Coach Bags a Spot in S&P's Top Ten

Driller Nabors Industries also joins S&P's portfolio of favorite stock ideas. Out: Smith International and Burlington Northern

By Kenneth Shea, Steve Biggar, and Robert Gold

On Nov. 22, 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. S&P added Coach (COH ; recent price: $34.78) and Nabors Industries (NBR ; $71) to the portfolio, replacing Smith International (SII ; $70.30), and Burlington Northern (BNI ; $66).

Oilfield services outfit Smith was downgraded Nov. 22 from 5 STARS (strong buy) to 4 STARS (buy). Railroad operator Burlington retains its 4 STARS ranking.

Coach, one of S&P's favored specialty retailers, carries our highest investment ranking of 5 STARS (strong buy). The company has displayed superior same-store sales growth relative to its peers. Our 12-month target price for Coach is $44.

Nabors, the world's largest oil and gas land drilling contractor, is also ranked 5 STARS. In our view, the company has strong fundamental prospects. Our 12-month target price for Nabors is $90.

About the S&P Top Ten

A dynamic model portfolio concept, the S&P Top Ten was launched on Dec. 31, 2001. From inception through Oct. 31, 2005, it has gained 19.84%, vs. 12.32% 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. Year-to-date through Oct. 31, the portfolio fell 0.57%, vs. a gain of 1.05% for the index.

On Oct. 26, 2005, the Senior Portfolio Group within the S&P Equity Research Group modified the selection process associated with the construction of the S&P Top Ten Portfolio concept. Effective on that date, stocks in the Portfolio that have been downgraded to 4 STARS (buy) can remain in the Portfolio if the committee believes that the fundamentals are sufficiently intact to remain in the Portfolio despite the S&P analyst's modified stance.

Here's the S&P Top Ten list:

Company Ticker Price (11/22/05) 12-Month Target Investment Rationale
Bank of America BAC 45.90 54 Attractive risk/return profile
Coach BNI 34.70 44 Continued market share opportunities
Covance CVD 47.60 61 Attractive valuation
Guitar Centers GTRC 51.80 72 Attractive valuation
Ingersoll-Rand IR 39.90 50 Expected improvements in several end-markets
PepsiCo PEP 59.30 68 Capturing market share, expanding margins
Oneok OKE 27.60 36 Highly profitable natural gas business
Wal-Mart Stores WMT 50.00 56 Solid earnings momentum, attractive valuation
St. Jude Medical STJ 48.90 61 Positive ICD market data
Nabors Industries NBR 71.20 90 Natural gas activity expected to rise

Shea is director of Global Equity Research, Biggar is director of U.S. Equity Research, and Gold is senior portfolio group analyst, for Standard & Poor's Equity Research

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