Markets & Finance

Meet S&P's Top 10 List


By Ken Shea Though Standard & Poor's ranks 1,180 U.S. stocks through its

STARS system -- including 100 that carry its highest investment opinion, 5 STARS -- the question invariably arises: What are your absolute top picks?

We're happy to answer that question. At the start of 2002, we launched the S&P Top 10 portfolio -- those stocks that S&P's U.S. Equity Research Group believes to be best-positioned for capital gains over the coming 6 to 12 months.

Here's how it works. The Top 10 is a dynamic-model portfolio, meaning that its components will change over time. S&P's Senior Portfolio group, a subcommittee of S&P's Investment Policy Committee, is responsible for selecting the Top 10 from the universe of stocks currently ranked 5 STARS (buy) by S&P equity analysts.

GOOD START. Our objective in drawing up the Top 10 list is simple: to outperform the S&P 500-stock index on the basis of both capital appreciation and total return. And we're off to a good start. The S&P Top 10 Portfolio model concept -- originally launched for S&P customers and now available to investors everywhere -- posted a 0.5% gain year-to-date through May 31, 2002. That compares pretty favorably to the S&P 500's decline of 7.1% (the index was down 6.5% on a total-return basis, which includes reinvested dividends).

During the Top 10's initial five-month period (Jan. 1-May 31, 2002), only four changes were made to the portfolio, all in April. Then on June 17, 2002, we made some additional changes, incorporating nine new stocks. Only one, Quest Diagnostics, was retained from the portfolio prior to the June changes.

Here's the current list:

S&P Top 10 Portfolio

Company

Current Price

(6/13/02)

12-Month Target

Investment Rationale

Dean Foods

37

45

New products, improved distribution

Whirlpool

67

90

Favorable product mix, market-share gains

Quest Diagnostics

88

115

Strong fundamentals, attractive valuation

Microchip Technologies

29

40

Pure play in microcontroller chips

Nabors Industries

37

56

Natural-gas activity expected to rise

Citigroup

40

55

Trading at a big discount to historical valuation

Mohawk Industries

64

77

Strong demand, favorable costs

Constellation Brands

28

34

New products, lower costs, stock buybacks

Ambac Financial

66

78

Solid business model, franchise

Tenet Healthcare

76

92

Improving operations, low valuation

Shea is director of U.S. equity research for Standard & Poor's


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