Markets & Finance

Large-Caps with Big Appeal


By Michael Kaye, CFA Large-cap stocks have been in a rut for some time now. Five years, to be exact, based on the underperformance of the Standard & Poor's 500-stock index relative to the S&P SmallCap 600 index in the 2000-04 period. Even in the second year of a market rebound, the large-cap benchmark was again outpaced by its smaller cousin in 2004, with the 600 posting a 22% return vs. the 500's 9% advance.

But this year, the tide may turn in the big-caps' favor. One reason may be the steady weakness in the U.S. dollar vs. other major currencies. A lower greenback makes U.S. exports more attractive and can help to fatten the bottom lines of U.S. companies with a significant presence in overseas markets -- i.e., large-cap multinationals.

BIG FISH. With that in mind, we designed this week's screen. We searched our coverage universe for companies with market caps above $10 billion. That turned up a pretty large list. So we set out to winnow out the most attractive big fish.

How? We looked for stocks with S&P's highest investment ranking of 5 STARS, or strong buy. Stocks with that designation are expected by S&P equity analysts to outperform the overall market by a wide margin over the next 6 to 12 months.

And then we applied one final filter. We searched for stocks with S&P's highest Fair Value ranking of 5, meaning that the stock is considered significantly undervalued under S&P's proprietary analytical model.

These are the stocks that emerged:

Large-Cap Leaders

Company

Ticker

Allstate

ALL

Amgen

AMGN

Capital One Financial

COF

Computer Sciences

CSC

Dell

DELL

MBNA Corp.

KRB

Matushita Electric Industrial

MC

Maxim Integrated Products

MXIM

Sony

SNE

Kaye is an analyst for Standard & Poor's Portfolio Advisors


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