These 5 Big Stocks Are Primed to Outperform

These stocks have both short-term gain catalysts and longer-term growth potential.

That's it -- earnings season is finally cooling down this week. As the week began, 433 of the stocks in the S&P 500 had already reported their numbers to Wall Street.

All told, it was a strong quarter for fundamental stock performance -- or at least a weak quarter for analyst expectations. A full 77% of S&P components exceeded Wall Street's profit expectations during the second quarter, a fact that helped to contribute to the new all-time highs that the big stock market index ended things at on Friday.

Now that earnings season is over, the big price shocks that go along with earnings are likely to be over too. But that doesn't mean that all of the excitement is gone for your portfolio this summer. To find the stocks that look primed to outperform, we're turning to a fresh set of Rocket Stocks worth buying 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 361 weeks, our weekly list of five plays has outperformed the S&P 500's record-breaking run by 77.6%.

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

Facebook

Up first on the list is Facebook  (FB) . This social networking stock has enjoyed a strong run so far this year, up 20% since the calendar flipped to January. And there could be more where that came from: Facebook is testing all-time highs this summer.

Facebook has the distinction of being the most-visited Web site on the Internet, thanks to more than 1.6 billion daily active users worldwide. That staggeringly huge user base equates to equally large profit opportunities at Facebook. More important, Facebook is ramping up its monetization efforts in a big way, working to bring that earnings potential closer to earnings reality. Facebook's huge growth rates show what it looks like when a company with a huge installed base starts working to wring more money out of its existing users.

There's still a long way to go. For instance, the U.S. market represents about half of all sales dollars despite only making up about 15% of Facebook's traffic. If the firm can get its overseas operations to contribute similar revenue per user to Facebook's core U.S. demographic, upside abounds. Mobile continues to be a huge growth driver at Facebook, thanks in large part to the success of apps such as Instagram and WhatsApp as well as Facebook's own native app. As long as Facebook can move more advertising to its mobile platforms without losing engagement, there's a lot of open runway for this company's earnings to accelerate.

FB shares powered higher this week, grabbing back some of the after-hours gains following its earnings report that were ultimately lost throughout the balance of last week. This is a strong indication that there were certainly some profit takers following the immediate, dramatically positive reaction to the company's strong report last week, but that investors are still eager to benefit from Facebook's ongoing growth. On that note, Instagram announced this week the launce of Stories, a new feature that is essentially aimed at competing with Snapchat and increasing personal sharing on the platform, and therefore the amount of time actively spent engaging with the product. Snapchat has admittedly done a great job grabbing users over the past year, but Facebook's dominance cannot be forgotten. The new Instagram feature provides the platform's 500-million-plus users another reason to remain captivated by the product. Stories also allows for some additional functionality that Snapchat doesn't, such as deciding who can view public stories. Instagram has always flourished on its intimate, user-driven features, so this nice addition should help gain popularity with users who also cross over into the Snapchat universe. Overall, we do not expect Snapchat to go away by any means, but Instagram's ability to adapt to the changing social environment is a positive sign that the overall company is doing what it takes to provide users what they want. Facebook has always been great at doing so. We reiterate our $160 target.

PepsiCo

Snack food and beverage giant PepsiCo  (PEP)  is another stock that's having a strong year so far in 2016. Since the beginning of January, Pepsi has handed investors total returns of 10.3%.

Pepsi controls a huge chunk of your local grocery store. The firm's namesake Pepsi arm is the No. 2 beverage company in the world, and its Frito-Lay unit is the biggest snack manufacturer on the planet. The firm's huge portfolio of brands includes everything from Pepsi to Gatorade and Tropicana on the beverage front and Lay's, Doritos and Quaker on the snack side.

Pepsi's huge presence comes with some big cost advantages. Because the firm can spread big infrastructure costs across twice as much merchandise (revenue is almost evenly split between snacks and beverages, with food coming in slightly ahead), it's able to keep margins thicker than smaller rivals could. Pepsi's core market is here in the U.S., where the firm generates just over half of its overall sales.

