5 Stocks Barclays Says Have Most Potential

BOSTON ( TheStreet) -- Barclays' ( BCS) investment-banking business has been raising share-price targets on its "global top picks" for 2011 in recent weeks, based on robust corporate profits.

At the start of the year, Barclays advised its U.S. investors to take a "more aggressive sector stance" that includes paring exposure to emerging-markets stocks in favor of developed-world companies with significant business in emerging markets. Earnings-per-share results have beaten analysts' estimates at 72% of the 425 companies in the S&P 500 Index that reported results since April 11.

Barclays recommends U.S. industrial, technology and energy stocks on the view toward an "improving domestic growth outlook," and that advice seems to be holding up. The S&P 500 Index of the biggest U.S. stocks is up 7.7% this year through May 10, and 31% over the past 12 months.

Barclays said it expects the materials sector to post 30% growth this year, followed by industrials, at 16%, and energy, at 12%. On the bottom, the utilities sector is expected to fall 1%.

Here are five of Barclays' stock picks with recently updated price targets. The list of 122 global picks for 2011 offer potentially generous premiums:

Cardinal Health ( CAH), a leading distributor of pharmaceuticals and medical supplies, is one of Barclays' nine health-care-industry picks.

The company's operations include procurement, inventory-management and logistics services, and it serves customers such as CVS Caremark ( CVS) and Walgreen ( WAG). Barclays says Cardinal Health is seen as having a renewed sense of focus, helped by acquisitions in the second half of last year. The purchased companies pushed Cardinal Health into faster-growing areas, including a wholesale business that includes new generic products.

"In our view, strengthening Cardinal's generic strategy with the addition of Kinray sets the stage for improved margins as a wave of generic drugs hits the market over the next two to four years," Barclays said. "We see the opportunity for margin expansion in Cardinal's drug segment to drive potential upside in 2011."

Barclays expects Cardinal will earn $2.52 per share in 2011, giving it a projected price-to-earnings ratio of 14.5, but that is seen dropping to a 12.7 P/E ratio in 2012 on earnings of $2.87 per share.

Barclays' current price target of $51 was set April 29. Cardinal's shares are currently trading at $44.80, giving a potential 14% upside. Shares are up 19% this year, making for a market value of $15 billion.

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Apache ( APA), one of the largest independent oil-and-gas exploration and production companies in the world, is one of six of Barclays' energy picks.

With a market value of about $46 billion, Apache still manages to go toe-to-toe with some of the oil industry's giants 10 times its size. Apache went on an acquisition binge that built up its backlog of developed sites and created a balanced portfolio of onshore and offshore oil and gas properties throughout the world.

In the first quarter, earnings surged 61% to $1.13 billion, or $2.86 per share.

Barclays' analysts say "we believe Apache has successfully 'reloaded' its development portfolio in 2010 with about $12 billion in acquisitions. Production mix remains attractive with almost 50% liquids and another roughly 20% international gas. Discounted valuation is compelling, and strong performance could help the multiple converge toward the group average."

Apache's shares are currently trading at $123, about 27% below Barclays' price target of $157 set April 29. The stock is up 7.6% this year and 31% over the past 12 months.

Qualcomm ( QCOM) is one of seven of Barclays' technology stock picks. The company develops and licenses wireless technology and makes semiconductors for mobile phones.

The company's key patents are based on code division multiple access (CDMA) technology, which is a standard in wireless communications and is licensed by most major handset makers.

Barclays' analysts say: "We believe Qualcomm may be well-positioned to benefit from secular growth trends in mobile data, with impressive positioning in its licensing and chipset businesses; leverage to the accelerated global embrace of smartphones, 3G and connected devices; and commitment to delivering double-digit revenue and earnings growth for the next five years."

The company is in good financial shape, as it has a solid balance sheet with about $18 billion in cash and investments, and strong cash-flow generation.

Qualcomm shares are up 15% this year and 54% over the past year. The stock is trading at $56 now, a 14% discount to Barclays' target price of $64 set April 21.

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Corning ( GLW) is the leading designer and manufacturer of glass and ceramic substrates found in liquid crystal displays, fiber-optic cables, automobiles and laboratory products. Three-quarters of the company's revenue stems from its display technologies and telecommunications segments.

Barclays' analysts say the positive outlook for the company is based on expectations for double-digit LCD (liquid crystal display) glass volume growth in 2011 and 2012; Corning's ability to return to its pricing strategy of 1% to 2% quarter-over-quarter average selling-price declines; and the emergence of its "Gorilla Glass," used on smartphones, computer tablets and PCs, as a strong earnings contributor given expectations of as much as $1 billion in revenue this year.

Two weeks ago, Corning Chief Executive Officer Wendell Weeks said the company has the potential to increase sales to $10 billion by 2014, about 50% higher than in 2010.

Barclays has a $30 price target on Corning's shares, set on May 9, which is about a 50% premium to its current price. Its shares have risen 8.7% this year and about 15% over the past year, giving the company a market value of $31 billion.

Timber industry giant Weyerhaeuser ( WY) has restructured over the past few years, including selling its paper business in 2007 and its corrugated-packaging unit in 2008. And then last year, it converted its corporate structure into a real estate investment trust (REIT) to reap tax benefits.

Barclays' analysts say that "after a 16-year downturn in real lumber pricing (between 1993 and 2009), an upturn is under way."

"Weyerhaeuser is a superior hard-asset play," they said, "whose highly productive timberlands thrive in an inflationary environment. We believe a multi-year cyclical upturn in demand, prices and profits began in 2010, and positive momentum should build in 2011, 2012 and beyond."

The company's non-timber assets include a wood-products division, a homebuilding unit and a pulp business.

On May 2, Barclays put a $33 price target on Weyerhaeuser's shares, a 50% premium to its current price. Its shares are up 20% this year, but have a one-year gain of only 3.8%. The timber company has a market value of $11 billion.

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