The company beat earnings by $0.05 at $0.65 per share and revenues rose almost 13% to $3.39 billion versus Thomson Reuters estimates of $3.38 billion.  Whole Foods even raised guidance for its Fiscal year of 2012 to a range of $2.28 to $2.32 earnings per share from a prior target of $2.21 to $2.26 and against a consensus target from Thomson Reuters of $2.27 EPS.  It also raised revenue guidance for 2012 to a range of 13.5% to 15% and that looks mostly in-line with the expected figure of $11.6 billion expected.

Whole Foods is a great growth story, it is an incredibly well run organization, and it deserves a premium over traditional grocery stores which run on razor-thin margins.  Whole Foods has far higher margins and its expansion of its own 365 private-label brand is likely going to help it capture even higher margins even though the products are generally priced lower than other organic and natural brand-label foods. 

So, everything is positive… except for our headline.  The guidance is not exactly far higher than what was already expected.  At the mid-point of its new earnings range, Whole Foods stock trades at a massive 33.9-times the fiscal September 2012 consensus estimate and it trades at 1.2-times expected revenues.

Compare Whole Foods forward 2012 valuations of 33.9-times earnings and 1.2-times sales to The Kroger Company (NYSE: KR) and Safeway Inc. (NYSE: SWY).  Kroger trades at only 10.6-times earnings and only about 0.14-times sales; Safeway trades at 12-times expected earnings and only 0.17-times total sales.
 
The good news for the bulls is that Whole Foods has always been a premium stock.  It is even easy to argue that Whole Foods will always trade at a premium to grocery chains.  It has the whole lifestyle trade attached to it.  Whole Foods is far more of a fun experience compared to most grocery stores, at least until the bill comes.  Whole Foods is arguable the biggest luxury brand that there is. 

The bad news is simple.  Valuations at some point just have to give.  At $77.93 and after the stock hit a new high of $78.31, how can it rise?  The consensus target from analysts is $79.29 and even if that gets raised it can only rise so much.  With a $13.99 billion market cap, it is worth roughly two-thirds of the combined values of Safeway and Whole Foods while it is expected to generate only about 8% of the combined sales of the two food giants.

A great company, at a price that just feels too high to justify on any traditional financial metrics.  The stock can run up on news.  It just looks too hot now under rational evaluations.

JON C. OGG

The surprise winner so far in 2012 after the first month is USG Corporation (NYSE: USG). then there are stocks like Bank of America Corporation (NYSE: BAC), Ingersoll-Rand plc (NYSE: IR), Moody’s Corporation (NYSE: MCO), Intel Corporation (NASDAQ: INTC), Wells Fargo & Co. (NYSE: WFC), and American Express Co. (NYSE: AXP).  Yep, the other winners of these seven holdings are mostly tied to finance.

We have evaluated the performance to date (from FinViz.com) and added in some color on each.  We have also shown how the price compares to the 52-week highs or to the consensus price target as well, and included in some cases whether the position is substantial or not.

USG Corporation (NYSE: USG) is up 32.8% year-to-date and is actually Berkshire Hathaway’s top performing stock.  With so much interest in the bottoming out of housing at some point in 2012, it may not be that ridiculous even if the fundamentals have not changed all that much yet.  The concern here is that at $13.50 it now trades above the consensus $13.30 price target.  Buffett holds over 17 million USG shares.

Bank of America Corporation (NYSE: BAC) is up 32.4% year-to-date and the new large preferred position is back to where Warren Buffett doesn’t look foolish for dreaming up his investment in BofA while in the bath.  At $7.36 there is still plenty of upside to the $8.90 price target and this remains (and is expected to remain) well under book value.

Ingersoll-Rand plc (NYSE: IR) is up 15.5% year-to-date, not bad for what is usually a slower-moving company with a portfolio of industrial and commercial products.  At $35.18, it does not have much upside left to the consensus price target of $37.94 but it is still way off the 52-week high of $52.33.  Buffett’s position is way down from prior periods and is only 636,600 shares as of the last report.  This position just can’t move the entire Berkshire Hathaway Barometer too much.

