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A stock's price is nothing more than a reflection of fundamental progress and future expectations. Every time a stock rises or falls it's a reaction of some catalyst that investors believe may affect earnings, or the overall growth of the company. The last 6 months have been rough for several stocks and sectors alike, with the catalyst being Europe and the fear that European struggles could affect the growth and earnings of certain stocks or industries. But as the U.S. continues to grow, ever so slowly, and unemployment claims fall, there has been a newfound optimism surrounding the economy and a market that's posted incredible gains since the start of 2012.

Most analysts believe the fall during the last 6 months of 2011 was nothing more than investors preparing for the worst, and pricing in a recession, or worse, in Europe. Experts have often debated the impact that a default could have on global trade, and this debate created fear for quite some time as several industries lost significant value despite fundamental growth.

In this article we will be looking at the bright side of the loss within the market, and the value that's now present in several stocks. There are many stocks that are cheap and presenting significant value, or an opportunity for large gains as a result of loss despite growth. In looking at the most "cheap" stocks in the market, I will follow with my opinion on just how much upside is present in each stock. I will be looking at a variety of factors, including a company's past earnings, future expectations, current valuation, and its loss during the last 6 months in an attempt to give a one-year price target that is attainable and based on fundamental progress for the 8 most undervalued stocks in the market.

10. General Motors (NYSE:GM)

Throughout the entire month of December I was basically screaming that GM was the most undervalued stock in the market, but after a 22.5% gain since the start of 2012, GM has the 10th best upside of any stock in the market. General Motors got hit hard during the last 6 months of 2011, and despite its 22.5% gain YTD, the stock is still trading with more than a 40% loss from its highs in 2011. The company's progress in 2011 was significant, as it posted revenue gains of nearly $14 billion and more than $1.5 billion of net income compared to 2010. However, the stock lost 43% of its value in 2011, because of fear that a struggling European economy would drastically affect sales, despite sales being at their best since Cash for Clunkers.

GM is currently trading with a P/E ratio of 5.59 but has a forward ratio of 6.57, which means analysts expect earnings to decline. However, I never like to base my investment decisions on what the experts give as expectations, therefore I like to compare the analysts' opinions to earnings of the past to see how close they were at predicting the results.

According to CNBC, the analysts were wrong during each of the last 4 quarters as GM beat expectation each quarter, by an average of 14%. Therefore, I believe it's reasonable to conclude that GM's forward P/E is much lower, possibly closer to its current P/E ratio which means we simply have to figure how high GM can trade above earnings in a normal market. The conditions in Europe are the same and I do expect some pessimism surrounding the market, therefore I believe it's possible for the stock to trade at 9x earnings, or an upside of roughly 60% if revenue continues to climb, sales are strong, and net income stays consistent.

9. Apple (NASDAQ:AAPL)

Here lately all I've heard is that Apple's market cap is too high and that there aren't enough investors willing to buy a $400 stock; therefore it's maxed out. Well, I don't think it's likely for a company with 50% earnings growth to be trading at just 10x earnings. However, because of its large cap and expensive price there aren't going to be enough people willing to purchase the stock for it to trade high above earnings.

Apple is a little different than most of the stocks on this list because it's posted a gain of 26% over the last year, which is more than 400% greater than the Dow Jones industrial average. With the exception of its most recent quarter analysts have been incapable of estimating its future earnings, with its three quarters prior to Q4 beating expectations by 19%, 19%, and 33.6%. The incredible growth of this company enticed investors to buy despite a struggling European economy, a slowdown in China, and a slew of natural disasters.

If you take a minute to think and put in perspective what kind of year Apple is capable of having in 2012 it is mindboggling. The company just recently broke all of its own records with the release of the iPhone 4S, which analysts were originally discouraged with, and most believe that 2012 will be a year full of new products and much higher gains. It's impossible to know for sure, but it's assumed that the company will release an iPad 3, maybe a smaller version of the iPad to compete with Amazon's Kindle Fire, enter the T.V. space, and maybe even an iPhone 5. The company also just announced that it will be entering the multibillion dollar textbook business, which it most definitely will control.

The stock's currently trading at just 10.86x future earnings, which I believe is absurd considering its growth. But what's interesting about the 10.86 forward P/E ratio is that analysts expect the company to continue growing at near 50% in 2012. It's been no secret that analysts have been unable to predict the growth of this company, but with such high expectations it appears the analysts are getting closer. The high expectations are probably a result of the various catalysts for growth that I've already mentioned, which I believe, will once again, be so significant that it will result in more than 50% growth year-over-year, throughout 2012.

So with a market cap of $400 billion and a forward P/E ratio of 10.86, the question is how much larger can AAPL become? I believe that with growth that is twice as aggressive as GOOG, which has traded at over 20x earnings, it's not beyond comprehension to suggest that maintaining its current ratio of near 15.50 is impossible, which would give AAPL a one-year upside of about 40%.

