Jake Lynch
01/04/11 - 07:00 AM EST
BOSTON (TheStreet) -- Focus List, the top U.S. stock picks of Credit Suisse(CS), has outperformed the S&P 500 in each of the past six years. In 2010, an equal-weighting of Credit Suisse's Focus List generated a return of more than 17%, beating the S&P 500's 15% rise. In 2009, Focus List surged 48%, trouncing the S&P 500's 27% advance. Here is a look at picks 18 to 11 on the 2011 list.
18. International Game Technology(IGT)
17. Procter & Gamble(PG)
16. Time Warner(TWX)
15. PetroHawk Energy(HK)
14. Robert Half International(RHI)
13. Health Management Associates(HMA)
12. Ingersoll-Rand(IR)
11. Cytec(CYT)
Now, here is a closer look at Credit Suisse's 10 best stock picks for 2011, based on potential return. Below, they are order by upside, from good to great.
10. Polo(RL) is an apparel designer. Ralph Lauren's prestige is bolstering sales in all geographies. Credit Suisse is encouraged by the launch of its Lauren handbags line, strength in Southeast Asia, a critical emerging market, the launch of online shopping in the U.K. and a South Korean business starting in 2011. Its current sales distribution is roughly 65% North America, 20% Europe and 10% Asia. Equalizing these channels is a long-term goal, which should boost margins and long-term earnings per share to roughly $15. Credit Suisse believes that Polo will be "one of the best performing discretionary stocks over the next few years." Its target implies 17% upside in the next year.
9. BlackRock(BLK) is the world's largest investment company, based on assets under management. Credit Suisse analysts are encouraged by recent stake reductions by Bank of America and PNC Financial. Credit Suisse expects the company to benefit from the trend toward exchange-traded funds, or ETFs, and a leading international distribution network. The recent enhancement of the Bank of America-Merrill Lynch Global Distribution Agreement will increase product reach. BlackRock's stock already sells at a premium to peers, based on earnings. Still, Credit Suisse expects it to trade at nearly 19 times 2011 earnings within the next 12 months.
8. Kroger(KR) beat the quarterly consensus sales and adjusted earnings expectations by 1% and 1.6%, respectively, but the supermarket chain's stock corrected 9.4% on announcement due to a weaker-than-anticipated selling gross margin and a 2.1% net income miss. Credit Suisse believes the market is overlooking quarterly positives, including a 6% pop in EBITDA and ongoing cost-cutting initiatives. It expects management to repurchase $200 million to $300 million of stock in the fourth quarter, helping earnings per share. Shares trades at a forward earnings multiple of 11 and a cash-flow multiple of 4.6, 25% and 50% discounts to food and staples retailing averages.
7. Morgan Stanley(MS) is a financial services company, with investment banking, research, trading and asset management operations. Credit Suisse just cut its fourth-quarter earnings estimate for the bank, due to one-time items, but is reiterating its prediction of outperformance in 2011. Credit Suisse notes the stock's sizable historical discount and franchise power as positives. Its $35 12-month target, consistent with a 25% return, is notably conservative. That price target is equivalent to 1.1 times year-end book value and 1.3 times tangible book estimates. Those multiples reflect 59% and 55% discounts to historical averages.
6. Guess(GES) designs apparel. Its stock has jumped 17% in the past three months, but Credit Suisse remains optimistic about upside. The researcher expects positive forward earnings revisions going forward and multiple expansion as the market comes to appreciate the company's global brand power. Management has proven its commitment to reward shareholders, boosting the regular dividend 25% and paying a special $2 dividend in December, equivalent to a 4.3% additional yield on the share price. Credit Suisse believes Guess could achieve sales growth in the midteens in the next few years. Its $60 target suggests a one-year gain of 27%.
5. Western Union(WU) is a money transfer and payment services company. In addition to making the Credit Suisse Focus List, Western Union made the 2011 Top Picks List at Barclays. Credit Suisse analysts are encouraged by Western Union's recently announced 100 million euro bid for Angelo Costa, which should solidify European growth rates. The acquisition would add 7,500 locations in Europe. Credit Suisse has a $25 target on the stock, equivalent to 17-times its 2011 earnings projection. That target suggests a return of 33%. Barclays is marginally less bullish, with a $24 price target. Two thirds of Wall Street researchers rate it "buy."
4. Intel(INTC) is the world's largest chipmaker. A foray into tablets and smart phones has gotten little recognition from the Street, but Credit Suisse believes that any success outside of Intel's PC business will be "multiple accretive." Investors are concerned that tablets and net books will cannibalize PC sales and that enterprise spending in 2011 could surprise to the downside. Credit Suisse believes that Intel can maintain and perhaps extend its lead market share in PCs, and that opportunity in smartphone and tablet markets is "more tangible than what the market expects, both on share and profitability." At a trailing earnings multiple of 11, Intel is 47% cheaper than its five-year average.
3. Bank of America(BAC) jumped 5% yesterday on news that it will pay $2.8 billion to Fannie Mae and Freddie Mac to rectify buy-back demands. The bank's stock was the third worst-performing Dow stock of 2010, having fallen more than 11%. Credit Suisse expects near-term revenue headwinds, but reiterates that the bank is the cheapest large-cap bank stock, costing just six times normalized 2012 earnings, a huge peer, market and historical discount. Credit Suisse's $20 target implies 43% upside. Other analysts view the stock favorably. Of those covering Bank of America, 21, or 62%, advise purchasing its shares, and 13 recommend holding them.
2. Research In Motion(RIMM) designs and manufactures Blackberry smartphones and recently debuted a tablet computer, PlayBook. Its chief competitor is Apple, maker of the iPhone. The iPhone's expansion to Verizon in 2011 presents a major headwind. Still, Credit Suisse is optimistic about overseas growth and believes that Research In Motion can maintain its 16%-17% market share in 2011, despite weaker North America sales. The market has been overwhelmingly pessimistic about RIM. Its stock trades at just 8.1 times Credit Suisse's 2012 earnings projection, a huge discount to tech peers. That forecast doesn't include potential EPS from tablets.
1. Sprint(S) is the runt of the mobile carrier litter, trailing Verizon and AT&T. But, Credit Suisse expects Sprint's stock to outperform the aforementioned competitors' shares in 2011. It upgraded its savings estimate from the company's Network Vision upgrade to $2 billion to $2.5 billion. Credit Suisse calls Sprint its "highest conviction outperform." It values Sprint's core business at $6 a share, based on discounted cash flow analysis, with $4 of upside from Vision. It expects the company to enjoy only $2 of this potential upside, equivalent to an $8, 12-month target and an outsized 82% return. This is an unpopular view. Just 34% of analysts rate Sprint's shares "buy."