Moody’s Corporation (NYSE: MCO) is up 11.6% year-to-date.  The credit rating agency has been a controversial position that Buffett has lightened up on through time.  At $37.60, it is close to the consensus price target of $39.60 and under the 52-week high of $41.93.  Buffett did lighten up a bit on this position but still holds roughly 28.4 million shares.

Intel Corporation (NASDAQ: INTC) is up 9.5% year-to-date and is one of the news 2011 investments that Mr. Buffett hid.  It was also his first technology pick as far as pure hardware is concerned.  At $26.55, Intel is very close to its 52-week high of $27.00 and close to its consensus analyst price target of $27.17.

Wells Fargo & Co. (NYSE: WFC) is up 8.9% year-to-date and is up the least of the big money-center banks.  It is also the only one of the money-center banks trading above book value because the restructuring regulatory climate over future earnings will create the least amount of change at Wells Fargo. Buffett keeps adding here and now holds over 361 million shares as one of his biggest positions ever.

American Express Co. (NYSE: AXP) is up 7.7% year-to-date, which is lower than many financials. The recent earnings report showed improvement but perhaps a trend towards peaking of the improving credit metrics of AmEx customers.  Buffett’s position is roughly 151.6 million shares.

Berkshire Hathaway’s most recent holdings in entirety can be found here.

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JON C. OGG

January 2012 is the first time in memory that two different samples of the T206 Wagner card have been for sale in the same month.  If you have nearly unlimited means, a T206 Wagner can end up in your collection right now.  Another T206 Wagner just sold in early January.

Published reports indicate that there may be 50 to 100 samples of the T206 Honus Wagner that exist, but there may only be around 50 in existence after speaking with industry sources.  A sale of $2.8 million for the “Wayne Gretzky” T206 Honus Wagner in 2007 set a record, and that was after the exact same card had been bought for about $2.35 million earlier that same year. 

The reason this card is so rare is known as Honus Wagner decided to have the American Tobacco Company withdraw his card from the T206 series.  The “why” this card is so rare remains a debate even today.  Only a limited number of this card made it out into the public, or at least only a few which are known to have survived.  In the late 1800s and early 1900s, baseball cards were promotional inserts for cigarettes packs and tobacco packages, as well as made for other products.  They were far from being kids’ bubble gum cards that later generations would come to cherish.

The most common belief is that Wagner was anti-tobacco and did not want his image promoting cigarettes and tobacco products to children.  Maybe, but Maybe not.  This may have simply been a contract dispute over compensation or terms.  Here is the argument for the latter case… Honus Wagner’s image appeared on cigar boxes in some of the same years around the debated time of 1909 to 1911 when the T206 cards were distributed.  Robert Edwards Auctions has auctioned two such cigar boxes in recent years, and the Baseball Almanac shows these images as well.

While most baseball cards rise and fall in value and can be very cyclical, that just has not been the case for a T206 Honus Wagner.  As it turns out, there are millions of people who collect baseball cards and memorabilia or who have collected in their lives.  The Wall Street Journal reported in mid-2011 that there were 3.1 million millionaires in 2010.  And the same report showed over 40,000 in North America worth $30 million or more.  Some of these people are still collectors and there is no greater prize in sports collecting than being able to flaunt a T206 Wagner.

It was not very well covered in the media, but a T206 Honus Wagner from the famed Dreier collection just sold in early January 2012 through Legendary Auctions.  It was graded by PSA, one of the industry-recognized grading services and the grading brand of Collectors Universe, Inc. (NASDAQ: CLCT).  It was graded as a “4″ (on a scale of 1 to 10).  This famed T206 Wagner sold for an undisclosed sum.  After speaking with Doug Allen of Legendary, it was a privately negotiated transaction.  Mr. Allen would not disclose the buyer nor could we get an exact price, but he quoted, “The sale was for more than $1.5 million.”  An incredible sum indeed. 

