SCP Pool Jumps into S&P Top Ten

The pool-supply retailer joins S&P's portfolio of best investment ideas, replacing eBay

By Ken Shea and Robert Gold

On June 2, Standard & Poor's Equity Research Group made changes to the S&P Top 10 portfolio -- those issues it considers to be the best candidates for capital gains over the next 6 to 12 months. S&P replaced Internet auction giant eBay (EBAY ; recent price, $89.20) with pool-supply retailer SCP Pool (POOL ; $41.12).

Like all the stocks in the portfolio, SCP Pool carries S&P's highest investment ranking, 5 STARS (buy). EBay was removed from the portfolio after the stock was downgraded on June 2 to 4 STARS (accumulate) from 5 STARS, based on the stock's valuation.

S&P's continued enthusiasm for SCP Pool reflects our view of its ability to consolidate the fragmented swimming pool supplies market, which has translated into strong revenue growth, widening profitability, and rising free cash flows. We believe SCP Pool's operating EPS growth will average 20% for the next two years, and view its shares as attractive at 24 times our 2004 EPS estimate of $1.70. Our 12-month target price for SCP Pool is $50, which implies a p-e ratio of 25 on our $1.97 2005 EPS estimate.

Year-to-date through April 30, 2004, the S&P Top Ten portfolio rose 0.42%, vs. a gain of 0.10% for its benchmark, the S&P 500-stock index (both of these performances include dividends).

Here's the latest list:

S&P Top 10 Portfolio

Company Price (6/2/04 close) 12-Month Target Investment Rationale
Anheuser-Busch (BUD ) 53.81 63 Strong growth profile, market dominance
Caremark Rx (CMX ) 32.75 42 Proposed acquisition of AdvancePCS
FMC Corp. (FMC ) 41.65 54 Improving profit outlook
Flextronics (FLEX ) 17.23 27 Firming business, low valuation
Guitar Centers of America (GTRC ) 42.92 55 Attractive valuation
Hologic (HOLX ) 21.15 25 Cost controls and product focus; valuation
Landstar System (LSTR ) 49.39 56 High returns on assets and equity
Qualcomm (QCOM ) 67.98 80 Improving outlook for chipset demand
SCP Pool (POOL ) 41.45 50 Selling below intrinsic value
Zimmer Holdings (ZMH ) 81.97 107 Improving fundamentals, valuation

For more information about the Top 10 portfolio, please visit

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

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