By Kenneth Shea, Robert Gold, and Steve Biggar On July 5, Standard & Poor's Equity Research Group made changes to the S&P Top Ten portfolio -- those stocks it considers to be the best candidates for capital gains over the next 6 to 12 months. To reflect our continued bullish stance on the oil and gas equipment and services subindustry, we at S&P added Smith International (SII

) to the portfolio, replacing diversified chemicals concern FMC (FMC

.

Like all the stocks in the portfolio, Smith carries Standard & Poor's highest investment ranking of 5 STARS (strong buy). FMC retains its 5 STARS ranking.

Smith supplies products and services to the oil and gas exploration and production industry, petrochemical industry, and other markets. Its offerings include drilling and completion fluid systems, solids-control equipment, waste-management services, three-cone and diamond drill bits.

In our view, Smith is well positioned to capitalize on rising drilling activity in several frontier geographic regions and deepwater fields. We see revenues rising 21% in 2005, to $5.3 billion, and operating earnings per share increasing 40%, to $2.78.

We believe the shares are attractive relative to peers and our calculation of intrinsic value. Our 12-month target price on the stock is $80.

The S&P Top Ten portfolio was launched on Dec. 31, 2001. From inception through May 31, 2005, it has gained 23%, compared to a 10.1% climb for the S&P 500 index on a total return basis. For all of 2004, the S&P Top Ten rose 19.2%, vs. a gain of 10.9% for the S&P 500 (total return). Year-to-date through May 31, 2005, the portfolio advanced 2.05%, while the S&P 500 declined 0.95%.

Here's the latest list:

S&P TOP TEN PORTFOLIO

Company

Ticker

Price (7/5/05 close)

12-Month Target

Investment Rationale

Burlington Northern

BNI

47.75

65

Strong market share, rising shipping volume

Covance

CVD

45.79

61

Attractive valuation

Guitar Centers

GTRC

60.69

75

Attractive valuation

Ingersoll-Rand

IR

72.58

100

Expected improvements in several end-markets

International Speedway

ISCA

59.51

68

Dominant position with NASCAR

Landstar System

LSTR

30.47

46

High returns on assets and equity

Lennar

LEN

64.07

76

Attractive valuation

St. Jude Medical

STJ

44.32

55

Positive ICD market data

Smith International

SII

66.95

80

Attractive valuation

Spectrum Brands

COO

35.80

50

Strong earnings outlook

Shea is director of global equity research, and Gold and Biggar are senior portfolio group analysts, for Standard & Poor's Equity Research