The JPMorgan Focus List includes 13 stocks, expected to deliver annualized gains in excess of 20%. Picks 13 to 11, based on return potential, are Knightsbridge Tankers(VLCCF), TreeHouse Foods(THS) and CME Group(CME). Now, here is a look at the bank’s 10 top stock picks for 2011, ordered by upside.
U.S. Steel manufactures flat-rolled steel and tubular products. JPMorgan believes that 'X marks the spot for the best leverage in an eventual steel demand recovery' because of iron ore integration and export potential.U.S. Steel's stock rose 1.6% last year. JPMorgan expects a 2011 rebound.
The company has grown sales and net income 35% and 41% in the past 12 months. Despite historically low inventories, steel buyers remain cautious, according to JPMorgan. The bank recently cut its target and fourth-quarter earnings projection, but remains optimistic about the 12-month return potential in this historically undervalued name.
United Parcel Service, or UPS, delivers packages worldwide. Most recently, JPMorgan was encouraged by the company's issuance of $2 billion of notes, with $1.5 billion of 10-year notes at just 3.2% and $500 million of 30-year notes at nearly 5%.
UPS plans to use the proceeds from this low-cost debt to make cash contributions to pension funds, removing pension expense risk in 2011. JPMorgan views this move as a positive catalyst for UPS shares as it increases the likelihood of a significant share buyback in the near-term or a dividend increase.
Other Wall Street researchers are also bullish on UPS, with 19, or 73%, of analysts rating its stock 'buy' and the remainder ranking the shares a 'hold.'
J.B. Hunt Transport is a truckload carrier, logistics and, intermodal transportation company. This cyclical play has a market value of $5 billion, placing it in the mid-cap category.
JPMorgan likes J.B. Hunt's 'broad total portfolio of transportation services and favourable pricing cycles in truckload an intermodal.' The bank is encouraged by newly-appointed CEO John Roberts, who appears committed to sustainable top-line growth through an integrated approach to selling, rather than near-term margin maximization. The greatest risk to JPMorgan's investment thesis is a slowdown in economic growth, especially in manufacturing or consumer spending.
Kraft Foods is a packaged foods company and Dow component with a market capitalisation of $55 billion. JPMorgan was disappointed by the lackluster third-quarter performance of Cadbury, an acquisition made in 2009, and weaker-than-anticipated organic growth, at 2.5% vs. JPMorgan's predicted 4.3% growth.
Still, JPMorgan expects solid earnings growth in 2011, helped by cost and revenue synergies from the Cadbury acquisition. Also, margins were crimped by a recent investment in marketing initiatives, which may have paid off during the fourth quarter.
Kraft rose 16% in 2010 and still receives favourable analyst reviews, with 40% ranking it 'buy.'
Invesco is an investment manager. JPMorgan recently boosted its outlook for the entire asset management group, given the strong quarterly performance of global equity markets.
Also, strong equity fund flows indicate that individual investors are beginning to transition out of bonds into riskier assets, which may buoy the market and earnings profile of the asset management industry.
Invesco is JPMorgan's top pick in the industry because of its valuation. The stock trades at a forward earnings multiple of 14, a 26% discount to its peers. JPMorgan believes the company has incremental earnings potential from its purchase of Van Kampen as well as the retail unit of Morgan Stanley.
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