BOSTON ( TheStreet) -- A handful of small- and mid-cap industrial stocks may rise as much as 82% in the next year, S&P Capital IQ analysts predict. They say the companies' sales growth will accelerate because of demand from fast-growing emerging markets and a recovery at home in the U.S.
The ratings firm also said in its research report released this week that the six firms it recommends will gain operating leverage, translating into bigger profits. As revenue rises, it will trickle down to earnings faster because of aggressive cost-cutting initiatives taken during the economic downturn of 2008 and 2009. What's more, the stocks are bargains, with depressed valuations.
S&P Capital IQ's equity analysts say the companies are trading at about 16 times their trailing 12-month earnings and significantly below 12-month share-price targets. The S&P 500 Index is down 0.85% this year, while the industrials sector has slumped 3.8%.
Here is a synopsis of the six firms that S&P favors:Kelly Services (KELYA - Get Report), an employment-services firm with a market value of $530 million, gets high marks from S&P, as it says the company "has the most upside potential currently" of this group of stocks. S&P Capital IQ's target price is a potential upside of 82% from its current $14.28. Risks to S&P Capital IQ's recommendation, which are pretty widespread, are "a resumed global economic downturn, stagnation in labor markets, the company's inherently cyclical business." And S&P said a potential cloud is that the company's chairman has a 90% voting control via a separate share class. Offsetting these risks is Kelly's solid balance sheet with no long-term debt and strong free cash flow, according to S&P Capital IQ equity analyst Michael Jaffe. He expects revenue growth to slow next year, although still rising 9%, after a projected 13% advance this year.