On Oct. 30, 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. S&P replaced Jacobs Engineering (JEC) with America West Holdings (AWA).
Like all the stocks in the portfolio, America West carries S&P's highest investment ranking, 5 STARS (buy). Jacobs exited the portfolio on Oct. 30 after S&P analyst Stewart Scharf downgraded the shares to 4 STARS (accumulate) from 5 STARS.
America West operates America West Airlines, a commercial carrier that operates through hubs in Phoenix, Ariz., and Las Vegas, Nev. In S&P's opinion, America West's operational turnaround bolsters the shares' upside potential. S&P analys James Corridore recently raised his forward earnings forecasts on the company, and he also boosted his 12-month target price to $25 from $11, valuing the stock at 21 times S&P's 2005 EPS estimate of $1.20. S&P also views America West's earnings quality as relatively high, reflecting the absence of defined pension plan liabilities.
Year-to-date through Sept. 30, the S&P Top Ten portfolio gained 26.48% vs. an advance of 14.73% for its benchmark, the S&P 500-stock index (both of these performances include dividends).
Here's the latest list:
S&P Top 10 Portfolio
America West Holdings (AWA)
Outperforming peers; valuation
Barr Labs (BRL)
Superior earnings growth over the coming years
Increasing synergies from broadband acquisition
See extended growth period; undervalued
DR Horton (DHI)
Better-than-expected industry trends
Fair Isaac (FIC)
Firming business, low valuation
Recovery in worldwide chip demand expected to drive growth
Favorable business model, sector strength
Annual revenue growth of nearly 100% seen through fiscal 2004
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