The decision to take control of its biggest bottlers back in 2010 meant that Pepsi has had a direct line to its retail partners for more than half a decade. That active relationship with the retail channel should continue to be important, giving Pepsi the ability to test new products and packaging more easily. Internationally, increased consumption of prepackaged snacks and ready-to-drink beverages offers to drive long-term growth, especially if the U.S. dollar's prolonged appreciation reverses course.

Pepsi is another holding in Jim Cramer's Action Alerts PLUS charitable portfolio. "PEP reports so early we tend to forget they had the best numbers in the industry," said Cramer. 

Priceline Group

Travel stock Priceline Group  (PCLN)  is another household-name company that's making our Rocket Stocks list. Priceline is the biggest online travel agency in the world, providing travel and restaurant reservation services through a collection of brands that includes Kayak, Booking.com, OpenTable and Agoda, in addition to Priceline's namesake brand.

Priceline's bread and butter business was created around being a deep-discount travel aggregator, pairing bargain hunters with unsold hotel and flight inventory. That business benefits from a virtuous cycle effect: hotels sign up to sell inventory on Priceline because it has huge traffic numbers, and more travelers search for deals on Priceline because it has more hotels. That advantage is particularly noticeable in emerging markets, where travel inventory is less commoditized, and Priceline's size serves as a big advantage.

More recently, Priceline has been pushing up the uniqueness of its offering by acquiring Kayak and increasing the amount of value-added content on its sites. That shift toward giving travelers something more than the basic aggregation sites should help Priceline stand out (and secure bookings) when consumers in more mature markets like the U.S. go to make their travel plans.

Motorola Solutions 

Communications equipment maker Motorola Solutions (MSI)  makes communications infrastructure, including devices such as two-way portable radios and tools to build wireless communications networks. Motorola's key customers are government public safety organizations, such as law enforcement agencies, and institutions, such as schools and hospitals. While that's admittedly not quite as sexy as the cellular business that legacy Motorola used to dominate, the mission-critical nature of Motorola Solutions' business means that it attracts dollars just the same.

Motorola Solutions is the result of 2011's spinoff of Motorola Mobility as a standalone company. Public safety communications have gotten increasing attention in the wake of recent world events -- and that means that agencies in need of upgraded comms equipment are getting funding. In the most recent quarter, for instance, MSI grew its revenue sequentially by 20%. Services have become an increasingly important contributor to the overall business, as high-margin offerings such as cybersecurity, infrastructure and training add disproportionately to the company's bottom line.

Here at home, increasing efforts to keep law enforcement connected through new technology such as LTE-based communications and body-worn cameras should continue to stoke the growth flames at Motorola, where departments see a benefit in sticking with a single tech provider. At the same time, international growth continues to provide a long-term growth opportunity for Motorola to take the same kind of dominant market position that the company has here at home.

With rising analyst sentiment in shares of Motorola this week, we're betting on shares of this Rocket Stock.

Best Buy

Perhaps against all odds, electronics retailer Best Buy  (BBY)  has been a strong performer in 2016, up 12.5% since the start of this year. That means that Best Buy is meaningfully outperforming the S&P 500 this year -- and it's outperforming most individual stocks by a pretty decent margin over that seven-month stretch. And now there's reason to expect more upside from this written-off retailer.

Best Buy is the last man standing in the big box electronics store business. The firm has 1,631 brick-and-mortar stores spread across the country, giving it a reach that few competitors can match. In the past, that big store footprint was seen as a liability, but that's been changing more recently. Best Buy is finally leveraging that store infrastructure for innovative distribution offerings such as ship-from-store. And while big e-commerce players like Amazon.com  (AMZN)  build out their own distribution infrastructure, Best Buy's footprint starts to look a whole lot less capital-intense.

Management has done a strong job of trimming costs at Best Buy, where the firm's "Renew Blue" plan has managed to cut more than a billion dollars from its annual costs -- and counting. The fact remains that even the most experienced online shoppers like the benefits of a physical showroom at times, and if Best Buy can compete on price, it gets the sale.

Currently, shares trade for a bargain-priced 11.7-times earnings. That low valuation could help extend this stock's price momentum as shares play catchup to the rest of the retail sector in 2016.

Jonas Elmerraji

Source : https://www.thestreet.com/story/13667853/1/these-5-big-stocks-are-primed-to-outperfrom.html