By Ken Shea Looking for an investment strategy that lets you build a stock portfolio with issues that mirror the sector makeup of the Standard & Poor's 500-stock index? With S&P's PowerPicks 2003 Portfolio you can do that -- and pick the brains of S&P analysts for their top choices in each group. Launched on December 31, 2002, the PowerPicks 2003 Portfolio represents the latest annual collection of "best ideas" from each member of S&P's equity research staff.
Each of the 40 contributing industry analysts has chosen one of the stocks he or she follows as the best-positioned for superior growth. The S&P PowerPicks 2003 Portfolio is diversified across all 10 S&P economic sectors that make up the S&P 500 index, and its sector representations are closely aligned with those of the S&P 500.
The portfolio will be "frozen," meaning that it will undergo no changes throughout the entire year. Its objective is to exceed the total return (capital appreciation plus dividends paid) generated by the S&P 500 during the year.
The median capitalization of the S&P PowerPicks 2003 Portfolio is approximately $6.2 billion, ranging from a high of $225 billion for Wal-Mart to a low of $640 million for Quiksilver. By contrast, the S&P 500's median market cap is approximately $7.2 billion, ranging from a high of $313 billion for Microsoft to $209 million for McDermott International. The PowerPicks 2003 Portfolio comprises 22 stocks considered to be large-cap issues (market cap above $5 billion), 16 mid-caps ($1 billion to $4.99 billion), and two small-caps (below $1 billion).
The heaviest S&P sector representations within this year's PowerPicks are Financials, Information Technology, and Health Care, which together account for nearly half of both the S&P 500 and the PowerPicks 2003 Portfolio.
Since its inception on January 1, 1997, the S&P PowerPicks Portfolio's cumulative total-return performance through November 30, 2002, was +57.0%, vs. +37.6% for the S&P 500 (both including dividends). Year-to-date in 2002 through Nov. 30, the S&P PowerPicks 2002 portfolio total return was 18.1%, vs. 17.2% for the S&P 500 (both including dividends).
Here's the roster for the S&P PowerPicks 2003 Portfolio:
Market Cap $bil.
Favorable shift in product mix, low valuation
New CEO, better vendor relations
Prospects for improved ad market
Exceptional growth characteristics
Market share gains, margin improvements
Toys "R" Us
Free cash flow and p-e should grow
Continued market share gains, strong growth
Defensive appeal, superior prospects
Positive sales trend continue
Shares attractively valued
Natural-gas activity rising
EPS growth to 2005 beats peers
Stronger earnings growth
Shares trading at a big discount to historical valuation
Strong franchise, undervalued, takeover candidate
Strong free cash flow and profit margins
National Commerce Financial
Strong market demographics
Undervalued vs. peers, with less risk
Explosive growth prospects
Strong performance expected from all business segments
Expect 10% growth over the long term
Unmatched product pipeline
Growing market share of for-profit institutions
Stock attractively valued
Strong bookings from refining market
Potential upturn in aircraft manufacturing
Affiliated Computer Services
Solid defensive play in current market
More market-share gains likely
Pure play in microcontroller chips
Leading market position
Good fundamentals, attractive valuation
Valuation, balance sheet, strong management
Potential upturn in electronics markets
Poised to benefit from industry rebound
Solid EPS quality, stable balance sheet
Earnings growth above peers
Shea is director of global equity research for Standard & Poor's