With a 40% upside for 2012 some may wonder why AAPL is a part of this list and why it's ahead of GM, which I believe has a 60% upside in 2012. The reason is its long-term potential for gains beyond 2012 with exciting products and a line-up of future products that will continue to sell. The iPhone and iPad are transcendent and are more than just a fad. There is an ecosystem of hundreds of thousands of companies that all benefit from its success with apps and its technology. I don't believe another company is anywhere close to creating or starting another ecosystem to match Apple's, and it's my personal belief that AAPL will become the first $1 trillion company, which means its $400 billion market cap is presenting significant value.

8. Corning (NYSE:GLW)

Corning has been one of my favorite companies for the last three years, but as an investor it's nothing short of discouraging. The stock has posted an 11% gain YTD but is still trading with a 27% loss over the last year; and its loss isn't because earnings have declined but rather a lagging display segment. The company operates in five segments with display being its largest. In fact, the display segment accounted for nearly half of its total revenue in 2010. But with lagging T.V. sales and a slowdown in global demand, investors have ignored the encouraging data, and the growth of its other segments, and have chosen to focus on its largest segment, which is declining.

Corning is one of the most innovating companies in the history of technology, every time a new "must have" product hits the market Corning is usually involved. The company's last decade has been driven by the new technology in TV's and the consumer's desire to purchase the newest technology. But Corning is a trendsetter and is now focusing its attention to new glass, Gorilla Glass, as a shift in consumer demand occurs. Gorilla Glass has posted incredible sales, but not what investors were expecting, and now the company's introducing a second generation Gorilla Glass that is supposed to be even better than the original.

With the demand in smart phones and tablets being so high I think its P/E ratio of 6.8 is quite low. Corning has grown at a consistent level, and 2011 has been one of its better years in the last decade. Yet its stock trades with a yearly loss and analysts expect for earnings to decline in 2012 because of rising costs. The company expects revenue to increase by nearly 30% over the next couple years and in 2011 the company exceeded expectations by an average of 7%, according to CNBC. In 2007 the stock was trading at over $25, and since then the company's increased earnings by more than 50%. Therefore this stock has the ability to trade high above earnings and I believe it will in 2012. I think 2012 will be a year of large gains and recovery for GLW, and that it may very well trade at 13-14x earnings, which is normal for this stock. And if the company continues to beat expectations by an average of 7% along with trading at 13x earnings I believe it has the potential to post gains of near 80% in 2012.

7. Diamond Foods (NASDAQ:DMND)

I'll admit that this list is controversial and that I will receive strong opinions, both positive and negative, regarding my choices in this category. However, finding value is all about being able to look beyond the headlines or the media induced fear then see the upside while others are bearish. I believe that DMND is the perfect example of value in a stock that has fallen because of speculation and fear. Since October, DMND has lost 60% of its value, as a result of its acquisition of Pringles being postponed by Procter & Gamble (NYSE:PG) because of an investigation.

The five years prior to September 23, the day before the stock began to fall, DMND had posted a gain of more than 525%. Its gains weren't a result of a Pringles acquisition, but rather long-term fundamental gains. Most companies within its industry grow at 3-5% but DMND grew revenue by more than 40% and doubled net income in 2011 compared to 2010. Yet despite such incredible growth the stock is trading at just 15x earnings because of the pessimism surrounding its immediate future.

As I said to start this piece, a stock is simply a reflection of growth and fundamental progress, and DMND has a forward P/E ratio of 9.23. In addition to an expected 50% earnings growth the company beat earning expectations by an average of 8% in 2011, and has beat expectations each of the last four years. Therefore its forward ratio is probably much lower than what analysts expect which makes the potential gains for this stock quite incredible. The acquisition of Pringles is still expected to take place; back in December the stock nearly doubled after a report from Reuters suggested that its accounting probe was near an end. This means there are two catalysts for future growth: the accounting issues which are near an end and its fundamental growth. I believe this year will be massive for DMND and that it could very easily trade at more than 20x earnings by the end of the year, which is still relatively cheap for a company growing at DMND's rate. Therefore, if we incorporate its forward ratio with its current growth, the catalysts of speculation, and its history of exceeding expectations then I believe its upside could be more than 110%.

The predictions above are simply opinions that are based on stocks that have not yet appreciated along with future earnings and past performance. In my opinion, each of these stocks are slam dunks as guaranteed gains that can provide large returns to an investor's portfolio. However, these stocks are the bottom 4 of the top 8, with the top 4 still to come.

All fundamental data and valuation ratios were obtained from Capital IQ and Yahoo Finance. The data regarding performance and analyst expectations was obtained from CNBC.

Source: Top Stocks With The Most Upside In 2012, Part I