5 Rocket Stocks Ready for Blastoff This Week


BALTIMORE (Stockpickr) -- Stocks ended on a high note last week, booking the highest Friday close in the history of the S&P 500. Now it looks like the big indices are starting the week hungover after too much celebrating.

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China concerns are dragging global markets lower this morning, with Shanghai's SSE Composite and Hong Kong's Hang Seng down 1.7% and 1.44% on the day respectively. Even though the S&P 500 isn't looking quite as weighty this morning, it still makes sense to own strength heading into this week – the relatively weak session on Friday is a good indication that equities are struggling to gain traction in September.

So, to position ourselves for upside, we're turning to a new set of "Rocket Stocks" that look ready for blastoff 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 266 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 80.81%.

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

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Time Warner

2014 has been a great year for shareholders in Time Warner (TWX) . Counting dividends, the media giant is up 18% since the calendar flipped to January. That's nearly double what the S&P 500 has managed to do over the same stretch. And with transformation in the air at Time Warner, this $66 billion entertainment name is well positioned to keep up its pace in the second half of the year.

Time Warner owns an incredibly valuable basket of entertainment assets. The firm's TV networks include HBO, TNT and CNN, and the firm is the largest filmmaker in the world through its Warner Bros. and New Line Cinema studios. Along with those properties comes a deep content library, an asset that's becoming far easier to monetize as internet services and cable network operators scramble to grow the stable of content they're able to serve to subscribers.

The decision to spin out publisher Time (TIME), the least attractive part of the TWX business, is a big plus for investors. It means that the remaining TWX assets are a way to get pure-play entertainment exposure, and net margins should see upward trajectory in the coming quarters without the earnings drag and now with additional cost-cutting measures in play. More recently, management's overtures about the possibility of untethering premium content such as HBO from cable subscriptions could open a world of possibilities for Time Warner, especially as more consumers opt to ditch traditional TV subscriptions.

With rising analyst sentiment in Time Warner this week, we're betting on shares.

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PNC Financial Services

$47.5 billion banking name PNC Financial Services (PNC) may lack the scale of its larger peers, but it's been a great way to take advantage of the rising relative strength in the financial sector in 2014. PNC's retail banking business reaches 17 states and the Washington, D.C. with more than 2,700 branches. PNC also operates commercial banking lines and an asset management business with $131 billion in assets under management.

PNC remains one of the better-capitalized large banks in the U.S. today, with a large base of cheap deposits and a healthy loan book. In recent years, the firm has been working on improving efficiency, cutting excess costs with a goal of trimming half-a-billion dollars from the middle of its income statement in 2014. The regional nature of PNC's footprint leaves a whole lot of room for expansion at the firm, but it will need to continue to find attractive acquisition targets in order to keep up the expansion pace that it's enjoyed in recent years.

The size of PNC's asset management business is a nice feather in the firm's cap – it produces fee-based revenues that have been climbing amid a broad based equity rally that's been going strong for six years now. Additional fee generation on the banking side of the business helps to de-risk PNC's exposure to interest rates. And all of that adds up to a bank that's able to afford a 2.2% dividend yield today, a payout on the high end of the banking industry. Look out for earnings on Oct. 15 as a possible upside catalyst.

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Even if you're not intimately familiar with semiconductor name Broadcom (BRCM) , there's a very good chance that you've used its products before. That's because Broadcom's chips can be found in all manner of consumer electronic devices, from the new iPhone 6 to the set-top box powering your TV. As connected devices become increasingly popular, BRCM is riding a lucrative wave into the end of 2014.

Broadcom helps devices communicate. Its chips provide networking connectivity such as Bluetooth, GPS and WiFi on a single chip, and BRCM was one of the first commercial names to perfect all-in-one communications solutions for OEMs. As electronics makers continue to jam more features into a small footprint, Broadcom's expertise is hugely valuable.

Unlike most chipmakers, Broadcom doesn't own a single factory or foundry. Instead, it outsources those manufacturing duties to third-party semi producers. While that means that BRCM cedes some profitability to its manufacturing contractors, the fact that BRCM doesn't carry chip factories on its balance sheet (and their associated overhead on its income statement) means that the firm cuts a leaner profile when times get tough. In a big way, that reduces the amplitude of the downside when the semi industry hits a cyclical low without sacrificing upside when chip demand is hot.

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The last few years' big recovery in the residential real estate space has been a major driver for Lennar (LEN) , the $8 billion Miami-based homebuilder. Ironically, homebuilders were among the first names to deleverage back in 2008, and the industry's biggest names have been well managed and well capitalized ever since. Lennar is no exception – this vertically integrated homebuilding stock boasts a reasonably attractive balance sheet and consistent levels of profitability.

Lennar is involved in every step of the home building process. The firm provides everything from design and construction to title insurance and closing services. The firm's subsidiaries also own positions in commercial real estate and multifamily complexes. That collection of businesses effectively makes Lennar a leveraged bet on the real estate market, a bet that's paid out pretty well in the last few years. LEN is up 30% since last September.

Big exposure to entry-level housing makes a lot of sense for Lennar today. With limited inventory on the lower-end of the spectrum, particularly as mortgage underwriting standards have tightened, LEN is able to capture a segment of the market that more consumers are being pushed towards. Large amounts of land inventory mean that LEN has ample room to scale higher as demand increases. With rising analyst sentiment in this space this week, we're betting on Lennar.

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Since its products started springing up at malls around the world, athletic apparel maker Lululemon (LULU) has been the prototypical "fad" stock. And that's not a bad thing. After all, investors should want to own the fad stocks (the trick is knowing when to get out). And now, with "the house that yoga pants built" coming off of a price low, it looks like a good time to be a buyer in this fad name again.

LULU's workout apparel can be found in more than 250 company-owned stores today, as well as a large collection of third-part retailers and a direct channel through the company's website. That abundant availability, coupled with the most popular brand name in the yoga space, makes for an attractive combination -- and one that helps to beat back encroachment from off-label competitors. Newer markets, like men's apparel hold considerable potential for growth without exposing the firm to geographic risks.

Operational challenges have been the biggest downside catalyst at LULU in the last couple of years. Despite sky-high operating margins for the apparel business, the firm has stumbled in passing those profits onto the bottom line at times, shaking investor confidence. But new additions to the management team could help to right the ship. From a price momentum standpoint, LULU has the potential to be a good turnaround play to take advantage of this week.

Must Read: 10 Stocks Carl Icahn Loves in 2014

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 the names 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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