On Feb. 7, 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. Leading engineering and construction outfit Jacobs Engineering (JEC), personal care products maker Alberto-Culver (ACV), and bank holding company Compass Bancshares (CBSS) have been selected to replace Mohawk Industries (MHK), Chubb (CB), and Ambac Financial (ABK).
The portfolio of S&P's favorite picks, meanwhile, is off to a relatively good start in 2003, beating its benchmark, the S&P 500 index, in January by a tally of 1.3% vs. -2.8%.
While Mohawk, Chubb, and Ambac retain our highest investment ranking of 5 STARS (buy), we removed them from the portfolio because we believe that the issues that replaced them offer superior capital appreciation potential over the coming 12 months.
S&P analyst Stewart Scharf thinks Jacobs stands ready to benefit from its diverse customer and geographic base, and from positive trends in its key business segments, especially its work on federal contracts and for the pharmaceutical industry. He expects Jacobs to continue its consistent 15% earnings growth rate (See BW Online, 02/02/03, "A Sturdy Blueprint at Jacobs Engineering ").
Alberto-Culver, best known for its VO5 hair-care products, is attractive for its steady, above-average growth, strong cash flow and solid balance sheet, according to S&P analyst Howard Choe. He says the stock is attractively valued at a large discount to its intrinsic value.
As for Compass, S&P analyst Evan Momios says it has maintained a stable net interest margin and solid asset quality, while posting low-cost deposit and loan growth at industry-leading levels. He believes that with its above-average fundamentals and the attractive geographic area that it serves -- Texas, Alabama, Arizona, Florida, Colorado, New Mexico and Nebraska -- its p-e multiple is likely to expand.
Jacobs, Alberto-Culver, and Compass are each ranked 5 STARS (buy) by S&P, along with the other names in the portfolio.
Here's the latest list:
S&P Top 10 Portfolio
Attractive on a valuation basis
Boston Scientific (BSX)
Explosive growth prospects
Compass Bancshares (CBSS)
Valuation, positive fundamental trends
Dean Foods (DF)
New products, improved distribution
IDEC Pharmaceuticals (IDPH)
Leading developer of cancer treatments, profitable
Jacobs Engineering (JEC)
See strong bookings from refining customers
Microchip Technologies (MCHP)
Pure play in microcontroller chips
Nabors Industries (NBR)
Natural-gas activity expected to rise
Procter & Gamble (PG)
Foreign exchange trends, recent share-price drop
Rising market share, strong international growth
For more information about the Top 10 portfolio, please visit http://www.businessweek.com/investor/content/jun2002/pi20020617_8998.htm By Ken Shea and Robert Gold