Spectrum Powers into S&P's Top Ten

The producer of Rayovac batteries replaces Cooper, maker of vision-care products, in the list of S&P's best investment ideas

By Kenneth Shea, Robert Gold, and Steve Biggar

On June 8, Standard & Poor's Equity Research Group made changes to the S&P Top Ten portfolio -- those stocks it considers to be the best candidates for capital gains over the next 6 to 12 months. We at S&P added diversified consumer-products outfit Spectrum Brands (SPC ) to the portfolio, replacing vision-care products maker Cooper Cos. (COO ).

Cooper was removed from the portfolio after its shares were downgraded on June 8 to 4 STARS (buy), from 5 STARS (strong buy), by S&P Equity Research.

Spectrum, formerly known as Rayovac, makes a wide variety of products, including batteries and shaving implements. We expect its growth to accelerate after the company's recent purchase of United Industries, which extended its reach into lawn and garden care, insect control, and pet supplies (see BW Online, 5/24/05, "Spectrum Brands: Charged to the Max").

We see Spectrum posting fiscal 2005 (ending September) earnings per share of $2.58, rising to $2.97 in fiscal 2006. In our view, the company is valued well below the household-product group and our estimate of intrinsic value. Our 12-month target price on the stock is $50.

The S&P Top Ten portfolio was launched on Dec. 31, 2001. From inception through May 31, 2005, it has gained 23%, compared to a 10.1% climb for the S&P 500 index on a total return basis. For all of 2004, the S&P Top Ten rose 19.2%, vs. a gain of 10.9% for the S&P 500 (total return). Year-to-date through May 31, 2005, the portfolio advanced 2.05%, while the S&P 500 declined 0.95%.

Here's the latest list:

  S&P TOP TEN PORTFOLIO
Company Ticker Price (6/9/05 close) 12-Month Target Investment Rationale
Burlington Northern BNI 47.96 65 Strong market share, rising shipping volume
Covance CVD 44.93 61 Attractive valuation
FMC Corp. FMC 55.67 65 Improving profit outlook
Guitar Centers GTRC 58.67 69 Attractive valuation
Ingersoll-Rand IR 74.37 100 Expected improvements in several end-markets
International Speedway ISCA 55.55 71 Dominant position with NASCAR
Landstar System LSTR 31.38 46 High returns on assets and equity
Lennar LEN 59.30 71 Attractive valuation
St. Jude Medical STJ 39.93 55 Positive ICD market data
Spectrum Brands COO 36.58 50 Strong earnings outlook

Shea is director of global equity research, and Gold and Biggar are senior portfolio group analysts, for Standard & Poor's Equity Research

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