dominance that other firms can't touch. It doesn't hurt that payment card acceptance is a positive feedback loop: consumers see Visa's network accepted everywhere they shop, so they're more likely to get a Visa-braded card, and merchants see more customers whip out a Visa than any other brand, so they're more willing to keep accepting Visa. That makes the firm's network extremely hard to replicate for new networks unless they're willing to take a huge haircut on the fees they charge.

Globally, the shift from cash to electronic payments looks likely to fuel growth for the foreseeable future in Visa. That's because as consumers shift continue their payments from predominantly cash and checks to predominantly electronic credit or debit card payments, the market should get bigger quickly enough for all of the participants to benefit. Visa's massive scale just means that it'll get to benefit more.


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eBay ( EBAY) is another payment card network that's got tailwinds lapping at its back. I know that may sound funny at first glance. After all, eBay is best known for its namesake auction site. But eBay also owns PayPal, a payment company that's quickly becoming eBay's biggest earner. Right now, PayPal contributes around 40% of eBay's total revenues.

A couple of factors make PayPal a disruptive force in the payment business. For starters, PayPal boasts more active users than some of the second-tier payment card names, giving it a huge pool of users to sell merchants on. Because PayPal has focused on the online payment business for so long, its foray into payment systems at brick and mortar stores is a big deal -- that new source of transaction volume could materially boost the firm's revenues. The novelty factor of paying with PayPal at a physical retail location doesn't hurt either.

eBay's other businesses are no slouch either. The firm's auction site is still a major earner -- and complementary online marketplaces like StubHub round out the picture. By being on both sides of auction transactions (eBay caters to both buyers and sellers), the firm has found a lucrative business catering to small business, with everything from shopping cart software to invoicing platforms.

Investors should appreciate the fact that eBay tends to focus on entering new markets that are instantly monetized -- unlike some of its conspicuous tech sector peers. A spotless balance sheet with a deep net cash position rounds out the picture for this Rocket Stock. Keep an eye out for earnings on Friday.

Home Depot

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Coincidentally, one place where you can pay in person with eBay is Home Depot ( HD), another Rocket Stock on our list this week. The $95 billion home improvement retailer has made a stellar run in the last year, climbing more than 46% in the trailing 12 months. With housing data making a slow (but steady) improvement right now, Home Depot is well positioned to keep capturing home improvement spending.

Home Depot is the world's biggest home improvement retailer, with more than 2,250 big box stores spread across North America. While home prices do matter to Home Depot, the Great Recession showed investors that they matter a whole lot less than most of Wall Street expected. With consumers less apt to buy a newer, bigger home every few years, they instead opted for more budget conscious home improvement products -- and Home Depot still benefitted from the spending. While it entered 2008 with too big of a store footprint, it remedied its over-leveraged balance sheet with a successful restructuring program that boosted margins and positioned the firm extremely well for the ensuing rebound.

As long as management can remember the lessons it learned a few years ago, investors can sleep easy. Home Depot's failed foray in the Chinese market provided a less costly lesson more recently. The firm can still squeeze some more margin growth out of North America, and economic tailwinds should do the rest in the near-to-mid-term.


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Economic headlines are a big growth factor for Manpower ( MAN) too. This mid-cap staffing firm offers businesses human resources services through more than 4,000 offices across the world. Whether clients are looking for temp help or they're looking to fill a full-time position, Manpower wants to be a part of the hiring process -- and in a job market where companies are hiring with some caution, Manpower's services make a whole lot of sense.

One of the biggest benefits to Manpower is the fact that most of its revenues aren't earned here at home. In fact, 90% of sales come from abroad. Most of the firm's placement income is earned in labor-friendly markets like France, where MAN has far-reaching worker protection laws positioned in its favor. That global positioning also makes Manpower a stellar choice for global clients who are looking for a single provider of staffing services, something that more localized rivals can't offer.

Manpower's many staffing lines are a double-edged sword for the firm. While they diversify sales and give the firm a bigger potential market, they also make Manpower look less attractive when compared to more niche staffing firms that only focus on placing healthcare, IT, or management professionals. For that reason, Manpower has to compete more on cost, and margins are necessarily slimmer than at peers. That said, a slipping global unemployment rate bodes well for the firm in the longer-term, especially if companies are hesitant to hire full time at the first sign of economic strength. With rising analyst sentiment in shares of Manpower, we're betting on shares this week.

Earnings on Jan. 30 could be a big catalyst for this stock.


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Luxury handbag maker Coach ( COH) has built a business out of hitting the sweet spot between luxury and price. The firm ballooned in size during the Great Recession because of its perfect market positioning -- it offered attainable luxury for consumers who were cutting back on other purchases. And now, after the stock's valuation ballooned in kind, Coach is looking buyable again.

Coach makes and retails handbags and other accessories (such as wallets and umbrellas) through a network of around 465 North American stores and a large presence online and in third party channels like department stores. In the last few years, overseas has been the big story -- and newer stores in markets such as China and Japan have warranted a hefty growth premium in the stock's price. While the European market has had its share of hiccups in the last few years, Coach's new distribution deals in the eurozone should nevertheless help to boost top line numbers in 2013.

Coach's share price has stagnated in the last 12 months, dropping around 5% while the broad market rallied and COH's fundamentals grew at a breakneck pace. That's reduced the firm's P/E multiple to 16.5, a reasonable premium for a retail name that's growing at such a quick clip. Coach consistently earns net margins around 20%, a fact that should make investors very happy as revenues continue to make new high water marks. With almost no debt and a $760 million cash position on hand, this firm looks well positioned for the year ahead. We're betting on shares 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, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.