8 UBS Stock Picks for 2012

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Insider Monkey) -- UBS Investment Research's report, "U.S. Morning Meeting Highlights," from January 13 discusses how stocks will be affected by the November elections. Analysts are of the opinion that Obama's victory would have a positive impact on "tech and industrial companies," whereas the "health care, financial, energy and consumer" companies will be negatively influenced due to tougher regulations. A republican victory, on the other hand, could prove to be beneficial for "universal banks, managed care, coal, defense and high-end consumer stocks."

In this article, we will discuss the buy-rated stocks mentioned in UBS's report ( Click here to read the first part of this article).

Mattress Firm ( MFRM) has been given a buy rating by UBS. Due to the economic downturn, the company has not been able to generate adequate sales to meet its previous records. However, it has set a target of around $1 million in sales per store for 2012. The idea of testing mall locations in Oklahoma is currently under consideration, as it may help the company in expanding, given favorable results are derived from this activity.

UBS does not expect the firm to experience a shift in the product mix to specialty products; thereby, it should give a stable outcome for the year 2012.

Shares of the company were trading around $26 per share at the time of the publication of this report and are expected to go north of $30 by the end of 2012. Its earnings-per-share estimate has also been revised upward to $1.2 for 2013. UBS seems on target with its predictions as the stock increased to $31.04 on Friday.

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CVS Caremark Corporation ( CVS) is a pharmaceutical company based in the U.S. It has been given a buy rating by UBS, due to its expected "multi-source, generic launches" in 2013. These launches are likely to have spillover effects, which will prove to be beneficial for the pharmaceutical sector.

The expected merger between Express Scripts ( ESRX) and MedcoHealth Solutions ( MHS) should have a combined positive impact on the industry. Shares of CVS are currently trading around $42 per share and are expected to reach a price target of $48.

The company has a beta of 0.82, which shows that its shares are not volatile in nature. Also, its operating margin of 6% is greater than the industry average of 3.5%. CVS has a low price-to-equity ratio of 17x and a dividend yield of 1.5%.

Billionaires John Paulson and Warren Buffett's Berkshire Hathaway initiated brand new positions in CVS during the third quarter ( Click here to see Warren Buffett's portfolio).

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CONSOL Energy ( CNX) produces multi-fuel energy in the U.S. The company has been given a buy rating by UBS. With NatGas storage levels at a high and production that is exceeding expectations, UBS has lowered its NatGas forecast.

CONSOL currently has low-cost operations in NatGas, making it susceptible to the increased supply. This will most likely affect CONSOL's performance in the short term.

UBS analysts are of the opinion that CONSOL may now be considering share buybacks. Shares of the company are currently trading around $36 and are expected to go north of $73, indicating an upside potential of more than 100%.

CONSOL's operating margin of 15.6% is significantly higher than the industry average of negative 0.2%. It also has a significantly lower price-to-sales ratio of 1.3x vs. the industry average of 8.7x, indicating that it has the potential to turn things around in case of adverse conditions. Sonterra Capital initiated a brand new $154 million position in CNX during the third quarter. Steve Cohen's SAC Capital boosted its stake in the company by 24% over the third quarter as well (see billionaire Steve Cohen's top stock picks ).

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MVC Capital ( MVC) engages in private equity investments. It has been given a buy rating by UBS. The company is currently investing its equity in three different companies and two other private equity funds. Around 30% of its portfolio is based in Europe, making it more volatile.

Despite that, MVC Capital's net asset value has increased with the appreciation of Security Holdings. Shares of the company are currently trading at $12.5 and are expected to reach a price target of $16. Earnings per share are expected to reach an estimate of 34 cents, by the year 2013. Nelson Obus' Wynnefield Capital had $16 million invested in MVC at the end of September.

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AmerisourceBergen ( ABC) is a pharmaceutical company that distributes drugs and provides health care services. It has been given a buy rating by UBS Investment Research. The likely merger between Express Scripts and MedcoHealth Solutions will result in AmerisourceBergen losing the contract with Medco in 2013. This is why UBS is taking a conservative stance on the company.

UBS has also lowered AmerisourceBergen's earnings per share and price target expectations. Shares of the company are currently trading at $39 per share and are expected to reach a price target of $44. Robert Emil Zoellner's Alpine Associates is by far the most bullish hedge fund about ABC, with a $261 million position at the end of September.

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Cardinal Health ( CAH) provides pharmaceutical services. It has been given a buy rating by UBS. The new CEO is confident that the company will retain its contract with Express Scripts. Also, UBS does not see any additional risks associated with the precarious relationship between the two companies.

UBS has taken a conservative stance on the generics for drug distributors, which has resulted in a review of earnings per share for Cardinal Health. Shares of the company are currently trading at $42.34 and are expected to reach a price target of $51, based on a 14.5x price-to-equity ratio. Larry Robbins' Glenview Capital and Joe Healey's Healthcor Management are bullish about Cardinal Health.

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Express Scripts engages in the provision of pharmacy benefit management services in North America. The potential merger with MedcoHealth Solutions has had a positive impact on the company's valuations. UBS has increased its earnings per share estimates above consensus expectations. Express Scripts has kept more than 95% of its prescription volume, going into 2012, giving UBS enough reason to have a $3.6 estimate for the company's earnings per share.

The company's shares are currently trading around $51 per share and are expected to go north of $66, indicating a potential upside of 29%. Jim Simons' Renaissance Technologies had $143 million in ESRX at the end of September. (See billionaire Jim Simons' portfolio.)

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McKesson Corporation ( MCK) engages in the delivery of medicines and pharmaceutical supplies to the health care industry. It has been given a buy rating by UBS Investment Research. UBS believes that McKesson's management is quite positive about the company's short-term prospects.

McKesson is considering shifting its investment toward a lower cost Paragon line. Investors view this shift as a positive change. Shares of the company are currently trading around $79 and are expected to reach a price target of $99. Lee Ainslie's Maverick Capital initiated a $322 million position in MCK during the third quarter.

>>To see these stocks in action, visit the 8 UBS Stock Picks for 2012 portfolio on Stockpickr.

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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