8 Stocks With Biggest Upside in Market Rebound

(Adds the Citigroup Economic Surprise Index.)

BOSTON ( TheStreet) -- If you think U.S. stocks' 14% leap from the beginning of October will spill into next year, which industries might post the biggest gains?

More than six decades of stock market history reveals a pattern of certain sectors leading rebounds after economic slumps, such as the kind we've been mired in since the second half of this year.

S&P Capital IQ says such a resurgence is under way, even though stocks are slumping today. The research firm raised its 2012 price target for the S&P 500 Index to 1,400 from 1,360 (it's now at 1,255), "reflecting a continued improvement in U.S. economic data and the belief that this correction concluded with the S&P 500's early October low near 1,100."

Europe's debt crisis is showing signs of easing, and the consumer-led U.S. economy is getting stronger. A gauge of U.S. consumer confidence last week rose to a six-month high and online holiday sales surged 15% to almost $25 billion from last year. So-called Green Monday, today, is expected to be the heaviest online buying day of the year.

The Citigroup Economic Surprise Index, a measure of whether economic data is better or worse than economists' forecasts, rose to a nine-month high Dec. 2 after an unexpected drop in the unemployment rate.

"The worst may actually be over," said Sam Stovall, S&P Capital IQ's chief equity strategist.

Still, Europe is creating volatility in the U.S. as its leaders can't agree on measures to relieve the sovereign debt meltdown. Moody's Investors Service is reviewing the ratings of European Union countries, which dragged down stocks in Europe and the U.S. today.

Stovall's research says four industries tend to lead the market after bear markets, defined as a 20% drop over at least two months, or "baby bear" markets, those that are just short of the "bear" criteria. They are consumer discretionary stocks, which outperformed the broader market 100% of the time, with an average gain of 29.5% within six months of the market bottom; followed by information technology, 80% of the time, with an average increase of 30%; industrials, 80% of the time, with a 26% advance; and materials, 80% of the time, with a 24.8% gain.

The following are eight S&P five-star "strong buy" rated stocks -- the best -- two from each of the best-performing rebound sectors, with the highest price-appreciation potential over the next 12 months:

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TRW Automotive Holdings ( TRW)

Company Profile: TRW is one of the largest auto-parts suppliers in the world, with a product line that includes safety components, steering and electronics. It has plants in 26 countries and serves most every major automaker.

2011 Return: minus 35%; three-year annualized gain of 126%.

Market Cap: $4 billion.

S&P has a $75 price target on its shares, a 120% premium.


Magna International ( MGA)

Company Profile: Magna is one of the most diversified auto parts suppliers in the world and it keeps growing through acquisitions. For example, early this week, the company said that its Cosma International division is buying a Brazilian parts manufacturing operation for $250 million.

2011 Return: minus 28%; three-year average annual return of 37%.

Market Cap: $8.5 billion.

S&P has a $60 price target on its shares, a 70% premium.

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EarthLink ( ELNK)

Company Profile: EarthLink is one of the largest independent U.S. Internet service providers with business telecommunications services now accounting for 70% of its revenues.

2011 Return: minus 25%; three-year average annual return of 2.5%.

Market Cap: $664 million

S&P sees revenue growth of 13% in 2012 and 8% in 2013. It has a $10 price target on its shares, a 66% premium.


Applied Materials ( AMAT)

Company Profile: Applies Materials provides manufacturing equipment, services, and software to semiconductor, flat panel display, and solar photovoltaic manufacturers worldwide.

2011 Return: down 17%; three-year average annual return of 6.5%.

Market Cap: $14.7 billion

S&P projects that sales will decline 15% in fiscal 2012, after a 10% rise in fiscal 2011, then rise 15% in fiscal 2013. "Despite a cyclical correction in the semiconductor equipment industry, we think orders have bottomed," it said.

S&P has a $16 price target on its shares, a 45% premium.

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Kelly Services ( KELYA)

Company Profile: Kelly is an employment-services firm.

2011 Return: down 27%; an average 8% return over the past three years. The stock carries a 1.44% projected dividend yield.

Market Cap: $500 million

S&P says the company has a "solid balance sheet, with no long-term debt, plus its typically strong levels of free cash flow," offset by the company's inherently cyclical business. Another negative, its chairman owns 90% voting control of its shares, through a separate share class.

S&P has a $24 price target on its shares, a 77% premium.


Manitowac ( MTW)

Company Profile: Manitowac is a manufacturer of heavy-duty construction cranes and commercial food-service equipment.

2011 Return: down 14%; three-year average annual gain of 15%.

Market Cap: $1.5 billion

S&P expects its revenue will rise 19% in 2012, after a projected 15% gain in 2011. "Crane sales will improve 29% in 2012 and food-service-equipment sales will advance 6%, after solid gains in both segments in 2011."

S&P has a $17 price target on its shares, a 54% premium.

Manitowoc said Friday that delivery problems with suppliers and an ongoing strike by the machinists' union at its crane plant will delay its shipment of some products into the first quarter of 2012.

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Cliffs Natural Resources ( CLF)

Company Profile: Cliffs is a mining and natural resources company that produces iron ore and metallurgical coal products. It operates mines that supply nearly 50% of North American blast furnace demand.

2011 Return: down 7%; three-year average annual return of 54%. Its shares carry a projected 1.57% dividend yield.

Market Cap: $10 billion.

Goldman Sachs (GS) has Cliffs Natural on its new "conviction buy" list for 2012 with a $93 price target, or a 34% premium to its current price.


Barrick Gold ( ABX)

Company Profile: Barrick is the world's largest gold miner.

2011 Return: down 2.8%; three-year average annual return of 28%.

Market Cap: $50 billion.

"Following a projected gain of 35% in 2011, we look for a 14% advance in revenues in 2012," said S&P.

S&P has an $80 price target on its shares, a 60% premium.

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>>To see these stocks in action, visit the 8 Stocks With Biggest Upside in Market Rebound portfolio on Stockpickr.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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