By Kenneth Shea, Robert Gold, and Steve Biggar
On Nov. 9, 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. We at S&P added Cooper Cos. (COO ; recent price: $70) to the portfolio, replacing BJ Services (BJS ; $44).
Liker all stocks in the S&P Top 10, Cooper carries S&P's top investment ranking, 5 STARS (buy). While it has exited the portfolio, BJ Services retains its 5-STARS recommendation.
Our continued enthusiasm for Cooper reflects its strong market position -- around 30% -- in the U.S. specialty eye-care market, which we think is experiencing solid demographic-fueled growth. S&P views Cooper's proposed acquisition of unranked Ocular Sciences (OCLR ; $44) as a good strategic fit, particularly with Ocular's strength in Japan.
We believe Cooper's projected solid revenue growth and high margins justify the stock's premium valuation of 27 times our fiscal 2004 (ending October) earnings per share estimate of $2.61. Our target price on Cooper is $86, or 26 times our $3.30 estimate for fiscal 2005.
Year-to-date through October 31, 2004, the Top 10 has gained 10.6%, vs. a gain of 3.1% for the S&P 500 index on a total return basis.
Here's the latest list:
|Company||Ticker||Price (11/9/04 close)||12-Month Target||Investment Rationale|
|Burlington Northern||BNI||44||50||Strong market share, rising shipping volume|
|Chattem||CHTT||35||38||Strong consumer product portfolio|
|Cooper Cos.||COO||71||86||See gain in market share|
|TK||FMC||47||54||Improving profit outlook|
|Guitar Centers||GTRC||46||59||Attractive valuation|
|Ingersoll-Rand||IR||74||90||Expected improvements in several end markets|
|Landstar System||LSTR||69||78||High returns on assets and equity|
|MBNA||KRB||27||32||Strength in consumer lending|
|Qualcomm||QCOM||39||45||Improving outlook for chipset demand|
For more information about the Top 10 portfolio, please visit http://www.businessweek.com/investor/content/jun2002/pi20020617_8998.htm
Shea is director of global equity research, and Gold and Biggar are senior portfolio group analysts, for Standard & Poor's Equity Research