Now there is another sample of the card for sale right now, for a hefty price.  Memory Lane has a “PSA 2″ graded T206 Wagner for sale today for a whopping $775,000.00.  It is even advertised on eBay Inc. (NASDAQ: EBAY) as item #290661465614.  After speaking with J. P. Cohen of Memory Lane, this is card is on consignment and had previously been for sale at a higher price and the new price is said to be close to where offers came in for this exact card last year.

These two samples are not the only T206 Honus Wagner cards which have been sold in recent times.  A unique sample was a proof strip from the T206 set which actually belonged to Honus Wagner himself.  This was purchased at the Major League Baseball All-Star Auction by SCP Auctions (for an anonymous client) for the sum of $316,250 in 2010.  It was also SCP Auctions Inc. which brokered the record $2.8 million sale mentioned earlier of the prized Gretzky T206 Wagner.

SPDR Barclays High Yield Bond (NYSE: JNK) carries a 7.7% listed yield and is up 0.25% at $39.00 against a 52-week range of $34.09 to $40.93 and it is the primary ETF we look at when it comes to the world of high-yield or junk bonds.  Then there is the iShares iBoxx High Yield Corporate Bond (NYSE: HYG) up 0.1% at $89.69 with close to a 7.7% yield and a 52-week range of $77.90 to $92.85, followed by the PowerShares Fundamental High Yield Corporate Bond Portfolio (NYSE: PHB) that is flat at $18.34 with a yield of about 6% and a 52-week range of $17.00 to $18.76.  You have to consider that the 10-Year Treasury yields close to 2%, but high-yield and junk bonds often pay 7%, 8%, or more.  Here are some of the top closed-end funds, although there are many more out there:

• Blackrock Corporate High Yield (NYSE: HYV): market cap of $396 million with shares up 0.3% at $12.02; 52-week trading range of $10.10 to $12.60; implied yield of 8.5%.
• Pioneer High Income Trust (NYSE: PHT): market cap of $480 with shares up 0.7% at $17.07; 52-week trading range of $14.12 to $18.08; implied yield of 9.6%.
• PIMCO High Income Fund (NYSE: PHK): market cap of $1.5 billion with shares down 0.1% at $12.62; 52-week trading range of $10.52 to $14.88; implied yield of about 8.5%.
• AllianceBernstein Global High Income Fund, Inc. (NYSE: AWF): market cap of $1.2+ billion with shares up 0.9% at $14.47; 52-week trading range of $12.43 to $15.41; implied yield of 8.3%.
• Western Asset High Income Fund II Inc. (NYSE: HIX): shares are up 0.4% at $9.84; 52-week trading range of $8.35 to $10.45; implied yield of about 10.0%.
• Western Asset High Income Opportunity Fund Inc. (NYSE: HIO): shares are up 0.8% at $6.32; 52-week trading range of $5.34 to $6.63; implied yield of 8.0%.

We do advise investors to study the current premium and discount that each closed-end fund trades at compared to the net asset value.  Some are discounts and some are premiums, and these can fluctuate wildly through time for a myriad of reasons.

While that is a composite and while the “BB” is now under 500 basis points over Treasuries, the “B” spread is now under 750 basis points over Treasuries.  Maturities matter here as the longer-dated notes and bonds command higher spreads than most shorter-dated instruments.  Still, this could be the beginning of a wave of continued interest in junk bonds.

What is interesting is that rising yields in Treasuries implies losses on the face value of bonds.  If the yields are rising because of an improving economic picture rather than because of inflation or because of a lack of faith in the underlying creditworthiness of the government, then the bond spreads are likely to contract further and that would drive the interest into high-yield junk bonds.

