Large-Caps with Big Appeal
By Michael Kaye, CFA
Large-cap stocks have been in a rut for some time now. Five years, to be exact, based on the underperformance of the Standard & Poor's 500-stock index relative to the S&P SmallCap 600 index in the 2000-04 period. Even in the second year of a market rebound, the large-cap benchmark was again outpaced by its smaller cousin in 2004, with the 600 posting a 22% return vs. the 500's 9% advance.
But this year, the tide may turn in the big-caps' favor. One reason may be the steady weakness in the U.S. dollar vs. other major currencies. A lower greenback makes U.S. exports more attractive and can help to fatten the bottom lines of U.S. companies with a significant presence in overseas markets -- i.e., large-cap multinationals.
With that in mind, we designed this week's screen. We searched our coverage universe for companies with market caps above $10 billion. That turned up a pretty large list. So we set out to winnow out the most attractive big fish.
How? We looked for stocks with S&P's highest investment ranking of 5 STARS, or strong buy. Stocks with that designation are expected by S&P equity analysts to outperform the overall market by a wide margin over the next 6 to 12 months.
And then we applied one final filter. We searched for stocks with S&P's highest Fair Value ranking of 5, meaning that the stock is considered significantly undervalued under S&P's proprietary analytical model.
These are the stocks that emerged:
|Capital One Financial||COF|
|Matushita Electric Industrial||MC|
|Maxim Integrated Products||MXIM|
Kaye is an analyst for Standard & Poor's Portfolio Advisors