The past six months have been high time for stock market investors--since September, the S&P 500 has managed to muscle its way more than 11% higher.
More importantly, there's been almost universal participation from the individual stocks. More than 80% of the individual names in the S&P 500 are up over the course of that six-month stretch.
But don't mistake this environment for a market where you can just buy stocks blindly and still make money. Stock picking still matters a lot in 2017.
Delve a little deeper into the stats, and the gap between outperformers and underperformers becomes a little clearer. For instance, of the stocks that are up in the past six months, nearly half are up 20% or more during that timeframe--in other words, owning leaders means a huge margin of outperformance versus owning the typical stock in the S&P.
So, to find the next set of stocks likely to lead, we're turning to a fresh set of "Rocket Stocks" worth buying for 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 past 391 weeks, our weekly list of plays has outperformed the S&P 500's record-breaking run by 77.06%.
So, without further ado, here's a look at this week's Rocket Stocks.
2017 is panning out to be a strong year for shares of home improvement retailer Home Depot Inc. (HD - Get Report) . Just year-to-date, this retailer has handed investors total returns of 12.25%--zoom out to the past six months, and that rally expands to nearly 20% returns. The good news for investors is that Home Depot's price momentum isn't showing any signs of slowing here. Shares hit new all-time highs during this past Friday's trading session.
Home Depot is the biggest home improvement store chain in the world, with 2,278 big box store locations spread across the U.S., Canada, and Mexico. Rising home prices have been a major tailwind for Home Depot--as homeowners feel the wealth effect from their rising equity values, they're becoming increasingly willing to spend more money on home upgrades.
The firm has shifted its attention away from solely DIY customers in the past few years, including pro customers in its target market to take advantage of the growth in the commercial construction market. At the same time, those deeper relationships with contractors are giving it an edge in its service offerings--Home Depot can pair consumers off with service providers who use only Home Depot-supplied products, and collect a markup in the process. Tailwinds in services and an increasing focus on the private label should provide fatter margins for Home Depot in 2017.
Despite a shaky start in 2017, Qualcomm Inc. (QCOM - Get Report) is finding its footing. Since bottoming at the start of February, Qualcomm has been in "rebound mode," charging more than 8% higher, versus a 3.7% upside move in the rest of the S&P 500 over that same timeframe. Clearing black clouds could fuel more upside in Qualcomm as we dig deeper into the calendar year ...
Qualcomm makes chips used in mobile devices. The firm's processors can be found in a number of high-end smartphones, and its components are ubiquitous in the industry (Qualcomm provides the radio modems used in many of the new iPhone 7, for instance). Simply put, if you own a smartphone, there's a very good chance that Qualcomm got paid somewhere along the way. That's not just true if your phone has Qualcomm hardware in it--the firm also owns a massive intellectual property portfolio, licensing its patents and collecting royalties for pretty much every 3G and 4G LTE device that's sold worldwide today.
While anti-competitive concerns surrounding that valuable IP have gotten Qualcomm in hot water with South Korean and Chinese regulators, and patent drama with corporate "frenemies" like Apple Inc. (AAPL - Get Report) have added to this stock's headline risk, it doesn't change the big picture here. As those black clouds clear, this stock is well-positioned to make up for lost time in 2017. Analyst sentiment is ticking higher in Qualcomm, so we're betting on shares this week ...
Cognizant Technology Solutions Corp.
IT services consultancy Cognizant Technology Solutions Corp. (CTSH - Get Report) is benefiting from overall growth in the IT services industry. That positioning has translated into a growth rate deep into the double-digits over the past five years, and as more companies look to push more of their IT infrastructure to "the cloud," consulting organizations like Cognizant are well-positioned to see engagements rise.
Cognizant originally made its mark on the business world by acting like a major cost-cutter. The firm 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. Now, the trend toward cost savings as a function of physical infrastructure gives Cognizant the opportunity to leverage its substantial footprint in the U.S. and Europe.
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. While the outsourcing model may have lost some of its political appeal, Cognizant actually stands as a possible net winner as companies look to Cognizant to replace H-1B visa positions they have to give up.
Historically, Cognizant's customer base has been incredibly sticky. In other words, switching costs are high and Cognizant's ability to quantify the benefits it offers clients keep retention levels extremely high. Buyers are clearly in control of the price action in this big tech services stock right now ...
Rounding out our list of Rocket Stocks for this week is $22.6 billion payroll company Paychex Inc. (PAYX - Get Report) . With all of the focus on rising interest rates in the last week, Paychex is a smart way to play the moves from the Fed. More on that in a moment ...
First, Paychex's core business: Paychex provides payroll services for more than 590,000 customers, primarily small and medium-sized businesses. The firm helps those smaller firms navigate the maze of tax and compliance issues involved in paying employees, earning profits in the process. The firm also offers other outsourced HR functions, including 401(k) administration and worker's comp insurance.
Improvements in jobs numbers are a good thing for Paychex--the firm's pricing is generally based on a flat fee plus an addition charge for every employee processed through the platform on payday. More jobs in the economy directly mean more profits at Paychex.
As I mentioned a moment ago, deep down, Paychex is really an interest rate play. That's because the company has historically earned a substantial income from float interest (the interest money it earns on massive payroll accounts between the time that employers deposit funds and employees cash their checks). With rates held near zero for the better part of the last decade, that revenue stream has dried up. A trend back in the direction of higher rates could return an important source of revenue that heads straight to PAYX's bottom line. Investors get their next update on Paychex's business when the firm reports third quarter earnings at the end of this month.