Be advised that not all junk bond funds are created equally outside of the ETFs.  Some closed-end funds use domestic junk bonds only, while some use international bonds.  Some include foreign-issue sovereign debt at junk levels or trading as though they are junk.  Aslo, some use a bit of leverage while others do not.  The dividend yields are “implied” because ethe closed-end funds pay monthly.

Another caveat needs to be mentioned… Some of the yields on financial quote screens also will differ from our implied yields because we do not include the capital gain distribution that comes with many of these.  They of course count toward your total return, but we like to look at the most recent ‘regular dividend’ when calculating yields.

We have provided a chart for the “JNK” ETF Below so you can see how much this sector has risen since Thanksgiving and then again since the selling climax of stocks and risk instruments (including junk bonds) in early October.

A true chartist would tell you to watch this current level closely.  If prices do not rise from here, it could be representative of a false break-out and that would imply a near-term top.  As long as the “risk-on” mentality prevails, these should do well.  The trick is watching longer-term Treasury yields.  With close to a 2% yield on the 10-Year Treasury Note, investors will seek higher returns as long as those returns are likely to have at least some degree of price stability.  If investors think that Treasury yields are likely to climb suddenly to 3% or even 4%, junk bonds will have some competition from the risk-free trade again.

As you would expect, there is no such thing as a free lunch in the financial markets.

JON C. OGG

Each year, you often see the same trend over and over: “Buy the weakest sectors and dump the strongest.”  Maybe there is a value in the weakest links and maybe too much a premium in the strong sectors.  The Financial Select Sector SPDR (NYSE: XLF) is off to a great start in 2012, while the Utilities Select Sector SPDR (NYSE: XLU) has been very weak.

All you have to do is look at the extremes… Bank of America Corporation (NYSE: BAC) was the worst DJIA stock of all in 2011 but now shares are up literally 19% since the end of 2011.  J.P. Morgan Chase & Co. (NYSE: JPM) is even up over 9% since the end of 2011 and it has earnings due in just two days.  With the huge discounts to book value, the thought is that there is value even with the headwinds facing the banking sector’s ability to generate solid earnings.  BofA was recently shown as one of the DJIA stocks with the most implied upside.

What about American Electric Power Co., Inc. (NYSE: AEP) bounced a bit off the lows in the last two days but its shares had been down almost 2% so far this year after just six trading sessions. Duke Energy Corporation (NYSE: DUK) was down almost 3% from the end of 2011 before a small bounce.  Many utilities are trading at close to 13-times earnings now, which historically could imply a premium being paid to get those dividend yields of 4% and higher.  AEP remains in our 2012 Model Dividend Portfolio and that will only change if the price rises too much.

All you are seeing is a reverse of the flight to safety because many believe that the economy has escaped another recession or that the worst was priced in.  Before giving up entirely, interest rates are likely to remain very low and that drives investors toward stable income sources.  Utilities also win from low interest rates because of borrowing costs.  As far as the banks, the woes of Europe are not yet gone and the utilities have little to no real exposure there.  If everyone is wrong about no second recession, which has better visibility… utilities or banks?

JON C. OGG

It turns out that many stocks with high dividend yields are now more attractive than sovereign debt in the U.S. and abroad. Part of the allure, besides income or reinvestment, is that dividend stocks often hold up better than other investments during jittery markets. It is hard to imagine, but the high-yield utility sector was one of the top performers of the S&P in 2011. In some cases, half of an investor’s total return through time may come from dividends. Warren Buffett generally picks dividend-paying companies for Berkshire Hathaway Inc. (NYSE: BRK-A) after following some of the principles of Benjamin Graham.

The 24/7 Wall St. 2012 Model Dividend Portfolio includes the following stocks: American Electric Power Co., Inc. (NYSE: AEP); American Water Works Company, Inc. (NYSE: AWK); AT&T, Inc. (NYSE: T); General Electric Co. (NYSE: GE); Government Properties Income Trust (NYSE: GOV); Kimberly-Clark Corporation (NYSE: KMB); Senior Housing Properties Trust (NYSE: SNH); and Wal-Mart Stores Inc. (NYSE: WMT).

