Merrill Lynch's 10 Favorite Stocks for 2012

BOSTON ( TheStreet) -- Apple ( AAPL), Marathon Oil ( MRO) and CBS ( CBS) made Bank of America/Merrill Lynch's list of top stocks for 2012 and may help investors beat the market next year by a wide margin.

Bank of America/Merrill Lynch strategist Savita Subramanian compiled the firm's favorite stock ideas for 2012, plucking one name from each of the 10 sectors of the S&P 500. Subramanian says the stock picks align with Bank of America/Merrill Lynch's investment themes for the year ahead.

The Bank of America/Merrill Lynch analysts have a 12-month price target of 1,350 for the S&P 500, 6.9% higher than current levels. By comparison, the average return of the 10-stock portfolio, based on the price targets offered by analysts, is 30%.

The New York-based firm, which doesn't offer updates during the year on the list, says the stocks are chosen by Bank of America/Merrill Lynch's fundamental analysts. All companies carry a "buy" rating and are reviewed for favorable valuation, quality, yield and growth.

As it turns out, next year's favorites could have stood in for the firm's best picks for 2011. The group has an average return of 5.3% this year. The S&P 500, a broader measure of the largest stocks in the U.S., is little changed. Of Bank of America/Merrill Lynch's group of favorite stocks, CBS is the best performer so far this year, up 34%, while Lincoln National ( LNC) lags the most, with a 26% drop.

The 10 stocks on Bank of America/Merrill Lynch's list are arranged below in order of potential upside, based on the firm's 12-month price target and the stock's price as of Dec. 5.


10. Xcel Energy ( XEL)

Company Profile: Xcel Energy is a supplier of electric power and natural gas service in several U.S. states, including Colorado, Kansas, Michigan, Minnesota, New Mexico, North Dakota, Oklahoma, South Dakota and Texas.

Sector Representation: Utilities

Share Price: $26.06 (Dec. 5)

Potential Upside: 7.4% based on a price target of $28

Investment Thesis: Analyst Steve Fleishman touts Xcel for the company's yield, earnings stability and dividend growth. He also likes the stock as it is one of the highest quality, lowest risk regulated utilities in his coverage universe.

"We like XEL's strong rate-base wind program and multi-state utility model, and find the stock attractive post its equity overhang completion," Fleishman writes. "Investments in wind generation provide solid growth. Challenges will be translating these opportunities into earnings-per-share growth by managing cash flow and regulatory lag."

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