By Ken Shea Though Standard & Poor's ranks 1,180 U.S. stocks through its
STARS system -- including 100 that carry its highest investment opinion, 5 STARS -- the question invariably arises: What are your absolute top picks?
We're happy to answer that question. At the start of 2002, we launched the S&P Top 10 portfolio -- those stocks that S&P's U.S. Equity Research Group believes to be best-positioned for capital gains over the coming 6 to 12 months.
Here's how it works. The Top 10 is a dynamic-model portfolio, meaning that its components will change over time. S&P's Senior Portfolio group, a subcommittee of S&P's Investment Policy Committee, is responsible for selecting the Top 10 from the universe of stocks currently ranked 5 STARS (buy) by S&P equity analysts.
GOOD START. Our objective in drawing up the Top 10 list is simple: to outperform the S&P 500-stock index on the basis of both capital appreciation and total return. And we're off to a good start. The S&P Top 10 Portfolio model concept -- originally launched for S&P customers and now available to investors everywhere -- posted a 0.5% gain year-to-date through May 31, 2002. That compares pretty favorably to the S&P 500's decline of 7.1% (the index was down 6.5% on a total-return basis, which includes reinvested dividends).
During the Top 10's initial five-month period (Jan. 1-May 31, 2002), only four changes were made to the portfolio, all in April. Then on June 17, 2002, we made some additional changes, incorporating nine new stocks. Only one, Quest Diagnostics, was retained from the portfolio prior to the June changes.
Here's the current list:
S&P Top 10 Portfolio
New products, improved distribution
Favorable product mix, market-share gains
Strong fundamentals, attractive valuation
Pure play in microcontroller chips
Natural-gas activity expected to rise
Trading at a big discount to historical valuation
Strong demand, favorable costs
New products, lower costs, stock buybacks
Solid business model, franchise
Improving operations, low valuation
Shea is director of U.S. equity research for Standard & Poor's