While exchange-traded products have been avoided in the past, recent trends merit a look at the open-end or closed-end mutual funds and ETF products as follows: SPDR Barclays Capital High Yield Bond (NYSE: JNK); JPMorgan Alerian MLP Index ETN (NYSE: AMJ); ALPS Alerian MLP ETF (NYSE: AMLP); and PowerShares Financial Preferred (NYSE: PGF).

Lastly, there have been some exits due to upside price performance: Altria Group Inc. (NYSE: MO); Digital Realty Trust Inc. (NYSE: DLR); Enterprise Products Partners LP (NYSE: EPD); and Kinder Morgan Energy Partners LP (NYSE: KMP).

We have described the features and outlook for each component of our Model Dividend Portfolio.

The fortunes of any oil & gas producer depends on the price of the commodity, and crude prices in the US have been rising, while natural gas prices have been no better than flat for the year. And while crude prices could rise to an average of more than $105/barrel in 2012, natural gas prices are not expected to rise much next year as abundant supplies are likely to increase even more.

We’ve looked at several oil & gas companies, including the three US-based supermajors and a number of independents with market caps above $10 billion: Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), ConocoPhillips (NYSE: COP), Range Resources Inc. (NYSE: RRC), Tesoro Corp. (NYSE: TSO), Pioneer Natural Resources Co. (NYSE: PXD); Anadarko Petroleum Co. (NYSE: APC), Chesapeake Energy Corp. (NYSE: CHK), Apache Corp. (NYSE: APA), and Occidental Petroleum Corp. (NYSE: OXY). We’ve looked at the past year’s stock price performance and compared that with median target prices as reported by Thomson Reuters in an effort to find the stocks we think will be top performers in 2012.

Exxon Mobil Corp. (NYSE: XOM) has a median price target of $92 and a current price of around $84.62, for a potential upside of 8.7%. That’s the lowest potential gain of any of the stocks in this survey, but combined with a share price gain of about 15% in the past 12 months and a dividend yield of 2.3%, Exxon’s upside is stronger than the simple calculation. The stock’s 52-week trading range is $67.03-$88.23, so the stock is trading within about 5% of its 52-week high. Crude oil price hikes provide substantial benefits to Exxon’s shares, and those price hikes could add $10-$20/barrel to the company’s revenues in the coming year.

Chevron Corp. (NYSE: CVX) has a median price target of $122.50 and a current price of around $106.76, for a potential upside of 14.7%. Of the three supermajors, Chevron’s potential gain is the largest, it’s share price gain of nearly 16.5% in the past year is the largest, and its dividend yield of 3% is second in among the three giants. The stock’s 52-week trading range is $86.68-$110.01. Chevron has been the strongest bet among the three US supermajors this past year, and there’s little reason to expect that to change in 2012. A new 52-week high is close, and current events in the Middle East could push shares to a new high before the new year.

ConocoPhillips (NYSE: COP) has a median price target of $82 and a current price around $72.24, for a potential upside of about 13.5%. Conoco trails the other two supermajors in share price gain for the past 12 months, posting a rise of just 6.35%. The company’s dividend yield is highest of the supers, at 3.7%. The stock’s 52-week trading range is $58.65-$81.80. Conoco just sold assets in the North Sea for $330 million as it continues to try to bring its debt back under control. Of the three supermajors, this is the least likely to achieve its potential upside.

Range Resources Inc. (NYSE: RRC) has a median price target of $77.50 and a current price around $61.55, for a potential upside of 26%. But Range’s share price has jumped more than 36% in the past year, but the company pays a paltry dividend yield of just 0.3%. The stock’s 52-week trading range is $44.20-$77.24. With a market cap of right around $10 billion, Range is often mentioned as a takeover target from one of the supers or another mining company that wants to diversify into energy. Range holds about 800,000 leased acres in the Marcellus shale play, which is located close to the massive northeast US market.

