A New Top 10 Sighting: Cooper Cos.

The eye-care products outfit replaces BJ Services in the list of S&P's best investment ideas

By Kenneth Shea, Robert Gold, and Steve Biggar

On Nov. 9, 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. We at S&P added Cooper Cos. (COO ; recent price: $70) to the portfolio, replacing BJ Services (BJS ; $44).

Liker all stocks in the S&P Top 10, Cooper carries S&P's top investment ranking, 5 STARS (buy). While it has exited the portfolio, BJ Services retains its 5-STARS recommendation.

Our continued enthusiasm for Cooper reflects its strong market position -- around 30% -- in the U.S. specialty eye-care market, which we think is experiencing solid demographic-fueled growth. S&P views Cooper's proposed acquisition of unranked Ocular Sciences (OCLR ; $44) as a good strategic fit, particularly with Ocular's strength in Japan.

We believe Cooper's projected solid revenue growth and high margins justify the stock's premium valuation of 27 times our fiscal 2004 (ending October) earnings per share estimate of $2.61. Our target price on Cooper is $86, or 26 times our $3.30 estimate for fiscal 2005.

Year-to-date through October 31, 2004, the Top 10 has gained 10.6%, vs. a gain of 3.1% for the S&P 500 index on a total return basis.

Here's the latest list:

Company Ticker Price (11/9/04 close) 12-Month Target Investment Rationale
Amgen AMGN 60 80 Attractive valuation
Burlington Northern BNI 44 50 Strong market share, rising shipping volume
Chattem CHTT 35 38 Strong consumer product portfolio
Cooper Cos. COO 71 86 See gain in market share
TK FMC 47 54 Improving profit outlook
Guitar Centers GTRC 46 59 Attractive valuation
Ingersoll-Rand IR 74 90 Expected improvements in several end markets
Landstar System LSTR 69 78 High returns on assets and equity
MBNA KRB 27 32 Strength in consumer lending
Qualcomm QCOM 39 45 Improving outlook for chipset demand

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 and Biggar are senior portfolio group analysts, for Standard & Poor's Equity Research

    Before it's here, it's on the Bloomberg Terminal.