Stock Quotes in this Article: AFL, COV, CTSH, EL, ORLY

BALTIMORE (Stockpickr) -- Stocks ushered in some strong performance last week, with the S&P 500 rallying 2.96% in the last five trading sessions to close the biggest single-week move so far in 2013. So much for the summer doldrums.

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Investors have Ben Bernanke to thank for that buoyancy in stocks. That may seem surprising, especially after Bernanke's tapering comments effectively torpedoed the market last month. But like I said last month, Bernanke's taper talk was largely lip service. Talk is cheap, QE isn't -- so it was worth testing the waters with the idea that the Fed would wrap up their buy programs.

But it didn't take. Now, with the market's uptrend back on track (even if it's a slightly different track), it makes sense to look for buying opportunities in stocks again. That's why we're turning to a fresh set of Rocket Stocks to start the week.

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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 207 weeks, our weekly list of five plays has outperformed the S&P 500 by 80.72%.

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

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First up is medical device maker Covidien (COV), a stock that hasn't exactly rocketed so far this year. Since the calendar flipped over to January, shares of the firm have effectively stayed flat. At the same time, the S&P 500 has posted gains approaching 18%.

But Covidien could be due for a turn of fortunes. The boost in analyst expectations in the last week is an early indication of that.

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Covidien made a bold step at the start of this month, spinning off its pharmaceuticals business into Mallinckrodt (MNK), the unit Tyco International bought in 2000 to increase its pharma offerings. The transaction makes Covidien a pure play medical device and imaging company and should boost margins now that the massive but commodity-like generic pharmaceuticals business is off of its plate. While a swelling R&D budget has put the squeeze on margins, it should pay off in spades in 2013, particularly as compelling new technologies like the Sonicision ultrasonic dissection tool get physicians excited.

The firm's earnings call on Aug. 1 could be the catalyst Covidien needs to recover lost ground with the broad market. Investors should keep a close eye on that earnings call.


Supplemental health and life insurer Aflac (AFL) may be best known for its unlucky cartoon duck mascot, but the firm is anything but unlucky in its own affairs. Aflac is a major insurer in two of the most lucrative insurance markets in the world: the U.S. and Japan. In particular, Japan has been fuelling some impressive sales for Aflac in 2013, helped along by an equity rally that's even outpaced the impressive performance here at home.

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Aflac's flagship supplemental policies pay out preset cash benefits if customers meet a predetermined condition -- normally contracting a disease or being involved in an accident. These sorts of loss-of-income policies are proving popular in the wake of the Great Recession as consumers look for way to protect income. And since they're deducted directly from paychecks in many cases, there's no sticker shock effect from seeing money go out each month. That provides a sticky customer base, especially in Japan, where renewal rates hover around 95%.

While the U.S. has largely been underserved with supplemental coverage (it only makes up a quarter or so of Aflac's premium income), it's also a less attractive insurance market where retention rates are lower. Despite the demographic shortfalls here at home, the U.S. market should provide some real growth for AFL. So should the continued equity rally, as Aflac's investment portfolios get pushed higher by market forces, leaving shareholders with more assets for the same level of risk.

Estee Lauder

Cosmetics giant Estee Lauder (EL) has built a $26.5 billion business by selling makeup and fragrances around the world. And in 2013, this stock has been enjoying some stiff tailwinds at the hands of upped consumer discretionary spending. Estee Lauder owns a full 25% share of the world's high-end cosmetics market thanks to a portfolio of brands that includes popular names like Clinique, M-A-C, Aveda and Origins.

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Makeup benefits from fat margins and very high customer stickiness -- consumers aren't likely to just jump to an untested brand, which makes EL's massive market share very defensible. Today, around 60 cents out of every dollar that Estee Lauder generates comes from overseas. While that's a strong number, it leaves a whole lot of room for improvement, especially as a burgeoning new middle class of women in emerging markets boosts demand for pricier makeup and fragrance products.

Consumer tailwinds aren't showing any signs of dying down in 2013. As mall traffic trends higher in the U.S. and abroad, EL should continue to churn out strong fundamentals. Look out for earnings on Aug. 15.

Cognizant Technology Solutions

Cognizant Technology Solutions (CTSH) is a major name in the outsourced IT field, providing clients with services that range from software development to computer network maintenance. Cognizant sports a dual-pronged approach: It combines outsourced low-level services (with huge labor cost savings) with localized consulting efforts. That gives Cognizant the flexibility to market multiple services to each client it serves, and the firm earns hefty profit margins for its trouble.

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The bulk of Cognizant's business is pretty simple: The company has a workforce with advanced technology expertise who work for less money than their Western counterparts. Cognizant wasn't the first Indian IT outsourcer. But it was one of the first Indian IT outsourcers to plant its base of operations here in the U.S. with a management team that's able to flatten cultural barriers to doing business from the onset.

IT spending remains one of the mission-critical costs that continues to rise right now, and as it does, so too should Cognizant's billings. The firm's nearly $3 billion in cash and zero balance sheet debt adds up to an effective 10% discount on valuation. Even though Cognizant's shares aren't exactly cheap, the price tag is offset by a breakneck growth rate and stellar management stewardship. Look out for earnings on August 2.

O'Reilly Automotive

2013 has been a stellar year for shares of O'Reilly Automotive (ORLY); shares of the $13 billion auto parts retailer have rallied more than 30.7% since the start of the year. That's almost twice what the S&P has been able to do over the same time period -- quite a feat.

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O'Reilly is the second-largest auto parts chain in the U.S., sporting a network of more than 4,000 stores. While ORLY started off primarily serving the commercial auto parts market, the acquisition of CSK Auto shifted the firm's mix more to the retail side. That's important positioning: as other auto retailers clamor for commercial business by adding "stores within a store" to their existing locations, O'Reilly already owns an established network of parts suppliers for independent shops.

The auto parts industry has enjoyed some help from the broad economy in recent years -- the biggest is the age of the average car on the road today. Despite the uptick in new car sales, the average age fleet age in the U.S. is higher than ever before. As consumer look to prolong the lives of their vehicles, O'Reilly shareholders stand to profit.

With rising analyst sentiment in shares, we're betting on ORLY this week.

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

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

Follow Jonas on Twitter @JonasElmerraji