Thanksgiving may still be a week and a half away, but Mr. Market is finally giving investors something to be thankful for this November.
U.S. markets rallied hard last week, breaking free of the corrective downtrend that's harangued the S&P 500 since the end of the summer. Market participants are finally feeling good about the fact that the election is over and done with, it seems. And, significantly, the rebound last week puts the S&P back to within 1.4% of its all-time highs this fall. At the same time, the S&P is back on track to potentially end 2016 up double-digits, a feat that seemed incredibly unlikely just a week ago.
So, to capitalize on that bullish shift in stock market sentiment this week, we're turning to a fresh set of Rocket Stocks worth buying for November gains.
In case you're not familiar, 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 373 weeks, our weekly list of five plays has outperformed the S&P 500's record-breaking run by 79.81%.
So, without further ado, here's a look at this week's Rocket Stocks.
Up first this week is conglomerate General Electric (GE) , which is also an Action Alerts PLUS holding. GE was one of the biggest mega-cap winners last week, rallying almost 8% between Monday's open and Friday's close. That still doesn't do much for longer-term holders of this stock yet -- GE is still down 1.4% on a price basis since the start of 2016. But the about-face in GE's price trajectory bodes well for this stock's year-end performance, especially considering the fact that analyst sentiment is swinging higher at the exact same time.
GE is one of the biggest diversified manufacturing companies in the world, building everything from jet engines to medical devices to home appliances, and everything in between. The firm has dramatically shifted its sales mix in recent years as management has pared down GE's exposure to financial services in the years since 2008. Now GE's industrial businesses are getting more attention again at a time when General Electric's global footprint could be about to benefit from some macro tailwinds.
One big driver behind GE's rally last week was the prospect that a Trump presidency could drive policies that reverse the prolonged rally in the U.S. dollar. That shift could be a boon for large U.S.-based multinationals, of which GE is the poster child. A weaker dollar means that exports become more competitive, and it also means that sales generated in foreign currencies abroad translate into fatter profits when reported in dollars. With rising analyst sentiment in General Electric this week, we're betting on shares.
Illinois Tool Works
One big industrial that's been no stranger to our Rocket Stocks list this year is $43 billion manufacturer Illinois Tool Works (ITW) . ITW has been a stellar performer year to date, rallying almost 34% since the calendar flipped to January. And there's reason to expect that ascent to continue in the final months of 2016, as shares break to new highs this fall.
Illinois Tool Works is a widely diversified manufacturing company with approximately 85 individual business units. If that sounds like a lot, it's actually a much more concentrated approach to business than the firm had just a few years ago when it sported approximately 800 individual divisions. In the intervening years, ITW has been trimming its least profitable and most commoditized businesses, leaving it with the most attractive of the former pack. Even if the Illinois Tool Works name doesn't ring a bell, there's a good chance you've heard of its brands before. The firm's brands include names like Sub-Zero and Wolf appliances, Rain-X and Zip-Pak, among many others.
ITW's simplification strategy is significant for a couple of reasons. Not only does it boost profitability, but it forsakes gross revenue numbers in the short-term in favor of a more attractive overall collection of businesses with longer-term growth potential. Management's willingness to make long-term strategic decisions at the expense of quarter-to-quarter revenue growth is a major net positive for shareholders. Meanwhile, Wall Street has clearly taken notice of ITW's progress in 2016 -- buyers are clearly still in control of the price action this fall.
Cognizant Technology Solutions
The road ahead looks interesting for shares of IT services provider Cognizant Technology Solutions (CTSH) . This $33 billion technology and consulting stock made its mark on the business world by helping customers outsource their tech to cut costs. It was one of the first major IT outsourcers that found success moving technical tasks to India, where a large population of skilled tech workers is able to service accounts at much lower costs than a company could expect to find here at home. And while that model might be threatened by the current political climate, Cognizant is well suited to adapt.
Even though many of Cognizant's professional services providers are based in India, the firm's management and sales team are U.S.-based, giving it a model that continues to sell well here. The firm also provides services based in the U.S., which should see growth if tech companies see pressure to reduce dependence H-1B visa holders. That IT staffing shift could actually become an important growth opportunity for firms like Cognizant.
Part of the reason Cognizant could benefit from a less outsource-happy environment is that clients are incredibly sticky. Because many of Cognizant's contracts are deeply integrated into its clients' businesses, the firm has an economic moat formed by relatively high switching costs. If a client turns to Cognizant to save IT money, the savings bar has to be set much higher to get the clients to jump ship to a competitor. The combination of high margins and a capital-light business model continue to make Cognizant an attractive stock to own in 2016.
Royal Caribbean Cruises
After spending much of 2016 under pressure, shares of $18 billion cruise line operator Royal Caribbean Cruises (RCL) could finally be setting sail in 2016. While shares are still down about 20% since the start of this calendar year, they're actually up almost 24% from their low water mark back in September. Now that Royal Caribbean's price action is stabilizing, investors are finally becoming willing to listen to the macro tailwind story that's taking place in this stock.
Royal Caribbean is the No. 2 cruise ship operator in the world, sailing more than 40 ships across six brands. The firm operates under the Royal Caribbean, Celebrity, Azamara Club Cruises, Pullmantur, and CDF Croisieres de France lines, and holds a 50% stake in Germany's TUI Cruises. Royal Caribbean is also growing its fleet, upsizing and modernizing with feature-packed ships that help sell the line to consumers looking for their next vacation. By 2018, that additional capacity will grow Royal Caribbean's total fleet to 130,900 berths.
The macro story at Royal Caribbean has largely been ignored this year. In the more intermediate term, low commodity prices have helped to boost margins by slashing away at fuel costs needed to run Royal Caribbean's fleet. In the longer term, demographics provide the important tailwind. The firm's target cruiser is Baby Boomers, a large generation that's forecast to drive higher demand for cruise capacity in the years ahead. As more Boomers (and their peers overseas) spend money on leisure travel, Royal Caribbean should see meaningful growth rates in the years ahead.
Last on our Rocket Stock list today is $10 billion niche retailer Tractor Supply (TSCO) .
Tractor Supply operates more than 1,500 stores in 49 states. Besides its namesake brand, the firm also operates stores under the Del's Farm Supply and HomeTown Pet banners. Tractor Supply is basically a lifestyle brand -- the firm's core customer is a do-it-yourselfer, and it aims to provide them with everything they need in life, from clothing to lawn and garden supplies to pet products.
Tractor Supply's locations are focused in rural communities near major metropolitan areas, positioning that offers enough consumer concentration to support a store with the demographics that will want the products Tractor Supply sells. Unique product positioning provides an important economic moat at Tractor Supply -- most of its merchandise is either immediate-need (like dog food, for example), or bulky and costly to ship (like power generators). Because of that, the firm is less pressured by the threat of online sales, while simultaneously benefiting from the extra dollars generated by in-store foot traffic.
Tractor Supply has been under pressure in the last couple of quarters, but a rebound has been taking shape since October. And now, with analyst sentiment turning positive for the first time this year, Tractor Supply could be about to make up for lost time. This week, we're betting on shares.