A recent study by Da and Schaumburg, published in the Journal of Financial Markets, shows that Wall Street analysts can successfully determine mispriced stocks in a given industry. This doesn't mean that their buy and sell recommendations will yield abnormal returns. It means that when analysts think a stock is undervalued relative to its peers, that stock will likely outperform them. When analysts think a stock is overvalued, it will most likely underperform its peers.

Given that analysts' price targets contain useful information, we have compiled a list of stocks analysts expect to increase the most over the next 12 months. The data are sourced from Bloomberg and Yahoo! Finance.

A portfolio that is long the stocks analysts are bullish about the most and short the stocks analysts are bearish about the most returns more than 25% annually. Da and Schaumburg's analysis showed that investors beat the market by buying these stocks. Above are the 40 stocks analysts are insanely bullish about.

Some of these stocks are also favored by hedge funds. Larry Robbins' Glenview has Medco Health Solutions ( MHS). John Burbank's Passport Capital and Phil Falcone's Harbinger Capital are among the hedge funds with Cliff Natural Resources ( CLF) holdings.

Citigroup ( C) is the second most popular stock among hedge funds. Steven Mandel's Lone Pine , Bruce Berkowitz's Fairholme , Lee Ainslie's Maverick Capital , George Soros, Bill Miller's Legg Mason Capital Management , Bill Ackman's Pershing Square, David Tepper's Appaloosa, Daniel Loeb's Third Point , Andreas Halvorsen's Viking Global , Richard Perry's Perry Capital, Joseph DiMenna's Zweig-DiMenna , Leon Cooperman's Omega Advisors, Brevan Howard , and John Paulson's Paulson & Co are among the prominent investors who are bullish about Citigroup.

Microsoft ( MSFT) was owned by 161 hedge funds at the end of last year. Barry Rosenstein's Jana Partners , David Einhorn's Greenlight Capital , Craig Effron's Scoggin Capital , and Brevan Howard are some of other hedge funds bullish about Microsoft. Whitney Tilson was extremely bulish about Microsoft too. He predicted Microsoft will reach $35 by the end of 2011.

>>To see these stocks in action, visit the 40 Stocks Analysts Are Insanely Bullish About portfolio on Stockpickr.

This was originally published on Insider Monkey .
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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