The Best Shots for Hitting Targets

Based on analysts' 12-month target price, S&P has made a list of the top-rated stocks with the potential to climb furthest

By Michael Kaye, CFA

The stocks that carry Standard & Poor's highest investment ranking, 5 STARS (buy), are so designated because our equity analysts believe they have the highest potential to outperform the broader market over the next 6 months to 12 months. But of the 97 stocks with the 5-STARS ranking, which could see the greatest pop?

That's where another S&P investing metric, the 12-month target price, comes in. S&P's 12-month target prices are based principally on a blend of the values derived from using three analytical "bottom-up" approaches:

Intrinsic value: This is based on such resources as S&P's discounted free-cash-flow model or other quantitative tools

Relative valuation: This compares a stock's valuation to that of its peers and the broader market

Sum-of-the-parts: A measure of a stock's private market value, based on a prospective breakup of the company.

In this week's screen, we started with the list of 5-STARS stocks. Then we looked for those with the largest percentage difference -- at least 40% -- between the current price (as of Nov. 30, 2003) and the S&P 12-month target price.

Here are the nine names that emerged:

Stocks with strong upside potential
Company/ticker S&P STARS Rank
America West Holdings (AWA ) 5
Amgen (AMGN ) 5
Analog Devices (ADI ) 5
Genzyme (GENZ ) 5
Intrado (TRDO ) 5
Kaydon (KDN ) 5
La Quinta (LQI ) 5
Reliant Resources (RRI ) 5
Texas Instruments (TXN ) 5

Kaye is a portfolio services analyst for Standard & Poor's

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