5 Market Rally Stocks With Room To Run

The S&P 500 seems to be setting new all-time highs every week. After a brief pullback in February, the index is up 10%. However, not all stocks are enjoying the same love.
But that’s not because they’re not great investments. They’ve just lagged the market. The key  to investing in underperforming stocks is to make sure they aren’t value traps.
Below, these five market rally stocks offer  buying opportunities at a time when most stocks are trading near 52-week highs.

5 Stocks that Have Room to Run, Despite the Market Rally

1. MasterCard (NYSE: MA)

Shares of MasterCard are down 12% year to date. The shift away from paper payments to debit and credit has been fast. MasterCard is one of the biggest benefactors of this transition. In  2013 it launched its digital wallet, MasterPass. It also has a big opportunity for selling its vast amounts of data to banks and retailers for determining spending patterns. The segment that includes the sale of data grew by 22% year over year last quarter, beating out the 14% growth in the payments processing segment.
MasterCard also has a strong position in international markets. The company believes that its international operations will grow revenues by double digits over the next few years. About 40% of revenues are from outside the U.S.
MasterCard’s  return on investment is an impressive 42%, with just over 8% of its market cap  covered by cash. It’s still a very shareholder-friendly company. Its dividend yield is only 0.6%, but it initiated a $3.5 billion share buyback program at the end of 2013. There are no sell ratings on the stock and around 80% of the analysts following the stock have a buy rating or better.

2. Visa (NYSE: V)

Visa is another major player in the payments industry. It’s down 6% year to date. Unlike MasterCard, Visa carries no debt and pays a 0.8% dividend yield. The high spending using cards is a big positive, but as growth in debit cards plateaus, Visa is turning toward new processing platforms.
Visa’s 2010 acquisition of the e-commerce credit card payment system CyberSource is still paying dividends. The move gave Visa increased exposure to the e-commerce market. The number of billable transactions via CyberSource were up 16% year over year during Visa’s fiscal second quarter. Other areas Visa is focusing on for the long-term include money transfer, mobile and prepaid payments.
Visa also has a strong analyst following, but no sell ratings. Some 84% of the analysts following the company have a buy or better rating.

3. Lowe’s (NYSE: LOW)

The second-largest home-improvement retailer in the U.S. is down around 4% year to date. Shares have underperformed the S&P 500 for the last year, but it’s one of the best plays on the housing market rebound. It also offers a dividend yield of right at 2%, with a 32% payout ratio.
The company’s key strategy is to close underperforming stores and revamp store offerings to better resonate with customers. This includes resetting its product portfolio in stores. It’s already redesigned its product offerings in 1,400 stores.
Lowe’s has also snatched up Orchard Supply Hardware Stores. The move boosted Lowe’s presence in the California markets. Orchard has a smaller-format store that has a higher transactions rate per square foot than Lowe’s current stores. This smaller format will allow Lowe’s to enter more markets without large investments to build the larger Lowe’s stores.

4. Whirlpool Corp. (NYSE: WHR)

Whirlpool is another play on the housing market. Shares are down 11% year to date. The company is a leader in the global market when it comes to manufacturing home appliances. It’s relatively reliant on sales in North America, but the company is looking to capitalize on the rising middle class and urbanization economies of Latin America and Asia.
Whirlpool is bringing its production of appliances closer to the locations where they are primarily sold. For example, its production facility for commercial front-load washing machines was moved from Mexico to Ohio earlier this year. That comes as over 90% of commercial washer sales were in the U.S. This should help cut down on transportation costs and help the company meet customer demands more efficiently.
Whirlpool stock trades at a P/E of just under 10 based on next year’s earnings estimates. Coupled with Wall Street’s earnings growth expectations for the next five years,  its P/E-to-growth ratio is a low 0.7 (anything below 1.0 is considered a considered a growth at a reasonable price opportunity). The return on investment is 16%, and 15% of its market cap is covered by cash.
Its 2.2% dividend yield (only a 27% payout of earnings) also makes  Whirlpool  a growth and income story. It also has a new share buyback program worth $500 million, good enough to reduce shares outstanding by around 5%.

5. Discovery Communications (NASDAQ: DISCA)

Shares of Discovery Communications are down the most of these five stocks, having fallen 18% year to date. It’s one of the purest plays on cable TV, owning such brands as Discovery, TLC and Animal Planet. The barriers to entry for content providers are relatively high.
It’s already the leader in documentary programming, but the key for Discovery Communications is that it’s becoming more of an international play. In early 2013, Discovery Communications bought up SBS Nordic TV. Then toward the end of last year it took a 20% stake in Eurosport. Given the rapidly changing pay TV environment in the U.S., the fact that it gets around 45% of revenues from outside the U.S. is a big positive.
Discovery Communications is a cash-flow-generating machine. Its net profit margin (at 18.5% over the trailing 12 months) is one of the best in the industry. The company has an average net income to free cash flow (net income divided by free cash) of over 100% for the last six years. Over the trailing 12 months, it’s converted 120% of its net income into free cash. It doesn’t offer a dividend, but it has managed to reduce shares outstanding by 19% over the last five years.
All of these stocks have underperformed the market so far this year, but they’re all still solid investments. Now might be a buying opportunity for long-term investors to pick these companies up at a time when the market is trading near all-time highs.

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