12 Stocks That Could Make 30% This Year

By Eli Inkrot

We think all of the names below offer investors the potential for 30% upside this year. See Investment Underground's analysis and commentary on each below. As always, use the list below as a starting point for your own due diligence:

Morningstar (MORN): It can be somewhat unnerving to lookup MORN on the Morningstar website; especially when they use “we” in describing what the company does. But after all, investment information is about 80% of their business. MORN has been climbing from $40 a share in September of 2010 to today’s near 52-week high of $62. This despite either missing or just barely reaching consensus earnings estimates for the last 5 quarters; imagine what a positive upside could bring. This upside might happen sooner rather than later as the company rolls out its credit ratings on stocks the company covers, which would likely be an eventual threat to the S&P McGraw Hill (MHP) and Moody's (MCO) duopoly on credit ratings. With a current price to earnings ratio around 36 and 2012 estimated earnings averaging $2.58 a share, a buy today could represent a 48% 1-year upside. True, the current P/E ratio is above industry standards but it is in line with MORN’s pre-recession ratios.

American Express Company (AXP): This New York-based credit card giant has the largest market-cap amongst competitors Visa (V), Mastercard (MA) and Discover (DFS). Warren Buffett likes the stock as it represents Berkshire Hathaway’s 3rd largest holding behind Coca-Cola (KO) and Wells Fargo (WFC); not to mention it has netted him about $6.6 Billion since his purchase. AXP’s dividend history is steady, having made a payout every year since 1977. True, the income investor is left wanting with a 1.4% current yield but the payout ratio around 15% suggest future increases are well within reach. Given the current P/E ratio around 15, the 2012 consensus earnings of $4.15 a share suggest a 1 year upside of about 20%. Add in debit card legislation (goodbye incentives) and more people might be swooning for American Express plastic.

Freeport-McMoRan Copper & Gold Inc. (FCX): Catch the fever! Gold fever! To be fair, this Phoenix-based mining company also explores copper, silver and cobalt. FCX, established in 1987, controls the world’s largest copper and gold mine placing it well ahead of its competitors. The dividend, which has been up and down since 1995, currently yields 1.8% with a 39% payout ratio. FCX has proven that it can take advantage of the recent demand trend and shows it with solid financials: 44% return on equity, a 2.35 current ratio and a solid streak of beating consensus earnings estimates. Although the P/E ratio around 10 is in line with the last 5 years, some argue that it is much too low. 14 brokers come up with a target 1 year average upside of about 23%. Factor in a 0.58 P/E to growth ratio and FCX looks even more appealing.

Peabody Energy (BTU): This St. Louis-based energy company is riding coal's next wave to higher prices. On the heels of Alpha (ANR) bidding for Massey (MEE), BTU looks ripe to buy out one of its smaller competitors, like Cloud Peak (CLD). Making the case for a 30% upside isn’t too difficult, as the analysts are on our side. 23 brokers like an average 1 year target upside of about 31%.Every one sees a gain whilst the most optimistic of the bunch pegs the 1-year gain at 48%. Looking at the expected 2012 earnings per share of $5.90 and P/E ratio of 19 paints an even brighter picture. Even if BTU’s P/E ratio drops to 13 it would still make 30% on next years earnings. Given that BTU has a recent record of beating earnings estimates this energy play sure looks promising.

Capital One Financial (COF): At first glance this Virginia-based financial company doesn’t appear to merit a spot on this potential 30% plus list: 18 brokers look for an average 1 year upside of just 13%. Further, expected earnings per share for 2012 are just $5.88. Given the current 7.7 price to earnings ratio this would actually mean an unrealized loss for investors in the upcoming year. But hold on to your hat, financials are coming back. If COF can reach its pre-recession P/E of 12 that would mean a 34% increase; seems reasonable given the recent earnings beats. On a value side, COF looks more than appetizing. The current book value per share is $60.52 compared to a share price of $53; as Buffett would say it’s like buying a $1 for 89 cents. The return on equity above 12% and return on assets over 1% would also be Buffett pleasers. Finally, COF is paying out just 3% of profits in the form of dividends suggesting future increases are definitely within reach.

Potash Corporation of Saskatchewan (POT): This corporation is the world’s largest fertilizer company specializing in potash, phosphate and nitrogen, making up about 20% of the world's supply. 22 brokers like an average 1 year upside of about 15%. If you look at 2012 expected earnings of $3.98 a share and the current P/E ratio around 25, you’d be even more optimistic (72%!). Even if the P/E drops to a more reasonable 19 there’s a 30% upside to be had. For income investors the 0.5% current yield is surely lacking, but the 17% payout ratio and consistent payment history is promising. The real drive behind this company isn’t precisely quantifiable. There is an inherent need for fertilizers in the booming future as population increases and land space decreases. Crops need to be both more efficient and plentiful in order to keep up with dwindling available land and a growing middle class.

