5 Rocket Stocks to Buy as Stocks Bounce

BALTIMORE ( Stockpickr) -- The S&P 500 fell 2.11% between Monday's open and Friday's close last week, dropping in what was the worst week for stocks of 2013. But let's put that in context: This year's worst week didn't even completely erase the gains we saw in the big index just the week before. And the S&P is still up more than 9% for the year.

Even though volatility is clearly coming back into stocks in April, this market is still hanging in there. More specifically, it's holding the trendline support level that got put in back in November. Even though this rally has seen its fair share of tests in 2013, so far it's managed to pass them all.

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This morning, as stock stage a bounce, investors are getting another buying opportunity in the S&P. And that's getting parlayed into an even bigger buying opportunity in a handful of Rocket Stock names.

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 196 weeks, our weekly list of five plays has outperformed the S&P 500 by 7.16%.

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

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2013 has been a good year for shareholders of Gap ( GPS). Consumer-driven spending has buoyed shares of the $17 billion apparel retailer this year, sending shares up nearly 20% since the calendar flipped over to the new year. That means that Gap is outperforming the broad market's already impressive upside by more than double.

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Gap's success this year has been thanks to an attractive portfolio of apparel brands. The firm's labels include Old Navy, Banana Republic, Piperlime and Athleta in addition to its namesake Gap brand. In total, the company owns more than 3,000 stores spread across the world, with another 450 franchise locations in emerging markets. The firm's model of franchising its locations in volatile areas is attractive, giving Gap access to high-growth markets without requiring high growth from its capital expenditure budget.

A long track record as a specialty apparel retailer has proven Gap's ability to stay the course, particularly in the highly fickle fashion market. Because Gap targets attractive mass affluent and aspirational demographics, both of which are ravenous consumers, it can lay claim to some hefty growth and profitability numbers when times are good. With ample cash on hand and a valuable collection of brands, Gap is in good shape to keep capturing apparel spending growth for the foreseeable future.


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Kroger ( KR) is another name that's seen stellar relative strength in 2013. The firm is up nearly 30% year to date, its share price hoisted by exposure to the consumer non-cyclical sector that's been on fire in recent months. The 130 year-old firm is well-positioned to keep its throne as the best-in-breed grocery store stock.

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The rally in consumer staples can't get all of the credit for Kroger's ascent this year. The firm has generated significant growth internally as well, grabbing share from rivals and achieving comparable sales growth in an environment where its peers are getting challenged mightily by encroachment from big box stores' grocery offerings and rising prices. Kroger's diversified collection of store marquees is a part of its success; in addition to Kroger stores, the firm operates grocery and convenience stores under close to 20 different signs, including Ralphs, Fred Meyer, Kwik Shop and Turkey Hill. In total, Kroger operates close to 2,500 stores across the U.S.

One secret to Kroger's success has been gasoline. The firm uses fuel as a loss leader to pull in customers at nearly half of its locations. While many peers have copied that strategy, the existence of gas infrastructure at such a large percentage of its locations gives Kroger some built-in advantages. Rivals don't have the option to add fuel to as many of their own stores.

We're betting on shares of this Rocket Stock this week.

Boston Properties

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Office REIT Boston Properties ( BXP) owns some hugely attractive commercial assets spread across major metropolitan areas in the U.S. The firm's portfolio includes 40 million leasable square feet spread across 125 office buildings, as well as a smattering of one-off assets that includes a hotel, two apartment buildings and a few retail properties.

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Boston Properties didn't get defensive during the Great Recession. Instead, it took depressed real estate prices as an opportunity to build out properties at lower prices. The firm's stellar geographic positioning in Boston, New York, San Francisco and Washington D.C. greatly mitigated the firm's downside as property valued dropped; as a result, it's maintained high levels of profitability in 2008 and beyond.

In many ways, REITs are more like income investment vehicles than a play on the real estate market. Because commercial REITs such as BXP rent properties through long-term "triple-net" leases, they're able to collect reliable surprise-free revenues as long as tenants don't go bust. And since REITs have to pay out the vast majority of their incomes to shareholders in the firm of dividends, they offer some true benefits in an environment in which interest rates are scraping the floor. Right now, BXP pays out a 2.37% yield.


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It's been a more tumultuous year for McGraw Hill ( MHP). Shares of the $14 billion publishing firm got hit with a sledge hammer back in February when it was announced that the Justice Department was suing the firm over inflated mortgage bond ratings that helped lead to the financial collapse of 2008. Shares have since rebounded, but there's still a lot of hate for MHP in the market right now. A lot of it looks misplaced.

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McGraw-Hill isn't a conventional publisher. Instead, its focus is in providing higher-value content and research through subsidiaries like J.D. Power and Associates and Standard & Poor's (the firm sold its educational publishing unit back in November for $2.5 billion). That focus on creating valuable content in-house has helped fuel consistent double-digit net margins at MHP vs. much more tenuous profitability at more conventional publishing firms.

In spite of some headline risk, the deep economic moats around MHP's main businesses should provide ample protection for investors, even if the firm encounters some hiccups along the road. With analyst sentiment on the upswing for McGraw-Hill again in April, we're betting on shares of this Rocket Stock ahead of today's earning release.

Southwest Airlines

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Southwest Airlines ( LUV) has turned an innovative model into the largest air carrier in the U.S. -- an impressive feat that's even more jarring because the firm has managed to remain profitable through it all. While legacy carriers went bankrupt amid travel industry headwinds, LUV just built its customer base by snatching up lucrative bases at a bargain price.

Southwest's success hinges on its position as the low-cost leader. The firm's point-to-point network to nearly 100 destinations eschews the hub and spoke approach seen at legacy carriers, and as a result consumers looking for direct flights at non-hub locations get considerable convenience by booking with LUV. A unique strategy, including a fleet comprise solely of Boeing ( BA) aircraft (resulting in more streamlined maintenance), has helped keep costs minimized for Southwest, but ultimately, the firm's fuel hedging program has been one of its most prescient cost-savings tools.

The firm acquired rival value carrier AirTran Airways in 2010, with plans to integrate the carrier's operations into its own by the end of next year. The move added attractive routes (including some international destinations) to LUV's map, and ultimately, the discount price paid for AirTran should make the acquisition look especially well-timed. The firm expects to find nearly a half-billion dollars of cost savings by integrating the two airlines.

LUV's stellar track record of good execution should continue to pay off for shareholders in 2013.

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.


Follow Stockpickr on Twitter and become a fan on Facebook.

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.

Follow Jonas on Twitter @JonasElmerraji

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