Canadian Stocks For 2015: 5 Rocket Stocks to Buy in November

BALTIMORE (Stockpickr) -- The weather may be starting to chill across much of the country, but that's certainly not the case on Wall Street. Mr. Market is still heating things up.

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While most investors were distracted by the government shutdown last month, the S&P 500 churned out a whopping 4.5% gain for October. A strong October isn't out of the ordinary; the fourth quarter is statistically the most fruitful one for investors. But considering the 23.5% rally that the S&P has pushed out year-to-date, that's really saying something.

So with stocks looking auspicious as November kicks off, let's take a look at five new Rocket Stock names.

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 221 weeks, our weekly list of five plays has outperformed the S&P 500 by 90.2%.

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

PepsiCo

First up is PepsiCo (PEP), the $130 billion food and beverage giant. Pepsi may be best-known for its namesake soft drink brand, but the firm is also one of the biggest snack food makers in the world thanks to its Frito Lay unit. In total, the firm earns around half of its revenue from food and the other half from beverages.

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Pepsi's diversification provides some separation from Coca-Cola (KO), the top contender in the non-alcoholic beverage space. Each firm, though, owns a stellar distribution apparatus, which in Pepsi's case can be dual purposed for both the beverage and food business. That logistics expertise provides cost savings that rival firms can't match.

Meanwhile, the firm has been searching out other ways to acquire advantages through scale. Pepsi bought its two main North American bottlers in 2010, a deal that's kept more profits in-house and provided more nimble manufacturing abilities for a swifter marketing machine. As consumers in emerging markets increase their consumption of packaged beverages and snack foods to become more in line with the West, Pepsi has some big growth opportunities ahead of it.

Already, the firm's inroads in China and India are looking promising for investors -- and with rising expectations ringing in from analysts this week, we're betting on shares.

Abbott Laboratories

Abbott Laboratories (ABT) isn't what it once was. And that's a good thing for investors.

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Abbott split off its legacy pharmaceutical business from the rest of its efforts on Jan. 1, leaving pharma in the hands of AbbVie (ABBV). The remaining "New Abbott" manufactures medical devices, nutritional products, diagnostic equipment and some generic drugs. While that business lacks the massive cash flows that pharmaceuticals provided, it also lacks the patent cliff discount that's been hoisted on the industry.

The medical business offers some attractive positioning in its own right. Powerhouse offerings such as Xience stents and high-margin nutritional brands generate plenty of free cash flow, and the firm is already much leaner after applying its spin-off proceeds to its debt load. That debt load, incidentally, has been reduced from $20 billion at the start of the year to a much more manageable $7.9 billion as of the most recent quarter. Going forward, more of that cash should be allocated to dividends; for now, ABT's payout weighs in at a 2.4% yield.

An aging baby boomer population in the U.S. should provide a big tailwind for Abbott in the years to come. Coupled with massive cost-savings efforts, ABT should generate significant multiplying power in its bottom line – at this point, too many one-time spinoff charges are still baked into the 2013 pie to give investors fair metrics.

Nike

2013 has been a stellar year for athletic apparel giant Nike (NKE). The $68 billion stock has rallied more than 47% since the calendar flipped over to January, besting the broad market by a factor of two. And while it's hard to call Nike cheap at current prices, Nike's big long-term growth opportunities justify the premium.

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Nike owns one of the most valuable brands in the world, a fact that guarantees premium pricing for the firm's huge array of footwear and clothes. With football season now well underway, investors should start seeing the benefits of the five-year apparel contract Nike penned with the NFL -- but that's not the big growth story in this stock. For that, you have to travel a bit further. Specifically, Nike's growth is taking place in emerging markets like China, India, and Latin America, where burgeoning middle-class populations are increasing demand for "attainable status symbols" (such as a pair of trainers with a big swoosh on the side).

Size comes with some big advantages, and Nike's pricing power over its retailers is the biggest one. Because athleticwear retailers rely on Nike to stock their shelves, the firm is still able to command higher price tags for its products, and retailers will take lower margins in exchange for consistent inventory turnover. A fortress balance sheet with a solid net cash position rounds out the picture in this apparel giant.

Kroger

Kroger's (KR) business may not be quite as exciting as Nike's is to consumers, but its stock has actually been more exciting in 2013. Shares of the grocer are up 64% since the first trading day in January. There's no question that Kroger is the best-in-breed grocery stock right now, but the firm's current valuation doesn't show it.

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Kroger is a 130 year-old grocer that operates more than 2,400 supermarkets, 750 convenience stores, and 325 jewelry stores under a handful of popular brands. Those marquees include Ralphs, Fred Meyer, Kwik Shop and Turkey Hill in addition to the firm's namesake stores; Harris Teeter is set to join the mix later this year.

There aren't many advantages in the grocery business, but Kroger has found the few that really work well. For starters, the firm manufactures almost half of its private label products itself, a level of expertise that cuts out the middleman on the fattest-margin offerings. Gasoline is another lynchpin of KR's success. The firm uses fuel as a loss leader to pull in customers at nearly half of its locations. While many peers have copied that strategy, the existence of gas infrastructure at such a large percentage of its locations gives Kroger some built-in advantages. In many cases, rivals don't have the option to add fuel to as many of their own stores.

So, with rising analyst sentiment in Kroger this week, we're betting on shares of this Rocket Stock.

Weyerhaeuser

Timber REIT Weyerhaeuser (WY) is basically a leveraged bet on the housing sector -- one with hugely tax advantaged income streams. Weyerhaeuser owns 6 million acres of timberland concentrated in the South and the Pacific Northwest, which it uses to parlay into wood products, cellulose fibers, and real estate. The biggest part of the business, timber harvesting, doesn't get taxed. Instead, at least 90% of earnings must be passed onto investors in the form of dividend income.

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By transforming itself from a paper and packaging company into a timber REIT during the height of the great recession, Weyerhaeuser dramatically changed its attractiveness (even if it didn't hugely change its assets). Timber is a very cyclical commodity, and with wood prices coming off of weak demand in the years following the housing bust, WY's positioning is starting to look desirable again.

Like many real estate investment trusts, Weyerhaeuser's balance sheet is more leveraged than a conventional corporation; the combination of a capital-intense business and the requirement to pay out retained income to shareholders make it a certain amount of leverage necessary. With around $3.7 billion in net debt, Weyerhaeuser's borrowing costs are reasonable for its size, and small enough to keep net margins close to 10% last quarter.

As demand for timber products creeps higher, so too should WY's share price.

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.

Canadian Stocks For 2015

Sunday, January 25, 2015

5 Rocket Stocks to Buy in November

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