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S&P Puts USAI on Its Top 10 List


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

Company

Current Price

(5/8/03 close)

12-Month Target

Investment Rationale

Alberto-Culver (ACV)

50.12

59

Attractive on a valuation basis

AutoZone (AZO)

85.10

86

High EPS quality, attractive valuation

Boston Scientific (BSX)

46.10

62

Explosive growth prospects

Comcast (CMCSA)

30.22

33

Foreign exchange trends, recent share-price drop

Compass Bancshares (CBSS)

34.12

37

Valuation, positive fundamental trends

Dean Foods (DF)

43.05

47

New products, improved distribution

Jacobs Engineering (JEC)

41.68

48

See strong bookings from refining customers

Nabors Industries (NBR)

40.70

51

Natural-gas activity expected to rise

Pfizer (PFE)

31.90

38

Trading at a discount to its industry peers

USA Interactive (USAI)

32.78

44

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


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