Markets & Finance

S&P Analysts' Top Stock Picks for 2002


By Ken Shea It's time once again to announce this year's lineup for the Standard & Poor's PowerPicks Portfolio. The Portfolio represents the collective "best ideas" of the Standard & Poor's equity research staff.

Each of the 35 industry analysts on S&P's equity research staff has chosen one of the stocks they follow as the best-positioned for superior growth. The S&P PowerPicks 2002 Portfolio is diversified across all the 10 S&P economic sectors comprising the S&P 500 index.

The portfolio will be a "frozen" one, meaning that it will undergo no changes throughout the entire year. The objective of the portfolio is to exceed the total return (capital appreciation plus dividends paid) generated by the S&P 500 during the year.

The median capitalization of the S&P PowerPicks 2002 Portfolio is approximately $5 billion, ranging from a high of $209 billion for American International Group to a low of $500 million for Steel Dynamics. By contrast, the median market capitalization of the S&P 500 index is approximately $8.3 billion, ranging from a high of $432 billion for General Electric to a low of $675 million for McDermott International. The S&P PowerPicks 2002 Portfolio is comprised of 17 stocks considered to be large capitalization issues (market cap above $5 billion), 15 mid-cap issues ($1 billion to $4.99 billion), and three small-cap issues (below $1 billion).

The heaviest S&P sector representations within this year's PowerPicks are Information Technology, Health Care, Financials, and Consumer Discretionary, which together comprise nearly two-thirds of the total portfolio's issues.

The S&P PowerPicks Portfolio concept was initiated on January 1, 1997. Since inception, the S&P PowerPicks Portfolio cumulative total return performance through November 30, 2001 was +86.9%, versus +64.5% for the S&P 500 index (both including dividends).

Year-to-date through November 30, the S&P PowerPicks 2001 portfolio total return was 14.5%, versus 12.7% for the S&P 500 index (both including dividends).

Here is the roster for the S&P PowerPicks 2002 Portfolio:

Company

Mkt Cap $Bil.

Investment Rationale

American International Group

209.1

Improving property-casualty premium rates

Ameripath

0.9

Strong demand for biopsy testing

Andrx Corp.

4.9

Strong drug product pipeline

Biomet

7.8

Leader in orthopedic devices enjoying robust growth

Cephalon

3.4

Growth in sales of Provigil neurological disorder treatment

Chico's FAS

1

Successfully leveraging its women's casual clothing market niche

ChoicePoint

3.1

Increased need for risk assessment services

Constellation Brands

1.8

Improving product mix seen fueling mid-teen EPS growth

Cooper Industries

3.2

Seen as beneficiary of improving economy. 3%+ yield, takeover kicker

DoubleClick

1.5

Improvement in online advertising market

Fedex Corp.

14.3

Ground business seen picking up as economy strengthens

FEI Co.

1

Strong demand for ion and electron-beam microscopes

FleetBoston Financial

38.7

Expected improvement in improved equity market environment

Flextronics

12.5

Improving demand for outsource manufacturing

Fortune Brands

5.8

Steady EPS grower seen benefiting from recovery in home improvement division

Global Santa Fe

4.7

World's second largest offshore driller increasing market presence.

IBM

207

Capitalizing on growing trend toward e-business solution deployments

IMC Global

1.5

More focused product mix, recovering fertilizers industry conditions

IndyMac Bancorp

1.3

Rising market share of fragmented mortgage lending industry

Kaydon

0.6

Diversified industrial products company seen beneficiary of improving economy

Kinder Morgan

5.6

Owner of attractive gas pipeline assets seen benefiting from improved prices

MBNA Corp.

28.1

Anticipated rebound in consumer spending, lower funding costs

Microchip Technology

5.3

Maker of microcontrollers seen benefiting from industry upturn in '02

Moody's

5.7

Favorable interest rate envionment, attractive business model

Nextel Communications

8.3

Attractive valuation relative to wireless carrier peers

Pactiv Corp.

2.8

Improving packaging product demand

Park Place Entertainment

2.4

See improved gaming industry conditions, rising free cash flow

Peregrine Systems

3

See growing demand for co.'s infrastructure resource management

Quest Diagnostics

6.3

Favorable demographic trends for diagnostic testing

Sears, Roebuck

14.7

Streamlining product mix, low valuation

Siebel Systems

11.5

New Siebel 7 product release seen spurring growth

Steel Dynamics

0.5

Low cost minimill seen benefiting from reduced steel industry capacity

TXU Corp.

11.9

Regulated electic utility generating good, steady EPS growth, 5% yield

Tyco International

108.5

Focus on recurring and service revenues generating steady EPS gains

UTStarcom

3

Robust capital spending growth in China's telecom market

Shea is equity research director for Standard & Poor's


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