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7 UBS Stock Picks for 2012

Stocks in this article: CSX QCOM KBR MDR ISS VMW ARUN

We are bullish about KBR. The company's high earnings per share of $3.06 are significantly higher than the industry's average of $0.4 and are the reason behind KBR's low price-to-equity ratio of 10.5 times. KBR's PEG ratio of 0.6 times is half the industry's average of 1.2 times, indicating that its shares are currently undervalued and are a good buy in the present circumstances. Steven Richman's East Side Capital had nearly $100 million invested in KBR at the end of September. The fund boosted its stake in the stock by 20% over the third quarter. McDermott (MDR) is an engineering and construction company. UBS has given the company a buy rating. With its $34 billion Ichthys LNG project finalized, McDermott has been selected to construct and install the subsea flow line for the Inpex company. This contract will be worth $1.5 billion and even if McDermott is able to book only half of the contract, it will benefit from 18% of the Sept. 30 backlog. Shares of the company are currently trading at $12.70 per share and are expected to reach a price target of $14 by the end of 2012. Earnings per share are likely to rise by a margin of 1 cent to 95 cents by the end of 2012.

We think MDR can outperform the market this year. The company has a tangible book value of approximately $1.6 billion, indicating that it's capable of protecting itself in times of recession and from tough competition. We believe that the approval of the Ichthys project is going to significantly raise McDermott's valuation for the year 2012. Steven Cohen's SAC Capital significantly boosted its stake in the stock during the third quarter.

iSoftStone Holdings (ISS) engages in the provision of information technology services mainly in China. UBS has given the company a buy rating. With the upcoming joint venture between ChinaSoft and Huawei, iSoftStone is also considering its own venture with Huawei. UBS speculates that iSoftStone will either generate a better deal than ChinaSoft or abandon its intentions altogether. Shares of the company are currently trading at $9.50 per share and are expected to reach a price target of $16, based on a price-to-equity ratio of 19 times. Also, earnings per share are expected to increase to $0.78 per share.

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