Tesoro Corp. (NYSE: TSO) has a median price target of $28 and a current price around $23, for a potential upside of about 22%. The refiner’s share price has gained more than 25% this year, but the company pays no dividend. The stock’s 52-week trading range is $17.43-$29.61. Unlike the other major US refiner, Valero Energy Corp. (NYSE: VLO), Tesoro has made no major acquisitions recently, apparently satisfied to play the hand it’s got. That’s probably smart, considering Valero shares got whacked in the past 12 months, down more than -9%. But as the Brent/WTI differential closes, no refining stock is a good bet for 2012, regardless of the potential upside calculation.

Pioneer Natural Resources Co. (NYSE: PXD) has a median price target of $115 and a current price around $75.75, for a potential upside of 31.4%. The company’s shares gained a meager 2.2% in the past 12 months and the dividend yield is just 0.1%. The stock’s 52-week trading range is $58.63-$106.07. Like Range Resources, Pioneer carries a market cap of right around $10 billion. Most of the company’s assets are in Texas, and most are oil. Either as a takeover target or as a liquids producer, Pioneer is a solid play.

Anadarko Petroleum Co. (NYSE: APC) has a median target price of $100 and a current price of $75.75, for a potential upside of 32%. The share price gained more than 9% in the past year and the company pays a dividend yield of just 0.5%. The stock’s 52-week trading range is $57.11-$85.50. Until fairly recently, Anadarko’s assets have been exclusively onshore in the US, but its acquisition of Kerr-McGee gave it a position in the Gulf of Mexico and the company has also acquired assets offshore of Africa. The potential upside here, combined with the company’s share price performance last year, make Anadarko a solid prospect for gains in 2012.

Chesapeake Energy Corp. (NYSE: CHK) has a median target price of $35.50 and a current price around $22.87, for a potential upside of 55%. Shares have lost more than -11% in the past 12 months and the company pays a dividend yield of 1.5%. The stock’s 52-week trading range is $22-$35.95. Chesapeake’s shares are near the 52-week low today following a report from Reuters on how the company used shell companies to secure leases to drilling rights in Michigan and potential lawsuits springing from the practice. On the other side, at least one analyst thinks Chesapeake offers a “compelling risk/reward” opportunity. That awe-inspiring upside potential is probably out of reach though. Chesapeake holds a lot of debt, and any hiccup in the financial markets could raise havoc with the company.

Apache Corp. (NYSE: APA) has a median price target of $134 and a current price of $88.63, for a potential upside of 51.2%. The company’s share price has fallen more than -25% in the past year and it pays a dividend yield of 0.7%. The stock’s 52-week trading range is $73.04-$134.13. Several directors and company officers have been buying shares in the past month or so. Just under half of the company’s liquids production comes from its US assets, so the rising prices for WTI are positives for Apache. The large potential upside is probably not going to be closed, but the company’s shares could easily improve by 25% in 2012.

Occidental Petroleum Corp. (NYSE: OXY) has a median price target of $117.50 and a current price around $93.69, for a potential upside of 25.4%. The company’s share price has fallen more than -4% in the past 12 months and it pays a dividend yield of 2%. The stock’s 52-week trading range is $66.36-$117.89. Oxy’s assets include liquids-rich fields in southern California, where pricing for crude and liquids is higher than anywhere else in the country. Other assets in Texas and elsewhere onshore in the US will drive revenue and profit at Oxy this year, and the stock’s potential upside is not an impossible goal.

Overall, among these oil & gas stocks, Chevron would be the pick among the supermajors, and either Range Resources or Pioneer among the independents, primarily on the possibility of a takeover. Refiners face a tough 2012 and Conoco’s decision to split off its refining into a separate company won’t help matters.

