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Get Four
|  | NOVEMBER 14, 2003
Top Stock Picks from S&P David Braverman of Standard & Poor's says stocks now offer a good opportunity -- and names some favorites from S&P's 5-STARS list With corporate earnings and the economy improving, it's a good time for stocks, says David Braverman, senior director of Standard & Poor's Portfolio Advisers. And Braverman has highlighted 10 names drawn from the approximately 90 stocks now classified as strong buys, or 5-STARS, in S&P's Stock Appreciation Ranking System (STARS). They are: American Standard (ASD ), Anheuser-Busch (BUD ), Career Education (CECO ), Chelsea Property Group (CPG ), Cisco (CSCO ), Exxon Mobil (XOM ), FedEx (FDX ), Intel (INTC ), Lennar (LEN ), and Reliant Resources (RRI ). As the holiday season nears, Braverman notes that home-improvement companies may be among the retailers benefiting and adds that S&P prefers Lowe's (LOW ), which is ranked 4-STARS or accumulate. S&P also thinks well of drugstore chains CVS (CVS ) and Walgreen (WAG ), he adds. These were some of the points Braverman made in an investing chat presented Nov. 11 by BusinessWeek Online and Standard & Poor's on America Online, in response to questions from the audience and from BW Online's Jack Dierdorff. Edited excerpts follow. A complete transcript is available from BusinessWeek Online on AOL at keyword: BW Talk. Note: David Braverman has no ownership interest in or affiliation with any of the companies under discussion. Also, this story was corrected and updated on Nov. 17. Q: David, is the market just resting before it resumes an uphill climb? Or should we worry? A: No, I don't think I'd be overly worried at this point. Earnings are improving, the economy is improving, more people are becoming employed, so it's probably a good time for investors to be looking at stocks. Q: Has S&P made any changes in its recommendations for asset allocation? A: Currently, we're recommending a 65% allocation to stocks, a 10% allocation to bonds, and a 25% allocation to cash. Q: Moving to the audience, what are your feelings about Costco (COST )? A: We're currently neutral -- 3 STARS [hold] -- on Costco, but we do see some steady earnings growth with fiscal year '04 EPS [earnings per share] estimated at $1.67 and fiscal year '05 at $1.88. However, the stock is still fairly close to our 12-month target price of $36. Q: What do you think about Staples (SPLS )? A: Our view on Staples is somewhat similar. Our target price is $30, giving only a small premium to the current market price. We see $1.10 for fiscal 2004 and $1.26 for fiscal year '05. Q: What do you think of Cablevision (CVC )? A: Our view is to sell Cablevision. We are skeptical about the new Voom [its new satellite business] funding, with spin-off timing now more uncertain given unresolved accounting issues. Q: Which retailers will gain the most from this upcoming holiday season? A: We think all retailers will see a better holiday season this year than last. One place to look would be the home-improvement retailers -- our preference is toward Lowe's (LOW ), which carries a 4-STARS ranking (accumulate). We also like some of the retail drugstore chains, such as CVS (CVS ) and Walgreen (WAG ). Q: How will the pharmaceutical industry do long- and short-term? Any S&P buys there? A: In the last couple of days there has been some weakness, but we think that longer-term, that should be resolved. For the most part, we have neutral rankings on the big pharmaceutical firms. Probably our favorite name at the moment in drug stocks would be Millennium Pharmaceuticals (MLNM ). Although there is high risk, we see good reward. Q: Back on pharmas -- Teva Pharmaceutical (TEVA ) -- a good play? A: Yes, we have an accumulate ranking (4 STARS) on Teva. In general, we like the generic area better than the large pharmaceuticals because the pipeline of drugs coming off patent may be more desirable than the pipeline of new drugs being developed. We see $2.09 for '03 and $2.45 for '04, with a 12-month target price of $69. Q: Thoughts on Hovnanian Enterprises (HOV ), please -- still up 20% after a rough last few days. A: We still like Hovnanian and have an accumulate ranking on the stock. We believe housing trends are continuing to strengthen, and we see HOV benefiting for an extended period from ongoing market-share gains. We have raised our 12-month target price to $96. We also like two other homebuilders -- Lennar (LEN ) and D.R. Horton (DHI ). Q: What about Intel (INTC ) -- overvalued? A: No, we think that there's further growth and more strength in the stock ahead. We continue to see a cyclical upturn, so we would be an aggressive buyer of Intel. We believe earnings will grow to $1.10 in 2004 and $1.40 in 2005.
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