BALTIMORE (Stockpickr) -- U.S. markets got stomped last week, ending in the worst five-session stretch for the S&P 500 in two-and-a-half years. No, that's not a typo; the S&P's 3.4% decline was the worst single-week drop since May 2012.
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The good news is that last week's drop wasn't completely surprising -- from a technical perspective, the broad market was looking overbought heading into December, and a correction looked likely. Positioning matters too: just owning the right stocks could have helped you stay clear of most of the downside.
So, as investors gear up for a fresh trading week, we're getting on the right side of the price action with five fresh Rocket Stocks to buy for gains.
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 278 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 78.91%.
Without further ado, here's a look at this week's Rocket Stocks.
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Up first is $95 billion health insurer UnitedHealth Group (UNH) , a name that's been a serial outperformer in 2014. Since the calendar flipped to January, UNH has rallied more than 31%, besting the rest of the S&P 500 by more than triple. And that outperformance looks primed to continue as we head into 2015.
UnitedHealth Group is the largest managed care organization in the country, with more than 40 million members and a network that reaches a total of 85 million individuals in some way, shape, or form. That huge scale comes with some equally huge advantages for UNH. For instance, because so many patience are covered through UnitedHealth, the firm has leverage over medical providers' fees, and it's able to spread administrative costs and insurance risk over a bigger number of individual subscribers.
In recent years, with increasing uncertainty stemming from political involvement in healthcare reform, UNH has been boosting its exposure to foreign healthcare. In all, UnitedHealth has operations in 125 different countries, with a particularly big investment in Brazil through the acquisition of Amil in 2012. With an aging population in UNH's core markets, expect major tailwinds to keep boosting shares of this healthcare stock in the years ahead.
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Even if you're not familiar with the name Altera Corp. (ALTR) , there's a good chance that you've come into contact with the firm's products. That's because California-based Altera is the number-two maker of programmable logic devices (PLDs), a subset of chips that can have their circuitry reprogrammed by the manufacturer's clients. Because of that, Altera's chips can be found in everything from DVD players and routers to automobile parts and industrial tools.
As the technology around us becomes "smarter", Altera is seeing boosted demand for PLDs. Historically, programmable logic devices have been a costlier way to add features to a device, especially for products manufactured in scale. But as prices drop, Altera is opening itself up to new markets that were constrained by chip costs in the past. The flexibility that a PLD provides manufacturers makes them perfectly suited to lower-volume product runs, especially in applications like industrial, communications, or automotive technology.
Altera has a production deal with Intel (INTC) that gives Altera access to the most advanced manufacturing facilities in the world, enabling the firm to compete with cutting edge purpose-built chips. That arrangement also gives ALTR one of the best balance sheets in the business, stuffed with more than $3 billion in net cash and investments. That's enough to pay for more than 26% of ALTR's outstanding shares at current levels.
With rising analyst sentiment in shares of Altera this week, we're betting on this Rocket Stock.
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NASDAQ OMX Group
A buoyant equity market has been a very good thing for shares of NASDAQ OMX Group (NDAQ) . NASDAQ OMX is best known for its namesake NASDAQ Stock Market, but it also operates two other U.S. equity markets, several options markets here at home, and a smattering of exchanges overseas. Beyond the exchange business, NASDAQ provides corporate services such as investor relations to firms that list with it.
Ballooning equity prices means more trading, and that in turn means more transaction-driven fees for NDAQ. While new off-market competition for trading volume poses a potential threat to the firm's core business, NASDAQ has built-in advantages from its name recognition. Operations outside of stocks have growth potential at NDAQ, driven by moves like last year's acquisition of eSpeed's treasury trading platform.
Importantly, major market trends look like they're finally turning back in exchanges' favor again. There are a third fewer stocks trading in the marketplace today than there were in 2000, but equity investor dollars and venture capital trends are changing that, as IPO volumes increase dramatically this year. IPO deals are up double digits in 2014 versus 2013's strong public offering environment. Considering a cost base that's mostly fixed and net margins already above 15% in the most recent quarter, any increase in revenues in 2015 should come with leverage effects on NDAQ's earnings.
Look for Q4 earnings early next year as a potential catalyst on the horizon at NASDAQ.
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Adobe Systems (ADBE) has been a success story in 2014: shares of the software firm have tripled the performance of the broad market, rallying 25% since the calendar flipped to January. A big chunk of that outperformance comes from Adobe's earnings-fuelled pop on Friday, as shares got boosted 9% by an earnings beat for the firm's fourth quarter. Mid-way through December, there's plenty of reason to believe that momentum will carry Adobe into the new year.
Adobe develops and sells software used by creative professions to create everything from photos and videos to websites and printed documents. The firm's titles include hugely successful names like Photoshop, Acrobat, After Effects and Dreamweaver. While Adobe has had great success in establishing itself as the platform of choice among creative professionals, the high cost of a legal copy of its software has created a war of escalation with software pirates.
But Adobe changed that with the introduction of the Creative Cloud, a subscription model that provides the latest version of its software to users at a low monthly cost. That lower barrier to entry should convert more users to paying subscribers; instead of paying thousands of dollars for a license to Adobe's Creative Suite, Creative Cloud access can cost as little at $50 a month.
With a subscription model, it books recurring revenues from a sticky user base with high switching costs. Adobe is above breakeven under its new model, and profitability should ramp up quickly from here. Q4 numbers came in ahead of Adobe's game plan, and that should help spur more buying. Adobe is far from cheap at its current valuation, but momentum is on the side of buyers this December.
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Last up on our Rocket Stocks list is flash memory maker SanDisk (SNDK) . SanDisk has enjoyed a major tailwind in recent years, as demand for NAND flash memory has ballooned thanks to the proliferation of storage-hungry consumer portable devices, increasing needs for solid-state drives, and boosted requirements from the PC market. That supply-constrained flash memory market is still a huge driver for this stock.
A quick replacement cycle in SNDK's end-products means that the firm is seeing considerable churn from consumers -- and on the flip-side, the growing data requirements from enterprise users is increasing the share of the server room that's served by SSDs. As volumes rise and unit costs drop, super-fast flash memory sales should continue to replace conventional hard-drives on most devices. Better still, a robust patent portfolio means that the firm benefits from the overall growth of the NAND flash memory market, regardless of who's manufacturing the memory.
The financial story at SNDK looks attractive here too. The firm currently carries $3.5 billion in net cash, enough to cover more than 16% of SanDisk's current market capitalization. That's a huge risk reducer for investors today -- and it provides comfort over SanDisk's ability to keep returning value to shareholders though share buybacks and dividends. With rising analyst sentiment in SNDK this week, we're betting on shares.
-- 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 that 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