UBS Investment Research recently published a report entitled "Global Equity Strategy" on November 30, 2011, enlisting what, in their view, are the global top 40 stocks for investment in 2012. The Consumer Staples, Healthcare, and Technology sectors have been given an overweight rating whereas the rating for the Financials, Discretionary, and Utilities sectors is underweight. UBS added Baxter (BAX) and CVS Caremark (CVS) to its top 40 list and dropped Prudential (PRU) and Schlumberger (SLB). The report isn't publicly available, but we will discuss UBS' investment thesis on these stocks.
Baxter International develops and manufactures healthcare products that deal with a list of chronic and acute medical conditions. Baxter underperformed the U.S. healthcare sector last year. Over the last 52-week period, its shares have traded between $47.55 and $62.50. Shares are currently trading near yearly lows at $49.60 per share, indicating future potential for an increase in share price. UBS expects Baxter's dividend yield to rise to 2.8% in 2012. Grifols, S.A. (GRFS), a competitor, reported an operating margin of 19% while Baxter International reported 23%. Baxter currently has earnings per share of $3.8 compared with Grifols' earnings per share of $0.2.
CVS Caremark is a pharmacy services company. According to UBS, the company has relatively low risk in the healthcare sector. CVS' retail-segment has reported above-average growth. Over the last 52-weeks, shares of the company have traded between $31.30 and $41.85. CVS is currently trading at $41.80 and UBS expects shares to grow by 6-8% annually. CVS reported a quarterly growth of 12.5% whereas Express Scripts (ESRX), a competitor, had a quarterly growth of about 3%. CVS also had better margins than Express Scripts and is trading at 11.7x the 2012 earnings estimate of UBS.
Prudential Financial Inc. provides financial products and services in the U.S., Asia, Europe, and Latin America. Prudential is currently trading at $51.50. Prudential Financial has been taken off the top 40 list because of its relatively high market risk. With a beta of 2.32, it becomes a highly volatile investment. Nevertheless, Prudential seems like a better investment than American International Group Inc. (AIG). AIG has shown lower margins over the last quarter. UBS has still given Prudential Financial a buy rating despite being taken off the UBS top 40 list. The company has a dividend yield of 2.8%.
Schlumberger is a supplier of technology, integrated product management, and information solutions to the oil and gas exploration and production industries. It has been given a buy rating despite being taken off the UBS top 40 list. It has been replaced by PTT Public Company (PETFF.PK) in the list because PTT performed better in the energy sector. Shares of the company are currently trading at $69.5 per share. Schlumberger saw a quarterly revenue growth of almost 50% and it has a greater operating margin than its competitor Halliburton (HAL). Its price-to-earnings ratio of 20.6x is also greater than that of Halliburton, which is at 12.8x. Schlumberger has a dividend yield of 1.4%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.