Qualcomm’s (QCOM) $97 Billion market cap reigns supreme in the communication equipment market as this San Diego-based technology firm more than doubles the combined capitalization of such competitors as Broadcom (BRCM) and Nokia (NOK). 37 brokers like an average 1 year upside of just 12%, as the opinions vary greatly. The most optimistic looks for a 37% gain while the pessimist of the group sees a 44% decline. The estimated 2012 earnings per share coming in at $3.51 might work to clear up some of the debate. QCOM has a current P/E ratio around 25 which, with these earnings estimates, would equate to a 51% upside; reasonable given the recent string of earnings beats. Even with a P/E ratio around 21 you would see a 30% rise. Return on equity around 16% is sound, while the 3.39 current ratio suggest enough cash is on hand. Income investors are surely calling for a beef up in the 1.5% current dividend yield, but with a 33% payout ratio and solid growth since 2003 their calls might be answered.

Raytheon (RTN): This Massachusetts-based aerospace/defense company is quite diversified and is becoming more so. RTN acquired Applied Signal Technology earlier this year for $490 million and we applaud this move. This is the company’s largest acquisition in CEO Swanson’s tenure with the company. RTN has made four acquisitions in the last fourteen months, which should add to growth prospects for the company. 17 broker like a collective 1 year target upside of about 18%. The 2012 estimated earnings per share of $5.55 along with the current P/E ratio around 10 show the same story with a 15% suggested upside. Although to be optimistic, the P/E is about as low as it has been in the last 10 years and RTN beat consensus earnings estimates the last 2 quarters. Additionally, RTN can boast about having the first acceptable dividend yield in the mind of the income investors. The current yield of 3.6% looks enticing, especially considering dividend growth has been strong since 2002 and the company pays out just 31% of its profits.

H.J. Heinz (HNZ): This Pittsburgh-based Food Company is no stranger to the privileges of a strong brand name. But 16 brokers like an average 1 year target upside of just 7%. A look to the 2012 estimated earnings per share of $3.65, given the current P/E around 17, gives a little more optimistic 16% upside, but is still well under the 30% target. Historically, a P/E around 20 doesn’t appear to be unreasonable especially given the brand name and return on equity around 38%. Those willing to wait can add on the impressive 3.6% current dividend yield. The 59% payout ratio is beginning to top out, but dividends have been increasing like clockwork since 2003. HNZ is not the only brand in town though, as we think shares of Kellogg's (K) and General Mills (GIS) offer an equally well-rounded bet in the consumer staples sector.

PNC Financial Services Group (PNC): Also based in Pittsburgh, this finance company is quite similar to COF. At first glance, the 2012 earnings per share of $6.44 coupled with the current P/E ratio around 9 looks for a break even scenario. However, 27 brokers like a collective 1 year target upside of about 22%. Add in that the financial sector is recovering and PNC has had a string of earnings beats and the current P/E might seem low. Put in a historically reasonable P/E ratio around 12 and there’s your 30% upside. Furthering the value outlook, return on assets is over 1% and the price to book ratio comes in at 1.03. The dividend roar has been heard for financials and PNC is no exception. PNC had a very strong record of dividend increases from 1988 to 2009 until a mandated recessionary cut. Today the current yield is up to 2.4%, but still a far cry from the pre-recessionary levels. Given the 6% payout ratio future increases look more than promising. Even if the dividend simply reaches its level in early 2009 your yield on cost would double. To be sure all financials are recovering and we still think Wells Fargo represents a better buy than PNC because of its more disciplined approach with commercials loans. In southern U.S. markets, Suntrust (STI) is a close-second to PNC.

Newmont Mining (NEM): This Colorado-based mining company is primarily concerned with gold and copper. 15 brokers like an average 1 year target upside of about 35%. Unfortunately 2012 estimated earnings per share of $4.50, given the current price to earnings ratio around 12, suggest only minimal gain. Its likely analyst see that the NEM has beat earnings estimates 6 out of the last 7 quarters along with the fact that the current P/E is historically quite low. A reasonable P/E around 16 gives that 30% upside. Financially the return on equity around 20% and current ratio of 2.25 suggest a stronghold. The dividend yield could use some work at 1.5%, but recently increases have been made. With a payout ratio of 12% investors might be calling not just for increases but for large increases in the future.

Abbott Laboratories (ABT): This Illinois-based healthcare company, founded in 1888, has been more than stable. But 18 Brokers are mixed on ABT with the average 1 year target upside coming in at 10%; the most optimistic analyst pegs it at 50% upside. The estimated 2012 earnings per share of $4.96 along with the P/E ratio around 19 show a huge 78% upside. Even if you use a 10-year low P/E ratio of 15 there’s till a 40% upside to be had. Both seem reasonable as ABT has put together a string of earnings beats as of late. Even if you have to wait for the upside, there’s a bountiful dividend to help you along the way. ABT has not only paid but also increased their dividend for the last 39 years. The current yield of 3.6% is more than respectable while the 5-year average growth rate nears 10%. The 61% payout ratio is beginning to reach the ceiling criteria for many income investors, but Abbott Laboratories appears stronger than ever. Additionally, ABT might flex its muscles soon as it could be an acquirer of one of our potential biotech acquisition candidates.

Disclosure: I am long KO.