Markets didn't move much during last week's shortened holiday trading. The big S&P 500 index gained a few basis points during the week, barely enough of a move to register. But attention is turning back to the markets this week, as the first trading session of December is set to kick off on Tuesday.
To make the most of it, we're turning to a fresh set of Rocket Stocks to buy for gains 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 326 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 77.62%.
Without further ado, here's a look at this week's Rocket Stocks.
Alibaba
Up first on the list is $204 billion retail giant Alibaba Group (BABA - Get Report) . No doubt about it, 2015 has been a challenging year for shareholders in Alibaba. This big Chinese retail stock last long 21% of its market value since the beginning of the year.
But shares have managed to stage an about-face in recent months, climbing almost 40% since the end of September. That bullish momentum looks likely to carry over into the final month of 2015.
But shares have managed to stage an about-face in recent months, climbing almost 40% since the end of September. That bullish momentum looks likely to carry over into the final month of 2015.
The Chinese economy remains the big black cloud over Alibaba's business. Concerns over slowing growth in China have, in turn, been parlayed into concerns over falling share prices at Alibaba. That said, demographics look strong enough to offset many of those fears. More of the population is moving into the middle class, and the younger generation is far more apt to prefer online shopping to brick-and-mortar retail.
We're betting on shares of Alibaba this week.
We're betting on shares of Alibaba this week.
Lockheed Martin
Defense contractor Lockheed Martin (LMT - Get Report) is another company that's been enjoying some bullish momentum lately. Lockheed is up more than 17% in 2015, but nearly all of that performance has come just in the last half of the year. And that puts Lockheed in prime position to take advantage of any bullish market sentiment in December.
Another big growth driver for Lockheed is its ex-DoD business, providing other government agencies with contract services. By leveraging its expertise in the Federal contracting process for other agencies, Lockheed has the ability to continue bringing some degree of income statement diversification to the table. Shares currently pay a 3% dividend yield.
CME Group
While 2015 has been a pretty tepid year for the major stock market averages, it's been a volatile year for many other asset classes, a fact that's working out well for financial exchange operator CME Group (CME - Get Report) . CME Group specializes in derivative products like futures and futures options, giving market participants a venue to speculate on and hedge for movements in markets like interest rates, forex, commodities and real estate. As firms spend more resources trying to manage risk, CME is well positioned to grow its revenues.
CME Group owns four U.S. exchanges: the Chicago Mercantile Exchange, Chicago Board of Trade, New York Mercantile Exchange and the Kansas City Board of Trade. It also owns a 24.4% stake in S&P Dow Jones Indices, which publishes some of the most well-known equity market indices in the world. Because CME operates clearinghouses for its exchanges, the firm has a deeper economic moat than an exchange operator would alone. Likewise, CME's development of more unique OTC products gives it entrée into a higher-margin corner of the financial services market.
From a financial standpoint, CME Group is in good shape, with $1.2 billion in net cash on its balance sheet and a modest $2.2 billion debt load. A return to pre-2008 trading volumes for financial instruments should yield considerable revenue growth in the coming years at CME.
Stanley Black & Decker
The strength of the housing market has been experiencing some major tailwinds in recent years, boosting the fortunes of every industry from homebuilders to home improvement retailers. Another big beneficiary of that trend has been tool maker Stanley Black & Decker (SWK - Get Report) . Shares of this $16 billion tool and equipment maker have rallied more than 13% since the calendar flipped to January, beating the rest of the broad market by a double-digit margin.
Stanley Black & Decker owns some of the best-known tool brands on the market today. Besides the Stanley and Black & Decker labels, the firm also owns brands such as DeWalt, Porter-Cable, Mac Tools and Bostitch. In short, Stanley Black & Decker owns a major share of the tool aisle at the big box home improvement store, as well as a big share of the professional contractor and mechanic's toolbox -- and that big installed base comes with some big advantages. That's only becoming more noticeable, as more tools make the jump to battery power, and individual manufacturers see stickiness from customers who invest in a single company's single battery platform for a whole line of tools.
Big investments in the security and infrastructure businesses provide some income statement diversification for Stanley Black & Decker, helping to offset the firm's 2012 divestiture of its home hardware and lock and key businesses. With rising analyst sentiment in shares of Stanley Black & Decker this week, we're betting on shares of this Rocket Stock.
E*Trade Financial
Last up on our list of Rocket Stocks is E*Trade Financial (ETFC - Get Report) . E*Trade is a $9 billion financial services firm that's spent the last few years expanding beyond its historical role as a discount stock broker. Today, E*Trade's business actually extends into retail banking, with an FDIC-insured bank. That banking business gives ETFC access to a big base of low-cost deposits, which are critical to growing the firm's bottom line when rates are low.
In some ways, E*Trade is a leveraged bet on stock market performance. As equity prices continue to rise, so too havetrading volumes -- and E*Trade's ability to generate trading commission revenue. The firm has also benefited from rising levels of margin debt. More investors borrowing to buy and short stocks means higher interest revenues for E*Trade.
The prospect of the Fed raising interest rates has the potential to boost profits at E*Trade in a meaningful way. That's because higher rates increases the rates at which E*Trade's brokerage and banking businesses can lend money. Likewise, higher rates could help to push investors from rate-sensitive fixed-income investments, which pay lower margins over the risk-free rate, and into stocks, driving commission revenues in the process. E*Trade's price momentum has been looking strong in recent weeks -- and shares are within grabbing distance of new all-time highs as we head into the new week. We're betting that momentum holds as we head into December.
By Jonas Elmerraji
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