S&P Adds Martek to Its Top 10 List

The biotech outfit replaces car-parts retailer AutoZone in the portfolio of S&P's best investment ideas

On May 13, 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. Martek Biosciences (MATK ), a maker of nutritional supplements and food ingredients, has been tapped to replace auto-products chain AutoZone (AZO ).

AutoZone was removed from the portfolio after it was downgraded to 3 STARS (hold) from 5 STARS (strong buy) on May 13. S&P analyst Efraim Levy lowered the ranking on the shares, as the retailer reached S&P's price target. S&P's proprietary discounted cash flow (DCF) model suggested an intrinsic value of $89 per share. While the shares could appreciate further, notes Levy, S&P considers the risk/reward balance less favorable.

S&P believes Martek has the potential to more than double revenues in fiscal 2003 (ending October), driven by increased market demand for infant formula containing its patented additive (see BW Online, 4/21/03, "Martek's Growth Factor "). Analyst Markos Kaminis sees operating earnings per share of 50 cents in fiscal 2003 and $1.31 in fiscal 2004. Based on free cash flow assumptions embedded in our DCF model, we calculate an intrinsic valuation for Martek of $41, which is also our 12-month price target for the shares.

Martek 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 (5/13/03 close) 12-Month Target Investment Rationale
Alberto-Culver (ACV ) 50.17 59 Attractive on a valuation basis
Boston Scientific (BSX ) 48.10 62 Explosive growth prospects
Comcast (CMCSA ) 30.31 33 Foreign exchange trends, recent share-price drop
Compass Bancshares (CBSS ) 34.84 37 Valuation, positive fundamental trends
Dean Foods (DF ) 44.45 47 New products, improved distribution
Jacobs Engineering (JEC ) 42.15 48 See strong bookings from refining customers
Martek Biosciences(MATK ) 33.31 41 Annual revenue growth of nearly 100% seen through fiscal 2004
Nabors Industries (NBR ) 41.96 51 Natural-gas activity expected to rise
Pfizer (PFE ) 33.29 38 Trading at a discount to its industry peers
USA Interactive (USAI ) 35.25 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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