Head-of-the-Class Stocks

This S&P screen finds 17 companies with top scores in three important ranking categories

By Numer de Guia, CFA

Of course you'd like your children to earn top marks on their report cards. And maybe what's good for little Justin and Emily ought to be good for your stock portfolio as well: buying shares of companies that post "A" grades in key financial categories.

That's the thinking behind this week's screen. We set out to find a list of companies that scored in the top ranks in three categories. First, we looked for those companies assigned an S&P credit rating of A- or better, an indication of underlying financial strength. (It must be emphasized here that S&P credit ratings are a measure of a company's ability to repay principal and interest on its debt, and not an measure of its merits as an investment.)

Then we took things a step further. We sifted for names with S&P Quality rankings -- a measure of earnings and dividend growth over a 10-year period -- of A- or better. That's an indication of above-average performance in both categories.

And finally, we wanted names that got top marks from analysts at Standard & Poor's Equity Research Services. So, we looked for stocks with S&P's highest investment recommendation of 5 STARS (strong buy). Stocks with that designation are expected to outperform the S&P 500-stock index by a wide margin over the next 6 to 12 months.

We crunched the numbers, and these 17 names came up:

  THREE-WAY WINNERS
Company Ticker S&P Credit Rating S&P Quality Rank S&P STARS Rank
Alltel AT A A- 5
Automatic Data Processing ADP AAA A+ 5
Bank Of America BAC A+ A- 5
Bear Stearns BSC A A 5
Brown-Forman BF.B A A 5
Citigroup C AA- A+ 5
ExxonMobil XOM AAA A- 5
Fifth Third Bancorp FITB AA- A+ 5
Franklin Resources BEN A A- 5
W.W. Grainger GWW AA+ A- 5
Johnson & Johnson JNJ AAA A+ 5
Lehman Brothers LEH A A- 5
PepsiCo PEP A+ A+ 5
Procter & Gamble PG AA- A 5
UST UST A A- 5
Wachovia WB A A- 5
Walgreen WAG A+ A+ 5

De Guia is an analyst for Standard & Poor's Portfolio Advisors

Before it's here, it's on the Bloomberg Terminal. LEARN MORE