UBS Stock Picks for the Next Stage of the Bull Market (CBS, TSO, NBL, VLO, APC, PKI, UPS, JDSU)

Typically in the investing world, if everybody expects an event, the opposite happens. In March of 2009 after a brutal sell-off had knocked the S&P 500 down almost 60% from its 2007 high, there was still a vocal group of bears saying it was going lower. Among them was noted PIMCO founder Bill Gross. We wrote yesterday that many Wall St. firms are expecting a correction, one that could be as steep as 5%. But what if the market does not sell off? What if it continues, albeit at a more moderate pace, to go higher? In the second part of a recent report, the equity strategists at UBS A.G. (NYSE: UBS) highlight which stocks to buy now if that happens.

To be clear, the team at UBS is not bullish at this point. They point out that since November 15, the S&P 500 has risen 14.6% as a flood of central bank liquidity and falling event (tail) risks. In their view, the market’s “sugar high” is unlikely to be sustained, given relatively weak underlying economic and earnings trends. While stocks have advanced handsomely over the past four months, taking a step back, it appears to the analysts that the “risk on/risk off” trading environment will persist, supporting a cautious market outlook.

That said, they also acknowledge that many portfolio managers still feel the path of least resistance for the market is higher. In the event that does happen, while they are maintaining a cautious outlook, they acknowledge markets could trade higher. For investors who also feel that way, they point out it is important to note that there has been a significant shift in market leadership in the current rally, in comparison to other recent risk-on periods. Companies exhibiting the greatest operating leverage have led during the current rally. However, this is a significant departure from other recent risk-on periods, in which volatility — or simply buying the most beaten up stocks — worked best.

Here is the list of stocks from UBS to buy for a continued upward move in the market:

Broadcasting leader CBS Corp. (NYSE: CBS) leads off the list. With its ratings dominant comedy, drama and sports programming, the company has Thomson/First Call consensus price target on its shares of $48.

Refiner Tesoro Corp. (NYSE: TSO), like many stocks in the sector, has been a stellar performer, with the refining and retail segments both hitting on all cylinders. The consensus estimate for this Wall St. favorite is $59.69.

Independent exploration and production leader Noble Energy Inc. (NYSE: NBL) also makes the UBS list. The Wall St. consensus price target is $130.

A third energy name on the list, and also a current favorite of many Wall St. portfolio managers, is Anadarko Petroleum Corp. (NYSE: APC). Based in the Houston suburb of The Woodlands, Anadarko’s three segments of exploration, midstream and marketing have been on fire. The consensus estimate for the shares is $100.

Diagnostic research company PerkinElmer Inc.(NYSE: PKI), with two strong operating segments in human and environmental health, is also well liked on Wall St. The consensus price target is $40.

Air and ground delivery company United Parcel Service Inc. (NYSE: UPS) is one of many companies expected to grow as the economy improves. The consensus price target for the delivery giant is $91.

Rounding out the list is former 1990s tech high flyer JDS Uniphase Corp. (NASDAQ: JDSU). Almost left for dead after the tech bubble burst, JDS Uniphase makes communications test and measurement equipment in addition to optical products. The consensus target for the stock is $16.50.

Investors should remember the thesis for owning these specific names is that they all have high-end operating leverage relative to their peers. As we pointed out yesterday, even if you are bullish, it may make sense to buy partial positions now and leave some cash handy should the market sell off. The crowd saying a correction is imminent may be wrong, but better safe than sorry after such a big rally.

Here was the first list of eight UBS stock picks to buy.

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