Investing

Credit Suisse's 5 Mid-Cap Stocks to Buy With Gigantic Upside Potential

Over the past couple of years, large cap stocks have led the pack in almost every sector, and understandably so due to the liquidity and ability to trade easily. The Russell 2000 has trailed the S&P 500 badly, and small and mid-cap stocks of the companies that often perform the best when the U.S. economy improves have been very overlooked. In a new report, the analysts at Credit Suisse go sector-by-sector in search of the best mid-cap stocks to buy now.

Mid-caps are often much more palatable for investors because they can range in market capitalization from as low as $2 billion to $27 billion. We screened the Credit Suisse mid-cap stocks rated Outperform for those with the biggest upside potential to the target price and the largest market cap.

Abercrombie & Fitch Co. (NYSE: ANF) has slowly but surely started to rebuild what once was a very dominant brand, and the company has been utilizing its huge 19 million user following on Facebook to expand consumer awareness. The Credit Suisse analysts cite continuing share repurchases, leaner inventory, improving fashion offerings and much easier teen comparisons as catalysts that could drive earnings and the stock higher soon. The stock has caught a rash of recent downgrades, and investors may now have a much better entry point.

Abercrombie & Fitch investors are paid a 2.5% dividend. The Credit Suisse price target is a gigantic $53.The Thomson/First Call target is $44.71. Shares closed Monday at $32.23. Trading to the Credit Suisse target would be a huge 65% gain.

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American Airlines Group Inc. (NASDAQ: AAL) has been absolutely on fire this year, up over 70% despite the recent sell-off and recovery. This is the holding company for American Airlines and US Airways. Together with wholly owned and third-party regional carriers operating as American Eagle and US Airways Express, the airlines operate an average of nearly 6,700 flights per day to 339 destinations in 54 countries. A huge plus for investors is the plummeting price of jet fuel, which can be as much as 30% of an airline’s total budget.

American Airlines shareholders are paid a 1% dividend. The Credit Suisse target is $52, and the consensus estimate is right in-line at $52.03. Shares closed trading on Monday at $39.91, so a move to the Credit Suisse target would be almost a 30% gain.

Baker Hughes Inc. (NYSE: BHI) reported very solid numbers for the quarter but some analysts were disappointed by margin guidance. Its earnings from its Latin American operations improved significantly from $8 million in the first nine months in 2013 to $172 million in the first nine months in 2014. Its North American operations also improved. The demand for innovative drilling technology increased. These were the main drivers for its improved 2014 performance. The Middle East and Asia Pacific segment’s 21% higher profit also helped growth.

Baker Hughes investors are paid a 1.3% dividend. The Credit Suisse price target is $81, and the consensus is set at $72.21. Shares closed trading at $51.13. Hitting the Credit Suisse price target would be an almost a 60% gain.

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Freescale Semiconductor Ltd. (NYSE: FSL) is a global leader in embedded processing solutions, providing industry leading products that are advancing the automotive, consumer, industrial and networking markets. From microprocessors and microcontrollers to sensors, analog integrated circuits and connectivity, 45% of the company’s business is generated through the automotive industry making the connected car a huge earnings contributor. The consensus view is that Wall Street underappreciates the revenue growth next year, and the huge sales effort in China looks to pay off big.

The Credit Suisse price objective is $30, and the consensus target is much lower at $23.44. The stock closed Monday at $18.28. Trading to the Credit Suisse target would be a monster 62% gain.

Rite Aid Corp. (NYSE: RAD) is one of the nation’s leading drugstore chains, with nearly 4,600 stores in 31 states and the District of Columbia, as well as fiscal 2014 annual revenues of $25.5 billion. The stock was hit hard back in the summer and has almost been cut in half after a spectacular move earlier this year. Same-store sales for the 30-week period ended Sept. 27, 2014, increased 3.8% over the prior-year period. Front-end same-store sales increased 0.8%, while pharmacy same-store sales increased 5.2%. Prescription count at comparable stores increased 3.2% over the prior-year period. These are the kind of slow, but solid numbers that could bring investors back to the stock.

The Credit Suisse price target is $7, and the consensus target is $6.75. Shares closed the day Monday at $4.80, so trading to the target would be a spectacular 44% gain.

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The solid performance of these top mid-cap stocks to buy may be ramped up as the economy picks up steam in the balance of this year and into 2015. They are also appropriate picks for most growth-oriented accounts.

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