The Labor Day market holiday provided traders with a break in momentum yesterday, cooling the volatility that had been tossing the stock market around in recent months. Indeed, the VIX Index, a measure of volatility, is down considerably since the beginning of September, a sign that stocks might start to stabilize as fall approaches. As expected, the economy continues to be a driver of share prices right now. While economic data held the market’s head under water for much of the last month, some positive indications suggest that we could be due for a turnaround this month.
One of those was the barrage of high profile M&A activity that popped up over the last few weeks. That level of corporate buying is predicated on the corporate view that market valuations are cheap right now. Likewise, with improvements seen in last week’s housing and jobs numbers, retail investors are becoming increasingly willing to part with “safety” investments such as gold and treasuries and get back into stocks.
We’ll do our part too, hoping to uncover some intraweek gains with the latest group of Rocket Stocks plays.
For the uninitiated, Rocket Stocks are our weekly list of companies with short-term gain catalysts and longer-term growth potential. In the last 59 weeks, Rocket Stocks have outperformed the S&P 500 by 58.39%.
Here’s this week’s list of Rocket Stocks to watch.
>>>Stocks With High Short Interest
First up this week is mid-cap apparel company Phillips-Van Heusen (PVH). Despite the challenges faced by the apparel business, Phillips-Van Heusen has stood out as a winner in the category, and its share price has risen in kind. Year-to-date, shares of the company are up more than 25%. But that’s still a far cry from the nearly 60% gains investors were sitting on as of April. Here’s why investors still have upside in this stock in 2010.
Once known for its dress shirt business, Phillips-Van Heusen has grown to become a well-diversified apparel firm with a deep portfolio of brands, including Calvin Klein, IZOD and, most recently, Tommy Hilfiger. Those brands are sold at more than 17,000 stores, of which 650 are company-owned retail locations. By focusing most of its branding on an adult demographic, Phillips-Van Heusen benefits from stickier, more-affluent and less-fickle customers. That niche has helped the company secure top-line growth averaging more than 10% over the trailing five years.
While the $3 billion acquisition of Tommy Hilfiger earlier this year was a major financial undertaking (one that depleted quite a bit of cash, added debt, and diluted shares), the net effect should be a major boon to Phillips-Van Heusen. Investors might get a glimpse of that positive impact later today when the company announces its second quarter numbers.
>>>Also see: 5 Retailers That Can Withstand Rising Costs
One of the big M&A moves this year has been the majority stake in eye care giant Alcon (ACL) taken on by pharmaceutical giant Novartis (NVS). The latter announced in late August that it had acquired a 77% stake in Alcon, enough to warrant fully consolidating Alcon’s financials into Novartis’ books. Meanwhile, negotiations continue as the company tries to vie for the remaining minority interest in the Alcon. Some believe that a better deal is ahead for Alcon’s current shareholders.
For that reason, the company has become a target for merger arbitrageurs, and hedge funds have been purchasing hundreds of millions of dollars worth of Alcon shares in recent weeks. As a leader in eye care therapies, Alcon offers substantial advantages for a pharmaceutical firm such as Novartis -- and the company’s not likely willing to share its attractive pipeline with minority stakeholders.
With equity prices edging up in the last week, a final offer may come sooner rather than later as Novartis tries to rein in Alcon’s valuation ahead of completing the acquisition. Alcon’s current premium over the Novartis offer reflects that. We’re betting on better prices this week.
>>>More on Alcon: 30 Stocks That Matter Most to Hedge Funds
MetLife (MET) has offered some impressive performance in 2010. The insurer is up more than 17% this year after getting pummeled alongside the rest of its industry back in 2008. As the largest life insurer in the U.S., the company benefits from significant scale advantages over smaller competitors and large cross-selling opportunities from a diverse financial product offering. Because MetLife’s insurance offerings are largely commoditized, the company’s exceptional financial health gives it a marked advantage over insurers with riskier investment portfolios.
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Those advantages have done well for the firm, which boasted 10.8% net margins during the second quarter of this year. Efficiency and expansion are the two keys to growth for MetLife. That said, much of the U.S. market is saturated, and MetLife’s size has already contributed to some of the best margins around. To grow, MetLife is looking overseas.
While the company is already a leader in a number of international markets, selling life insurance to emerging markets still offers enormous growth potential. Expect to see the fruits of that expansion in the coming quarters.
>>>Who Owns MetLife?: Hotchkis & Wiley
For more stocks that made this week's cut, including Oracle (ORCL) and Aflac (AFL), check out the Rocket Stocks portfolio at Stockpickr.
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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 MSNBC.com.
