On May 8, Standard & Poor's equity research group made changes to the S&P Top 10 portfolio -- those issues it considers to be the best candidates for capital gains over the next 6 to 12 months. USA Interactive (USAI), a leader in interactive commerce, will replace retailer Wal-Mart (WMT).
Wal-Mart was removed from the portfolio after it was downgraded to 4 STARS (accumulate) from 5 STARS (strong buy) on May 8. S&P analyst Jason Asaeda trimmed his recommendation as the stock nears S&P's intrinsic value estimate of $61 based on discounted cash-flow analysis.
S&P feels that USA Interactive is well-positioned to benefit from rising levels of Internet users and usage, along with a rebound in discretionary spending -- if domestic economic growth accelerates in the second half (see BW Online, 5/5/03, "USAI: A Net Powerhouse Revs Up"). We feel USAI is significantly underpriced based on our discounted cash-flow model, and note that it's valued at a discount to peers on a price-earnings basis. Our 12-month target price on USAI is $44.
USAI is ranked strong buy by S&P, along with the other names in the portfolio. Year-to-date through Apr. 30, the S&P Top Ten Portfolio gained 3.98%, slightly behind the 4.22% advance for its benchmark, the S&P 500-stock index.
Here's the latest list:
S&P Top 10 Portfolio
Attractive on a valuation basis
High EPS quality, attractive valuation
Boston Scientific (BSX)
Explosive growth prospects
Foreign exchange trends, recent share-price drop
Compass Bancshares (CBSS)
Valuation, positive fundamental trends
Dean Foods (DF)
New products, improved distribution
Jacobs Engineering (JEC)
See strong bookings from refining customers
Nabors Industries (NBR)
Natural-gas activity expected to rise
Trading at a discount to its industry peers
USA Interactive (USAI)
Rising Internet use and usage
For more information about the Top 10 portfolio, please visit http://www.businessweek.com/investor/content/jun2002/pi20020617_8998.htm By Ken Shea and Robert Gold