Reading the STARS -- 12/5/03
New 5-STARS this week: During the trading week ended Dec. 5, the following issues were added to Standard & Poor's list of stocks with its highest investment ranking, 5 STARS (buy). S&P analysts expect those issues to outperform the S&P 500 index by a very wide margin over the next 6 to 12 months.
• Manitowoc (MTW ; recent price, $27)
S&P analyst James Sanders upgraded shares of the maker of construction and refrigeration equipment from 4 STARS (accumulate) on Dec. 4., based on his belief that domestic commercial construction, which is a key demand driver for Manitowoc, is likely to recover in the next six to 12 months. Moreover, he believes that Manitowoc's return on equity should rebound and begin moving toward its 10-year average of 18%, compared with 14% for the S&P 500. Sanders lifted his 12-month target price to $35, from $29, applying S&P's 2004 earnings per share estimate of $1.24 to a multiple of 23, which he believes is warranted given Manitowoc's historic above-average return on equity, and blending it with S&P's discounted cash-flow model.
New 1-STARS this week: These stocks joined the ranks of 1-STARS stocks -- S&P's designation for issues expected by S&P analysts to underperform the S&P 500 index by a wide margin over the next 6 to 12 months -- during the trading week ended Dec. 5:
• SanDisk (SNDK ; recent price, $66)
S&P analyst Mark Basham downgraded the shares of the maker of flash memory products from 2 STARS (avoid) on Dec 4. His fundamental view is that the market for flash memory devices will remain highly cyclical and that the current situation of demand outstripping supply coincides with, or is near the peak of, SanDisk's earnings power. Basham thinks the stock may also be faltering from a technical perspective. SanDisk appears to have broken both trendline and 50-day moving average support, he notes, and could retrace part of this year's upward move. S&P's discounted cash-flow-based 12-month target price remains $45.