Stock Quotes in this Article: DFS, HRL, ROK

BALTIMORE (Stockpickr) -- The markets started off the week slightly higher this morning, a reprieve from volatility following the massive push in equities that managed to completely erase the selloff of the previous week. As the market builds another base above the 1,300 level, investors are likely to start regaining comfort in stocks -- a feeling that most retail investors have failed to enjoy lately according to major sentiment measures.

With sentiment swings offering to deploy more capital in the stock market as we approach spring, it’s time to take another look at the stocks that are best-positioned to benefit right now. I’m talking about the issues with rising analyst expectations, our weekly list of Rocket Stocks.

For the uninitiated, Rocket Stocks are a set of companies with short-term gain catalysts and longer-term growth potential. In the last 96 weeks, our Rocket Stocks have beaten the S&P 500 by a very material 74.79%.


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    As usual this week, we'll continue our trend of looking at stocks with rising analyst expectations. On Wall Street, expectations can mean everything -- and stocks with rising expectations often benefit from increased buying pressures from institutions and retail investors alike. To find them, I run a quantitative screen that seeks out stocks with a combination of analyst upgrades and positive earnings surprises.

    Without further ado, here's a look at this week's potential plays.

    Discover Financial Services

    Already this year, shares of Discover Financial Services (DFS) have been on fire; the market value of this $13 billion credit card network has risen more than 29% in 2011. Because Discover is both an issuer and a payment network, this company benefits from collecting revenue both from lending fees and on the transactions themselves. While the breadth of Discover’s network has been a bottleneck for growth in the past, increased acceptance (thanks in part to fee concessions) has made the firm look particularly attractive.

    Discover operates as a closed credit card network with only one real comparable peer, American Express (AXP). Like its much larger rival, Discover has opened its network up to some extent, offering cards from third-party issuers to reduce its exposure to lending risks. Unlike Amex, however, Discover doesn’t enjoy the affluent brand image that helps to drive growth in the former. To combat that, Discover bought Diner’s Club back in 2008, adding a fee-heavy charge card business to its portfolio of offerings.

    In the past, Discover’s relatively small size has been seen as a limitation by investors eager to invest in the financial industry’s standard-bearers. Now, though, a bargain price, growth pace, and even acquisition potential are making Discover worth a second look.

    With a B buy rating, Discover is one of TheStreet Ratings' top-rated consumer finance stocks.

    Rockwell Automation

    The past few years have proven challenging for companies such as Rockwell Automation (ROK). As an industrial equipment maker, the company’s sales are directly tied to capital spending levels at manufacturers worldwide. As such, the significant spending decline of the recession had repercussions that were felt industry-wide. Now, with production on the rise again, Rockwell is enjoying a quick return to its previous sales levels.

    To be fair, Rockwell fared better than most during the recession. The company’s sales declines weren’t truly felt until 2009, and an efficient corporate structure meant that profitability remained strong throughout. Now, though, growth in the factory automation business is the key to this stock’s attractive outlook.

    A strong balance sheet has afforded Rockwell the ability to return significant value to its shareholders in the form of dividends, something that the firm should be able to continue for the foreseeable future, particularly as free cash flow generation keeps accelerating. We’re betting on shares to start the week.

    Rockwell was one of Barclays' 30 best stock picks for 2011.

    Hormel Foods

    Packaged food producer Hormel Foods (HRL) is another attractive play this week, despite rising commodity costs that have put most food makers under a margin squeeze. Hormel’s biggest business is in processed meat products, which have generally seen less price appreciation than comparable agricultural commodities like grain and corn that are staples in emerging markets. To be sure, grain prices do trickle down to Hormel’s expenses (mainly in the form of animal feed) -- but lean operations mean that price volatility is less painful for Hormel than for many competitors.

    Meat products also carry wider margins than other processed food products, a factor that gives Hormel a desirable margin of safety in its operations. Hormel’s product positioning has made it particularly resilient to consumers trading down at the grocery store. With a number of bargain brands under the Hormel flag, consumers have kept buying this firm’s food products under tight budget constraints.

    Already in 2011, shares of Hormel are showing significant relative strength against the broad market. As price increases continue to make their way around grocery shelves, Hormel should be able to counter the effects of rising inputs on its profitability – in the meantime, those wide margins will be key.

    Hormel showed up on a recent list of 5 Defensive Stocks to Protect Your Money. With an A buy rating, it's one of TheStreet Ratings' top-rated food products stocks.

    For more stocks that made this week’s cut, check out the Rocket Stocks portfolio at Stockpickr.

    -- Written by Jonas Elmerraji in Baltimore.


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    At the time of publication, author had no positions in stocks mentioned.

    Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on