5 Stocks Credit Suisse Is Focusing On

BOSTON ( TheStreet) -- The Credit Suisse Focus List has outperformed the S&P 500 Index in each of the past five years. The list currently has 19 stocks, expected to rise between 5% and 52%. They represent the bank's favorite equity investments. The following five offer the most upside. Below, the stocks are ordered by potential return, from plenty to most.

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5. Petrohawk Energy ( HK) is an oil-and-gas exploration and production company, with a focus on domestic shale plays. Its stock has appreciated 37% in 2011, outperforming indices. This week, Citigroup boosted its target on the stock from $20 to $24, impressed by first-quarter earnings. Petrohawk's adjusted profit dropped 15% to 15 cents, but exceeded the consensus forecast by 10%. Sales rose 19%, surprising by 7.3% and boosting outlook.

PetroHawk is increasingly a natural-gas focused company and its recent move into the Permian basin will boost production going forward. Credit Suisse recently boosted its price target from $33 to $35, suggesting that Petrohawk has an attractive 40% of upside. The Permian move led Credit Suisse to boost its 2011, 2012 and 2013 earnings estimates by 62%, 48% and 33%, respectively. The stock receives "buy" ratings from 63% of analysts in coverage.

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4. Morgan Stanley ( MS) is a financial-services company, with strong franchises in investment banking and wealth management. Its stock has fallen 12% in the past 12 months and 8.1% in 2011, despite evidence of solid earnings growth. Morgan's adjusted first-quarter earnings dropped 43% to 46 cents, beating the consensus estimate by a solid 15%. Sales, down 16%, missed by 1.3%. Credit Suisse was encouraged by improvement in core businesses.

Sales and trading, Morgan's perennial weakness, showed signs of improvement and wealth management, asset management and investment banking all demonstrated strength. The conversion of a $7.8 billion Mitsubishi UFJ preferred stock position into common shares will dilute the float, but allow the bank to stop paying a steep dividend on the preferred shares. Credit Suisse reiterated its $35 target, implying 40% of upside and "limited downside risk."

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3. Hess ( HES) is an exploration, production, refining and marketing company. In addition to its retail fuel stations, it has significant global operations extracting fossil fuels. Its stock has gained 33% in 12 months and 1.5% in 2011. Credit Suisse is optimistic about production upside, recently posing a tentative estimate of 700,000 barrels per day of production by 2017. Following recent exploration catalysts, Credit Suisse upgraded Hess shares to "outperform."

The bank's $115 target is consistent with a pending return of 49%. Other researchers are less optimistic. Hess garners positive reviews from an impressive 74% of analysts in coverage, but its median target, at $97, is well below that of Credit Suisse. The bank feels that Australian wells could yield 700 million barrels of oil equivalent in natural gas liquids and Ghana wells may prove to have as much as 850 million. These prospects will drive the stock, going forward.

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2. Bank of America ( BAC) is a diversified financial-services company, with retail-, commercial-, and investment-banking operations. Its stock has dropped 28% in the past 12 months and 7.4% in 2011. Credit Suisse, which ranks among the many optimists on Bank of America, was pleased with first-quarter reductions in credit costs, but disappointed by higher expenses. So, Credit Suisse cut its price target from $20 to $18, still suggesting a solid 46% gain.

Credit Suisse tempered its outlook, noting that it expects "core revenue growth to remain somewhat challenged given some net-interest margin pressure and lackluster loan growth; however, declining credit costs should provide an offset." Expenses are hurting the outlook. Still, Credit Suisse says "Bank of America is still among the cheapest of our large-cap banks based on normalized earnings, trading at about seven-times 2012 earnings." The discount is attractive.

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1. Sprint ( S) is in the process of a major restructuring and evidence of the turnaround is plainly clear. Sprint's adjusted first-quarter loss narrowed to 15 cents a share, easily exceeding researchers' estimate for a 22-cent loss. Credit Suisse responded that "subscriber data was more mixed but with very positive underlying trends." It feels that that "investors are underestimating benefits of operating leverage as revenue starts to grow," but expenses remain steady.

The bank expects revenue to rise to $33 billion for the full-year and Sprint to post an annual loss of 13 cents, which should narrow to four cents in 2012 and turn to a profit of 32 cents in 2013 as sales rise faster than expenses. Sprint, competing with the likes of Verizon ( VZ) and AT&T ( T), has a regulatory wildcard as the FCC is unwilling to allow the big two dominate telecom uncontested. Credit Suisse expects Sprint's stock to appreciate 54% to $8 in 12 months.

-- Written by Jake Lynch in Boston.

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