Markets & Finance

A New Top 10 Sighting: Cooper Cos.


By Kenneth Shea, Robert Gold, and Steve Biggar On Nov. 9, 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. We at S&P added Cooper Cos. (COO

; recent price: $70) to the portfolio, replacing BJ Services (BJS

; $44).

Liker all stocks in the S&P Top 10, Cooper carries S&P's top investment ranking, 5 STARS (buy). While it has exited the portfolio, BJ Services retains its 5-STARS recommendation.

Our continued enthusiasm for Cooper reflects its strong market position -- around 30% -- in the U.S. specialty eye-care market, which we think is experiencing solid demographic-fueled growth. S&P views Cooper's proposed acquisition of unranked Ocular Sciences (OCLR

; $44) as a good strategic fit, particularly with Ocular's strength in Japan.

We believe Cooper's projected solid revenue growth and high margins justify the stock's premium valuation of 27 times our fiscal 2004 (ending October) earnings per share estimate of $2.61. Our target price on Cooper is $86, or 26 times our $3.30 estimate for fiscal 2005.

Year-to-date through October 31, 2004, the Top 10 has gained 10.6%, vs. a gain of 3.1% for the S&P 500 index on a total return basis.

Here's the latest list:

S&P TOP 10 PORTFOLIO

Company

Ticker

Price (11/9/04 close)

12-Month Target

Investment Rationale

Amgen

AMGN

60

80

Attractive valuation

Burlington Northern

BNI

44

50

Strong market share, rising shipping volume

Chattem

CHTT

35

38

Strong consumer product portfolio

Cooper Cos.

COO

71

86

See gain in market share

TK

FMC

47

54

Improving profit outlook

Guitar Centers

GTRC

46

59

Attractive valuation

Ingersoll-Rand

IR

74

90

Expected improvements in several end markets

Landstar System

LSTR

69

78

High returns on assets and equity

MBNA

KRB

27

32

Strength in consumer lending

Qualcomm

QCOM

39

45

Improving outlook for chipset demand

For more information about the Top 10 portfolio, please visit http://www.businessweek.com/investor/content/jun2002/pi20020617_8998.htm Shea is director of global equity research, and Gold and Biggar are senior portfolio group analysts, for Standard & Poor's Equity Research


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