On July 25, 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 pharmaceutical giant Pfizer (PFE ) with fast-growing, for-profit education outfit Corinthian Colleges (COCO ).
Pfizer exited the portfolio after S&P analyst Herman Saftlas downgraded the stock's investment ranking to 4 STARS (accumulate) from 5 STARS (strong buy) on July 25. (All the stocks in the portfolio are ranked 5 STARS.) The downgrade reflected Saftlas' concerns about "macro-regulatory issues" -- drug re-importation and Medicare reimbursement -- along with slowing trends in the statin market, and generic challenges to several key Pfizer drugs.
As for Corinthian, S&P analyst Michael Jaffe notes that the company is benefiting from strong student enrollment at new and existing campuses. Jaffe believes strong top-line growth and productivity gains will fuel significant earnings per share growth for the foreseeable future. His 12-month target price for Corinthian is $65, derived by applying a 1.5 p-e-to-growth ratio to S&P's fiscal 2004 EPS estimate of $1.80.
Year-to-date through June 30, the S&P Top Ten portfolio gained 13.69% vs. an advance of 11.76% 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
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