Often the leading Wall Street firms put out their lists of top stocks to buy or highest conviction lists near the end of the year or right at the beginning of the new year. We found it somewhat refreshing that the team at Credit Suisse not only added some names to their top U.S. investment ideas to start the fourth quarter, but they did some updating on the current names.
For the creation of the list, each U.S. equity research analyst identifies and ranks up to three top stock picks within their coverage universe based on a six to 12 month time horizon. Analysts who do not list a name under $3 billion in market cap were given the opportunity to add a “bonus small-cap pick.” In an effort to limit the list to only high-conviction ideas, analysts are allowed to submit fewer than three stocks. We went through the list and found the stocks to buy that had at least a 20% upside projection. We have broken those out by sector.
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Basic Materials: Sealed Air Corp. (SEE) is top pick at other firms that we cover on Wall Street as well. Credit Suisse believes that following the recent (October) management change at the company, Sealed Air will significantly improve its profitability and cash flows while also deleveraging its sizable debt load, with both of these things driving significant shareholder value. The price target for the stock is posted at $36. The Thomson/First Call estimate is at $33. Investors are paid a 1.9% dividend. Credit Suisse is the high target on Wall Street and would represent a 31% gain for investors. The stock closed Tuesday at $27.48.
Consumer Discretionary: Foot Locker Inc. (FL) offers an attractive risk/reward at its current level, with a solid road map to mid-single-digit comparisons and very solid mid-teens earnings per share (EPS) growth. The great thing for investors is that gym shoes wear out and are expensive. Credit Suisse has a $43 price target, and the consensus target is $39. Investors are paid a 2.3% dividend. A move to the Credit Suisse target would be a 26% gain for investors. The stock closed Tuesday at $34.01
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Consumer Staples: Mead Johnson Nutrition Co. (MJN) has seen solid insider buying over the past six months. Two directors of the company bought more than $1 million worth of stock this year. Credit Suisse has a $90 price target, and the consensus target is $83.50. Shareholders are paid a 1.8% dividend. A move to the Credit Suisse Target represents a 20% gain. The stock closed Tuesday at $74.20.
Energy and Utilities: Tesoro Corp. (TSO) is a bold call as the refining sector has been hammered. As spreads start to widen back out, this may be a very intriguing contrarian play for investors. Credit Suisse has a huge $65 target, while the consensus is right in line at $65 as well. Investors are paid a 2.2% dividend. A trade up to the target would represent a 53% gain for investors. Tesoro closed Tuesday at $43.10.
Financials: Citigroup Inc. (NYSE:C) has seen risk materially reduced, its balance sheet strengthened and profitability improving. The Credit Suisse team thinks the risk/reward is compelling when based against the true book value of the company. Its international business is red hot, and it is not suffering from the headline risk that some of the competition is enduring. The price target is placed at $60, the same as the consensus target. Investors are paid a tiny 0.1% dividend. A trade to the target would be a 23.5% gain. Citigroup closed Tuesday at $48.60.
Health Care: Catamaran Corp. (CTRX) provides pharmacy benefit management services and health care information technology solutions to the health care benefits management industry in North America. Credit Suisse believes the company's growth profile, potential upside to synergy targets from recent acquisitions, and the chance to expand into the large employer market should drive outperformance in shares. The target price for the stock is $64, and the consensus is posted higher at $68. Trading to either target represents a gain of almost 40%. Catamaran closed Tuesday at $46.85.
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Industrials: Carpenter Technology Corp. (CRS) manufactures, fabricates and distributes specialty metals worldwide. It operates in three segments: Specialty Alloys Operations, Latrobe and Performance Engineered Products. Credit Suisse expects earnings per share growth to average 32% in fiscal years 2014 to 2016. This should be driven by double-digit growth in commercial aerospace and energy, coupled with higher incremental margins as a result of improving mix, asset utilization and Latrobe synergies. The price target for the stock is $72, though the consensus target is lower at $65. Investors are paid a 1.2% dividend. A move to the target price would represent a gain of 20%
Sure not every name is a sexy, momentum stock. However, every name is expected to be a solid winner with good upside potential. The stock market is up almost 150% since the lows of March 2009. Looking for growth and a good value in a portfolio never goes out of style, and it makes good sense for investors now.