Monday, October 27, 2014

5 Rocket Stocks to Buy for November Gains

BALTIMORE (Stockpickr) -- What a week – the S&P 500 rallied 4.12% between last Monday's open and Friday's close, ringing in the best week for stocks so far in 2014.
(It's no coincidence that the worst week of the year was also in October.)
At this point, the tide looks like it's turned. The S&P tested a major long-term trendline and buying pressure is building thanks to an overwhelmingly bullish earnings season. So far, just under half of S&P components have reported their numbers to Wall Street, and nearly all of them have squashed analysts' earnings expectations. That turning sentiment in stocks is worth grabbing onto as we barrel into November.
So, to take full advantage, we're taking a closer look at five new "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 271 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 80.27%.
Without further ado, here's a look at this week's Rocket Stocks.

Apple
2014 has been a stellar year for shares of Apple (AAPL) . The $617 billion tech giant is up more than 31% since the calendar flipped to January, hitting new split-adjusted all time highs thanks to a bargain bin valuation and fast product growth. And Apple still looks like it has higher prices in store as 2014 comes to a close.
Apple continues to hit new-sales high notes. Last quarter, the firm sold a record breaking 39.3 million iPhones, thanks to better-than-forecast sales of the larger iPhone 6 and iPhone 6 Plus handsets. And next year, Apple makes the transition into wearables with the Apple Watch. Apple's strategy is built around offering innovative software features that drive demand for higher-cost (and higher-margin) hardware. And once customers are in, they're likely to keep spending money within the Apple ecosystem, fueling sales at the firm's iTunes and App Stores.
The introduction of Apple Pay this month is another potential coup for the Cupertino, Calif.-based company. Apple has come up with an answer to the recent bevy of data breaches while simultaneously collecting a fee for every transaction that users make with their phones or watches. Despite the recent rally, Apple still looks cheaper than most technology names on an ex-cash basis.
So with rising sentiment in Apple this week, we're betting on shares.

Schlumberger
It's been a rough couple of months for $125 billion oil field servicer Schlumberger (SLB) . Since the start of July, shares of SLB have fallen close to 20%, dragged down by pressure from falling oil prices. The drop in Schulberger has been pretty predictable so far, but SLB is starting to show some signs of strength this fall.
Schlumberger is the largest oil servicer in the world. In short, its business is built around helping oil and gas producers pull commodities out of the ground as efficiently as possible. The firm's menu of services ranges from seismic surveys to well drilling and positioning and everything in between; as a result, SLB is omnipresent on oilfields around the world. It makes sense, then, that the firm's been getting squeezed as dropping oil prices ratchet down oil producers' incentives to keep costlier well sites online.
But the cost pressures in the oil business are also making Schlumberger's value proposition more impactful. For instance, because SLB helps reduce the costs of pulling oil out of the ground, E&Ps need it when prices drop. Schlumberger's ideal middle ground comes when producers are squeezed enough to want to cut costs, but not enough to close well sites. After selling off hard, SLB looks ready to rebound in the final week of October.

UnitedHealth Group
UnitedHealth Group (UNH) is the largest managed care organization in the country. The firm provides coverage to more than 40 million members, and its network extends worldwide to more than 85 million individuals who use UNH in some capacity. Size comes with serious advantages in the healthcare world: UNH's unparalleled scale means that the firm has leverage over medical providers, which in turn drives cost-conscious patients to turn to UNH's services.
Unlike most of its domestic peers, UnitedHealth is one of the few U.S. health insurance providers that has exposure overseas. The firm acquired Brazilian health insurer Amil in 2012, gaining exposure to a fast-growing market with starkly different dynamics than we face here at home. In all, it has some business in 125 different countries. Meanwhile, domestically, an aging U.S. population is providing a tailwind for UNH as patients seek higher coverage levels and network providers with the lowest out of pocket costs.
With major health care regulation changes, UNH has been moving more of its efforts from health insurance to healthcare administration, a more lucrative and less regulated business that benefits from the aging U.S. demographics. Likewise, exposure to Medicare and Medicaid provide an important low-risk source of revenues at UnitedHealth. With rising analyst sentiment in this name this week, we're betting on shares.

Delta Air Lines
2014 has been a blockbuster year for $33 billion airline company Delta Air Lines (DAL) . Shares are up more than 43% since the start of the year. Delta and its peers are enjoying a cyclical upswing in the airline business right now, as profitability and passenger volumes ratchet higher. The dropping cost of oil is a major plus for Delta in the fourth quarter. Fuel is the single largest expense for an airline, so even moderate crude oil price decreases can have major positive effects on Delta's bottom line.
That's particularly true for Delta, which went a nontraditional route with its fuel hedging by going out and buying an oil refinery. Delta's Monroe Energy's subsidiary refines approximately 200,000 barrels of crude per day at its Trainer refinery in Delaware.
Delta is one of the country's legacy air carriers and one of the largest airlines in the world. The firm's fleet includes more than 720 aircraft serving approximately 250 mainline locations around the globe. Delta also owns a large stake in UK carrier Virgin Atlantic, a deal that gives the firm access to more lucrative trans-Atlantic routes through codeshare agreements. Recent changes to Delta's frequent flyer program will put the onus on travelers' dollars spent at the airline, rather than just miles flown, putting the incentives for Delta's most lucrative customers in line with the firm's bottom line.
Delta is consistently a first-mover in the airline business. Look for the firm to continue to enjoy best-in-breed profitability and traffic volumes.


Illinois Tool Works
Last up on our Rocket Stocks list this week is Illinois Tool Works (ITW) , an industrial manufacturing company that makes everything from car seat heaters to commercial ovens. All told, the firm has more than 100 individual business units in 58 countries. As it happens, that number is actually low compared with ITW's historic diversification -- the firm has trimmed its division count from 800 over the past several years. Focusing on the most lucrative corners of its empire has had a palpable effect on overall profitability at ITW.
Previously, one of the most notable aspect's of ITW's structure was the fact that it operated on a decentralized model. In other words, it gave managers enough rope to hang themselves. That operational freedom helped grow the firm at a breakneck pace, but the tradeoff was that ITW couldn't leverage its scale for bigger returns. With the firm's re-focus on its most profitable segments, ITW is changing that. While management will still have autonomy over their individual units, they'll centralize some back office and buying functions to increase efficiency.
From a financial standpoint, ITW is in good shape. The firm has a $4.8 billion cash position that helps to offset its reasonable $7.5 billion debt load -- and it consistently earns net profit margins that come in above 10%. If ITW can clear its 52-week highs this fall, look for some serious outperformance as we head into 2015.

To see all of this week's Rocket Stocks in action, check out the Rocket Stocks portfolio at Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.

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