S&P Puts BJ Services in the Top 10

The oil services provider replaces Flextronics International in the list of S&P's best investment ideas

By Ken Shea and Robert Gold

On Aug. 3, 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. To reflect our bullish stance on the energy sector, we at S&P added BJ Services (BJS ; recent price: $49.29), which will replace electronics manufacturing services provider Flextronics International (FLEX ; $12.20).

We think the protracted rise in crude oil prices will continue to drive rising demand for BJ Services' pressure pumping services, particularly with inventories remaining tight. Our fiscal year 2004 (ending September) earnings per share estimate for the company is $1.86, and we see fiscal year 2005 EPS jumping 20% to $2.24, which was recently boosted from $1.93.

Our 12-month target price on BJ Services shares is $58, based on a valuation of 13.5 times our calendar 2005 forecast for earnings before interest, taxes, depreciation, and amortization (EBITDA).

Like all the stocks in the Top 10 portfolio, BJ Services carries S&P's highest investment ranking of 5 STARS, or buy.

Year-to-date through June 30, 2004, the Top 10 gained 10.49% vs. a gain of 3.44% for the S&P 500 on a total return basis.

Here's the latest list:

Top 10 Portfolio

Company Price (8/2/04 close) 12-Month Target Investment Rationale
Amgen (AMGN ) 56.31 80 Attractive valuation
Anheuser-Busch (BUD ) 52.76 63 Strong growth profile, market dominance
BJ Services (BJS ) 49.29 58 Rise in oil prices boosts demand for oilfield services
Chattem (CHTT ) 29.19 35 Strong consumer product portfolio
FMC Corp. (FMC ) 43.83 54 Improving profit outlook
Guitar Centers of America (GTRC ) 45.83 59 Attractive valuation
Landstar System (LSTR ) 50.13 63 High returns on assets and equity
Qualcomm (QCOM ) 72.06 89 Improving outlook for chipset demand
SCP Pool (POOL ) 42.21 52 Selling below intrinsic value
Winnebago (WGO ) 36.27 45 Better margins, rising order backlog

For more information about the Top 10 portfolio, please visit http://www.businessweek.com/investor/content/jun2002/pi20020617_8998.htm

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

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