3 Stocks That Should Rally Nicely in the Next Year

by David Sterman

The S&P 500 is back near where it was a month ago. A surge into November has been met by recent profit-taking as we head into the Thanksgiving holidays. In pullbacks like these, I like to scan the lists of losing stocks to see if any bargains get uncovered. I found three, all of which hit 52-week lows this week, and all of which are still solid long-term plays. The pullback in these names should set the stage for a much better 2011.

NuVasive (Nasdaq: NUVA)
I recommended this stock two weeks ago as part of a paired trade play against Intuitive Surgical (Nasdaq: ISRG).

Since then, Intuitive Surgical has fallen roughly -10% while NuVasive has barely moved. That's logical: in a tough trading environment, the short end of paired trades is likely to play out better than the long end. Even as Intuitive Surgical comes back down to earth, the real story here is NuVasive's eventual upward move. It won't come quickly -- few near-term positive catalysts exist -- but as 2011 unfolds, investors are likely to see that NuVasive's recent quarterly missteps are more of a function of an unsettled health care environment than any company-specific troubles.

As the dust settles, the fact that NuVasive's technology leads to improved patient outcomes and lower total healthcare costs is likely to again be the focus of health care insurers -- and investors. Shares trade for less than 20 times next year's earnings for the first time in the company's history (going back to 2004). A forward multiple closer to 30 still seems justified in the context of long-term growth -- that means +50% upside in 2011. (more)