BOSTON (TheStreet) -- The Credit SuisseFocus List, a compilation of U.S. stocks with outstanding return potential, has outperformed the S&P 500 in each of the past five years, an impressive feat. As of April, Focus List comprised 19 U.S. stocks, expected to rise between 4% and 75% over a 12-month timeframe. Here is a snapshot of the bank's four picks that currently offer the greatest upside. Below, they are ordered by potential return, from great to best.
has investment banking, trading and wealth management businesses.
Its stock has delivered annualized losses of 16%, over a three-year span. It failed to rebound as quickly as peer equities, such as those of
, because Morgan Stanley downsized its fixed income and commodities trading ahead of the recession and those businesses proved most lucrative during 2009, whereas Morgan Stanley's core strengths, merger advisory and wealth management, are only now demonstrating vigor.
CEO James Gorman is focused on strengthening the firm's core competencies and his financial record, thus far, inspires confidence. For 2010, his first full year at the helm, revenue advanced 27% and net income and earnings per share more than tripled. Recently,
cut its first-quarter earnings estimates for both Morgan Stanley and Goldman, citing one-time items and lower trading and underwriting revenue. It believes that a disappointing first quarter will reset fiscal 2011 expectations and undercut the stocks. Credit Suisse has a different perspective.
The bank has a $35 target on Morgan Stanley, suggesting 26% of upside. The stock is notably cheap, costing just 8.9-times forward earnings, 0.7-times book value, 1.1-times sales and just 1-times cash flow, representing peer discounts of 36%, 61%, 59% and 92%, respectively. However, if the bears are correct, valuation is no reason to buy as bad news will surely precipitate a sell-off. Analysts forecast first-quarter earnings, at consensus, of 41 cents. That tally has been revised down by a noteworthy 29 cents in just four weeks, providing justification for caution.
is a semiconductor company, designing chips for computers and mobile devices.
Since 2008, Intel has grown sales, net income and earnings per share 4.4%, 18% and 20% annually, on average, though, its stock has declined 3% a year over that span. Intel's fourth-quarter net income increased 39% to $3.2 billion, or 59 cents a share, as revenue grew 8.4%, past $11 billion. The gross margin declined marginally to 75%, still remaining near a cyclical high. Its operating margin hovered above 35%, ranking in the 92nd percentile for its industry group. Return on assets widened from 8.2% to 18%, indicating outstanding efficiency improvements.
Intel's stock is notably cheap relative to peer investments. It trades at a trailing earnings multiple of 9.7, a forward earnings multiple of 9.2, a book value multiple of 2.2, a sales multiple of 2.5 and a cash flow multiple of 6.6, 52%, 41%, 42%, 29% and 51% discounts to semiconductor peer averages. Its PEG ratio, calculated by dividing the trailing P/E by analysts' terminal earnings growth forecast, at 0.8, reflects a 20% discount to fair value. Intel is now among the highest yielding tech stocks, paying a quarterly dividend of 18 cents, for an annual yield of 3.6%. Credit Suisse ranks Intel "outperform" with a $28 target, suggesting a return of 41%. Roughly 62% of researchers currently rate the stock "buy."
Bank of America
is a diversified financial services company, with investment-, commercial- and retail-banking operations.
Left for dead during the financial crisis, its stock has more than tripled since the March 2009 market low. In recent quarters, ongoing mortgage woes and credit write-downs have hampered performance. Most recently, management's request to boost its dividend was denied by the Federal Reserve, indicating that Bank of America is still viewed as a troubled institution and needs to raise further capital and work through ongoing housing market issues on the liability side. The stock has tumbled 27% in 12 months.
Recent news flow has been undeniably negative for Bank of America, providing an opportunity for value-oriented investors to initiate positions, in Credit Suisse's view. Credit Suisse expects the stock to advance 47% to $20. The consensus on Wall Street is that Bank of America's equity is undervalued. It currently sells for 7.6-times forward earnings, 0.6-times book value, 1-times sales and just 1.7-times cash flow, representing discounts of 32%, 37%, 42% and 69%, respectively. Currently, 54% of researchers in coverage advise purchasing shares and the remainder recommend holding them. Bank of America is scheduled to report fourth quarter results April 15.
is a wireless telecom carrier.
Its stock has gained 19% in 12 months and 9% this year. But, it tumbled 14% on March 18 as news broke that
plans to buy
. Sprint is sending representatives to Washington to campaign against the deal, which, it argues, will put it at a strategic disadvantage and thereby hurt the U.S. consumer. Before news of the deal, Sprint was on a run, helped by cost-cutting initiatives. Its fourth-quarter net loss decreased to $929 million, or 31 cents a share, from $980 million, or 34 cents, a year earlier. The gross margin fell from 48% to 45%. The operating margin remained in negative territory.
Cash and equivalents rose 39% to $5.5 billion and debt hovered above $20 billion. Sprint trades at a book value multiple of 0.9, a sales multiple of 0.4 and a cash flow multiple of 2.9, massive industry discounts.
forecasts that the stock will rise 73% to $8. Similarly,
is bullish on a turnaround, valuing Sprint at $7 a share. In contrast,
predicts that Sprint's stock will drop 33%.
-- Written by Jake Lynch in Boston.
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