Paul Ausick

We have shown how Credit Suisse’s price targets compare to the consensus targets and shown price history as well to give investors a feel for what the price targets might imply.  Other color has been added in if applicable.

Oil States International Inc. (NYSE: OIS) is in the Energy Equipment & Services sector.  Credit Suisse’s Arun Jayaram has an Outperform rating on the stock and it has been on the top picks list since September under the growth category.  Shares are trading at $75.00 and the $110.00 price target objective implies upside of almost 47%.  Thomson Reuters has a $95.92 consensus price target on Oil States and Credit Suisse has the “street high” target.  It should be worth noting that shares tanked in the summer sell-off and they have now recovered actually by about 50% since the September-October selling climax.

Read Also: Top Biotech Stocks For 2012

Owens-Illinois, Inc. (NYSE: OI) is in the Metal and Glass Containers sector and Credit Suisse’s Al Kabili has an Outperform rating and it is listed as a value stock.  This stock was added to the top picks list in mid-December.  At $18.65, there is an implied upside of almost 61% to the firm’s $30.00 price target. Interestingly enough, the consensus price target from Thomson Reuters is $28.11 and the highest target from other analysts is $32.00. It looks like there are still many bullish analysts here on this one outside of Credit Suisse. The summer sell-off was brutal here as shares were more than cut in half at the extreme point before recovering recently.

Rosetta Resources, Inc. (NASDAQ: ROSE) is in the Oil and Gas Exploration and Production segment.  Credit Suisse’s Mark Lear has an Outperform rating and calls ita growth stock.  At $44.00, there is an implied upside of 52% to the firm’s $67.00 price target.  The Thomson Reuters consensus price target is $58.64 and the year high is $58.04.  There are some other analysts with far higher expectations as there is one price target as high as $82.00 on the stock.  This one has been an aggressive earnings growth name and that is expected to remain in 2012.

Read Also: Small Caps With 50% Upside in 2012

WABCO Holdings Inc. (NYSE: WBC) is into braking, stability, suspension, and transmission control systems primarily for commercial vehicles. Credit Suisse’s Peter Chang has an Outperform rating on Wabco as a growth stock.  The $43.00 share price today leaves an implied 53% upside to the firm’s $66.00 price target.  This one has been very volatile as the 52-week range is $34.17 to $75.00.  Credit Suisse is only a tad more bullish than the consensus as Thomson Reuters has a median price target of $63.71 and the highest analyst price target is $71.00. 

Cobalt International Energy, Inc. (NYSE: CIE) is now just a “runner-up” in the Oil and Gas Exploration and Production segment and Credit Suisse’s Edward Westlake has an Outperform rating.  This one was added as a fresh addition to the top picks list in December, but investors have effectively missed this one.  It had 50% implied upside to the $17.00 price target at the time, but now shares have risen to $15.98.  If it matters, Thomson Reuters has a higher consensus price target of $18.40 on the stock.

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JON C. OGG

An SEC filing from Tuesday shows that things have not improved on its contract negotiations.  Things have deteriorated.  The age of austerity may be at fault.  For CSC investors, the hope is that this is just austerity.

The company disclosed all the way back in May 2011 it had “substantially completed negotiation of the terms of a memorandum of understanding with NHS which set forth the key terms of a reduction in the scope and related contract value of the parties’ agreement relating to the NHS IT program.”  Between May 2011 and the end of September 2011, U.K. government reviews of the NHS IT program occurred and U.K. government officials confirmed that they would continue to work with existing suppliers to determine the best way to deliver services in a way that allows the local NHS trusts to exercise choice while delivering the best value for the expense. 

It was further disclosed that the parties have been engaged in further discussions relating to the MOU since mid-November 2011, including a proposed contract amendment with different scope modifications and contract value reductions than those contemplated by the MOU.  The problem is here: “CSC recently was informed that neither the MOU nor the contract amendment then under discussion would be approved by the government.”  The company said that it expects that the parties will continue discussions in January 2012.

