5 Rocket Stocks to Buy Before 2014

BALTIMORE ( Stockpickr) -- Friday's 1.12% rally in the S&P 500 turned around stocks' sluggish start in December, paring this month's losses to just 0.04%.

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That means that since the start of 2013, the S&P has managed to climb higher by 26.57%. From an annual standpoint, that's a serious gain, but it's hardly unprecedented. Since 1975, there have been 11 years with gains greater than 20%, and on average, stocks have returned an extra 12.8% the year after the big return.

With 2014 fast approaching, that's a pretty auspicious sign for the year ahead. To take full advantage, we're taking a closer look at five Rocket Stocks to buy before the New Year.

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 226 weeks, our weekly list of five plays has outperformed the S&P 500 by 85.7%.

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


It's been a mixed year for Intel ( INTC). While shares' 20.4% rally would be stunning for a typical year, this year has been anything but typical -- which means that Intel is underperforming the S&P by a pretty big margin right now. But with semiconductor stocks coming off of cyclical lows, Intel could be in store for pretty significant upside up ahead. Here's why.

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Intel is a cash machine. The $123 billion chipmaker owns 80% of the microprocessor market, a lucrative position that's left INTC as one of the few names in the PC supply chain that's not facing deteriorating margins. Despite its dominance, Intel is working hard to miniaturize its powerful PC chips to work in the mobile market -- a space that's both enjoying very high replacement rates and eating into conventional computer sales.

As Intel's Atom chips make their way into more devices, the firm has a lot of open runway ahead of it.

Financially, Intel is in stellar shape with more than $16 billion in net cash on its balance sheet. That wherewithal helps to fund a 3.6% dividend yield at current price levels, a payout that makes Intel one of the best income options in the tech sector. With semiconductor revenues on the upswing, Intel looks well positioned to capitalize on growth in 2014.

Rite Aid

Retail pharmacy chain Rite Aid ( RAD), on the other hand, hasn't just beaten the S&P year-to-date. It's stomped it. Since the calendar flipped over to January, shares of Rite Aid have climbed more than 322% thanks to a major performance turnaround. And that momentum isn't showing any signs of tapering off just yet.

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Rite Aid is one of the biggest retail drugstores in the country, with more than 4,600 stores in 31 states and the District of Columbia. Coming out of the Great Recession, Rite Aid had big problems on its hands -- a huge store footprint that was far less productive than peers and a massive debt load. By fixing many of its execution problems and restricting much of its debt at record-low rates, the firm has been able to make an about face in 2013.

While debt remains high at $6 billion, RAD lays claim to some big demographic tailwinds right now. With an aging population that has increased access to healthcare coverage, prescription drug sales among RAD's huge retail footprint should continue to make an upward trajectory.

While this stock has departed from bargain territory, its relative strength continues to look stellar.


Hewlett-Packard ( HPQ) is another big turnaround story in 2013. After getting halved in 2012, shares of HP have doubled since the start of the year.

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Without a doubt, HP has made some major missteps. It flushed value down the toilet with its $11 billion Autonomy acquisition (which has been almost entirely written down at this point), and its bread and butter has remained PCs, which have seen margins commoditized away in rapid fashion. But with the worst behind it, the recent strength in Hewlett-Packard has been justified.

Like many of its peers, H-P has been working hard to transition from a consumer PC maker to primarily an enterprise tech outfitter. The acquisition of enterprise service firm EDS in 2008 was well-timed and now makes up 20% of total revenues. Warts and all, Hewlett-Packard still retains the scale of one of the biggest tech names on the planet, which gives the company the ability to court sizable, sticky customers. Server sales have been quicker than expected in 2013, and networking, storage, and IT service units have all posted solid growth numbers as well. With the sting of Autonomy still fresh in management's memory, HPQ is unlikely to overpay for an acquisition for the foreseeable future.

Investors shouldn't forget about the legacy business. Yes, PCs have become commodities and printers are boring. But PCs still provide material sales, and printers eat through consumables like ink at enormous gross margins.

Analyst sentiment is moving higher this week, so we're betting on shares.

Regions Financial

$13 billion regional bank Regions Financial ( RF) is benefitting in a big way from hefty exposure to the insurance and wealth management businesses, two places that are basically leveraged bets on the stock market. Together those two segments add up to almost 40% of revenue, giving Regions pretty unique exposure for a bank stock.

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On the more conventional front, Regions sports more than 1,700 branch offices spread across the Southern and Midwestern U.S. That footprint means that Regions is concentrated in a geographic area that got knocked the hardest during the financial crisis. As a result, its huge diversification outside of conventional banking has provided a very welcome cushion for investors. With a loan book that's leaps and bounds from where it was in 2008, Regions is very well-positioned for an eventual increase in interest rates. After all, when rates are higher, so are spreads that banks can earn on an absolute basis.

Regions' most attractive growth prospects are organic. Fire sale bank prices are a think of the past, so acquisition targets don't make much sense for Regions from this point. But RF's geographic span is centered on a segment of the country that's rebounding well. This well-capitalized regional bank has a lot going for it in 2014.

MGM Resorts International

As global gaming revenues climb, a rising tide is lifting all ships -- and MGM Resorts International ( MGM) is a perfect case in point. While peers have shifted most of their resources (and revenue) overseas, MGM still earns 80% of its revenues on the Las Vegas Strip, real estate that's only now regaining its full strength. But while everyone else is focusing resources on properties in Asia, MGM boasts one of the most updated portfolios of mega-casinos in the country.

That's not to say that MGM is eschewing Asia completely; the firm owns 51% of the MGM Macau and a property in Sanya prefecture, but scaling up its exposure to the Chinese city isn't practical given the extremely limited availability of additional gaming licenses. Newer investments are focused on underserved U.S. markets like a proposed new casino in National Harbor, an affluent part of the Washington D.C. suburbs.

MGM has more balance sheet leverage than its peers, but it also stands to benefit proportionately more if Las Vegas growth rates exceed those of big-dollar regions like Macau. With major refinancing efforts expected to reduce interest costs by around $200 million each year, investors should see a lot more cash deployed to growth the business and return value to shareholders in the periods ahead.

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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