By Michael Kaye, CFA
The stocks that carry Standard & Poor's highest investment ranking, 5 STARS (buy), are so designated because our equity analysts believe they have the highest potential to outperform the broader market over the next 6 months to 12 months. But of the 97 stocks with the 5-STARS ranking, which could see the greatest pop?
That's where another S&P investing metric, the 12-month target price, comes in. S&P's 12-month target prices are based principally on a blend of the values derived from using three analytical "bottom-up" approaches:
• Intrinsic value: This is based on such resources as S&P's discounted free-cash-flow model or other quantitative tools
• Relative valuation: This compares a stock's valuation to that of its peers and the broader market
• Sum-of-the-parts: A measure of a stock's private market value, based on a prospective breakup of the company.
In this week's screen, we started with the list of 5-STARS stocks. Then we looked for those with the largest percentage difference -- at least 40% -- between the current price (as of Nov. 30, 2003) and the S&P 12-month target price.
Here are the nine names that emerged:
Kaye is a portfolio services analyst for Standard & Poor's