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|
|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