Due to the circumstances, CSC will recognize a material impairment of its net investment in the contract in the third quarter of fiscal year 2012… the company is unable to estimate the amount of such impairment… The failure of the parties to enter into a contract amendment, a significant delay in entering into a contract amendment or the execution of a contract amendment on terms unfavorable to CSC would result in a material impairment of CSC’s net investment in the contract and could have a material adverse effect on CSC’s consolidated financial position, results of operations and cash flows.

• “However, depending on the terms of such an amendment or if no amendment is concluded, such impairment could be equal to the Company’s net investment in the contract, which, as of November 30, 2011, was approximately £943 million ($1.5 billion).”

As you might have expected, CSC has withdrawn its previously disclosed fiscal year 2012 financial guidance.  Shares are down over 7% at $24.44 and the 52-week trading range is $22.80 to $56.61. With shares under $25.00 and with Thomson Reuters having (prior) earnings estimates of $3.73 EPS in March-2012 and $3.88 EPS in March-2013, the “value stock” screen shows a blended forward 2012-2013 price/earnings ratio of about 6.5-times expected earnings.  The problem is that those figures will come down greatly now. 

Our question is whether or not the $0.20 per quarter dividend, now 5 straight quarters in, is safe.  When the first $0.20 payout was made in December 2010 the CSC share price was around $47.00.  Now that price is under $25.00 and the new dividend yield is now 3.2%.

CSC now has a market capitalization rate of only $3.8 billion.  Its net tangible assets and total equity have come down this year while its long-term debt had increased slightly in the last two quarter-end reports.

Unfortunately, this is just not good regardless of how you measure it… Unless you were selling this one short.

JON C. OGG

Other new additions to this were made but the rest did not have an implied 50% upside.  We have offered details on each.

Tenneco Inc. (NYSE: TEN) is in the auto components sector and sports a $1.8 billion market capitalization rate.  The stock trades at $29.97 and the firm’s price target is $53.00 as a growth pick, well above the Thomson Reuters consensus price target of $45.10.  This gives implied upside of over 70%, but keep in mind that the firm added it to the Top Picks list in June when shares were around $37.50.

Read Also: Small Caps Under $1 Billion With 50% Or More Upside From Credit Suisse

Western Refining Inc. (NYSE: WNR) is in the Oil and Gas Refining sector and at $13.29, it has a price target of $20.50 at Credit Suisse and a consensus price target from Thomson Reuters of $18.75.  This pick was newly added in December to its best ideas list with an “Outperform” rating and was listed as a value pick.

Apollo Global Management, LLC (NYSE: APO) may seem like a surprise since it is in private equity.  Credit Suisse’s $1.5 billion pick in market capitalization currently has a unit price of $12.30 and a market cap of about $1.5 billion.  The firm expects that its shares will trade up to $21.00 versus a Thomson Reuters consensus target of $17.77.  This pick was added in December with an “Outperform” rating as a value pick and leaves an implied 70% upside if the firm’s projections were correct.

Read Also: Canaccord’s Top Tech Picks For 2012

Synovus Financial Corporation (NYSE: SNV) wa surprising to see on the list since very few investors are willing to enter the troubled sector.  The market value for this regional banking outfit is currently $1.15 billion based upon a $1.46 share price.  This was added as an “Outperform” rating as a value pick in December when shares were about $1.35, but the price target objective from Credit Suisse is $2.25.  That leaves 52% upside remaining and the Thomson Reuters price target is also at $2.10.

MasTec Inc. (NYSE: MTZ) is valued at $1.48 billion in the Construction & Engineering sector.  The current price of $17.48 leaves “only” 37% implied upside to Credit Suisse’s $24.00 price target.  The reason for this inclusion is that the most recent price on the updated list was at $15.11 and that was above the 50% threshold even if this is under the price when added to the best ideas list in September as a growth pick.

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JON C. OGG