5 Rocket Stocks to Buy for New Year's Gains: Cisco Systems and More

BALTIMORE (Stockpickr) -- Three measly trading sessions -- that's all that stands in between us and the first trade of 2015. As I write, the big S&P 500 index is on track to post nearly 13% gains for the year, making it the third straight year of double-digit returns for investors.

The last time U.S. stocks booked three straight years of double-digit performance was 1999, when the dot-com bubble was in full swing.

Even though the week between Christmas and New Year's Day is typically a low-volume, relatively inactive period for the market, it's a good opportunity to get positioned for 2015. That's why we're taking a look at five new Rocket Stocks to buy for gains as we barrel into January. As good as the broad market's performance has been since 2008, our weekly list of Rocket Stocks has done better -- a lot better.

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 280 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 77.85%.

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

Cisco Systems

Up first is Cisco Systems (CSCO) , a stock that's been no stranger to outperformance in 2014: since the start of the year, Cisco has rallied more than 26%, beating the S&P by double. Cisco is the largest computer networking equipment and software maker in the world -- that means there's a very good chance that Cisco's products were involved somewhere along the way in getting these words on your screen. The firm's products include enterprise-level routers, switches, and network management tools.

Cisco's huge scale and enormous installed base comes with some big advantages. Because Cisco's gear is designed to plug-and-play with other Cisco components, IT departments that buy Cisco products can often see much lower integration and ongoing technical support costs. That gives Cisco an important economic moat right now, even if competition is trying to move in on its business.

There's no shortage of competing products on the market today. That said, a rising tide is lifting all ships in the enterprise networking world, and quickly increasing bandwidth demands and climbing IT budgets have helped secure double-digit sales growth for Cisco in the most recent quarter. Despite a P/E ratio that's slightly rich near 20, a quarter of Cisco's market capitalization is paid for in cash today, a factor that greatly reduces risk for investors.

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

Estee Lauder

Skin care and cosmetics giant Estee Lauder (EL) is ending a relatively sideways 2014 on a high note this December -- shares of the $29 billion firm popped to a new 52-week high to end last week, setting the stage for a test of new higher levels in the next few sessions. As consumer spending remains strong heading into the new year, EL should be able to maintain its sales growth trajectory for investors.

Estee Lauder owns a brand portfolio that includes popular names such as Clinique in addition to mall staples M-A-C and Origins. That's enough makeup power to give EL a 25% share of the world's high-end cosmetics market, a segment that's continuing to hold up quite well in the current retail market. More than 82% of sales come from skin care and makeup, leaving lots of room for sales mix expansion in hair care and fragrance. All of EL's businesses boast very large retail margins, contributing to profits that consistently hit the double-digit mark.

In the last several years, EL has increased its exposure to growth markets overseas -- today, the firm earns 60 cents out of every dollar outside of the U.S. Emerging markets should continue to be the big growth driver for the firm in the next few years, particularly as a growing middle class population looks to consume more attainable luxury products. We'll get our next snapshot of EL's financials during the firm's February 5 earnings call.

American Electric Power

American Electric Power (AEP) is one of the largest regulated utilities in the country, giving investors exposure to a business that's been extremely attractive in 2014. As market participants chased yield earlier this year, they dumped cash into AEP and its fat dividend payout, contributing to a 32% rally over the course of 2014. Despite the breakneck climb in share price, AEP still trades with a solid 3.4% dividend yield today.

AEP operates power generation, transmission, and distribution assets in 11 states, serving more than 5 million customers between them. Despite that big geographic footprint, more than half of revenues come from just three markets: Ohio, Texas, and Virginia. That focus on business-friendly locales means that the firm has favorable rate agreements with most of the regulators that it works with, incentivizing the firm to keep investing in infrastructure to grow its profits long-term. Increasing exposure to other states with similar regulatory environments would be a major plus for American Electric Power, particularly if it reduces the firm's huge exposure to Ohio and its moves towards deregulation.

The fact that AEP owns one of the largest coal-fired generation fleets in the country isn't particularly attractive, especially as oil prices fall. If the firm can sell plants or replace them with other generation types, it'll be in a much more attractive long-term position to earn meaningful returns. In the meantime, AEP's yield looks extremely attractive in an environment that's overestimating the Fed's readiness to raise interest rates.

Dr. Pepper Snapple

In the duopoly of soda companies, Dr. Pepper Snapple (DPS) operates in an interesting space as a third party option. The firm owns a collection of popular nonalcoholic beverage brands that includes its namesake labels as well as 7UP, Canada Dry, Hawaiian Punch and A&W, among others. While the firm's scale pales in comparison to its cola-focused peers, many of its niche brands own the top spot in their category.

Scale aside, DPS isn't unlike those bigger rivals -- the firm is largely vertically integrated in many markets, manufacturing, bottling, and even distributing its own products. The firm does rely on third-party bottling partners for approximately 40% of its volume, but the remaining 60% is completely handled in-house. Impressively, DPS boasts bigger profitability than its bigger competitors because of exceptional internal efficiency and limited capital needs. That fact warrants a higher valuation than PepsiCo (PEP) and Coca-Cola (KO) .

Unlike Pepsi and Coke, Dr. Pepper Snapple is a North America-centric name. The firm only owns the rights to its most valuable brands in the U.S., Canada, Mexico and the Caribbean. While that sounds like a detractor, it gives the firm a more limited focus, and it's helped keep the firm running lean. With exposure to emerging markets through Mexican and Caribbean operations, the firm still has an opportunity for material growth rates ahead of it. With rising analyst sentiment in shares this week, we're betting on DPS.

Stericycle

Last, but not least, on our list of Rocket Stock names is Stericycle (SRCL) . This $11 billion regulated waste management stock has slightly outperformed the broad market in 2014, but more importantly, nearly all of that performance has come within the last two months. That rocketing momentum makes SRCL a Rocket Stock worth focusing on as we head into 2015.

Stericycle is the largest medical waste company in the country, providing hospitals, medical offices and pharmaceutical firms with a way to dispose of highly regulated biologically hazardous waste. Not surprisingly, dealing with the consumables no one else wants to touch is a lucrative business, with deep profit margins and a sticky customer base. An aging population in SRCL's core markets should fuel increased waste volumes at the firm's customer sites, particularly at low-quantity operations like clinics and doctors' and dentists' offices. Those smaller sites offer the potential for faster margin growth than volume customers like hospitals and laboratories.

The Ebola outbreak in Africa has brought increased attention to the need for proper medical waste disposal, and Stericycle is one of the few companies that's been granted a special permit to transport and treat Ebola-contaminated medical waste. Even though that won't materially impact the firm's sales, it does mean that customers are likely to be less sensitive to waste removal price increases coming up, particularly if it means keeping access to a Category A infectious disease waste removal company like Stericycle. We'll get an updated look at SRCL's earnings during the first week of February.

-- 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

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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