Markets & Finance

Coach Bags a Spot in S&P's Top Ten


By Kenneth Shea, Steve Biggar, and Robert Gold On Nov. 22, 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. S&P added Coach (COH

; recent price: $34.78) and Nabors Industries (NBR

; $71) to the portfolio, replacing Smith International (SII

; $70.30), and Burlington Northern (BNI

; $66).

Oilfield services outfit Smith was downgraded Nov. 22 from 5 STARS (strong buy) to 4 STARS (buy). Railroad operator Burlington retains its 4 STARS ranking.

Coach, one of S&P's favored specialty retailers, carries our highest investment ranking of 5 STARS (strong buy). The company has displayed superior same-store sales growth relative to its peers. Our 12-month target price for Coach is $44.

Nabors, the world's largest oil and gas land drilling contractor, is also ranked 5 STARS. In our view, the company has strong fundamental prospects. Our 12-month target price for Nabors is $90.

About the S&P Top Ten

A dynamic model portfolio concept, the S&P Top Ten was launched on Dec. 31, 2001. From inception through Oct. 31, 2005, it has gained 19.84%, vs. 12.32% 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. Year-to-date through Oct. 31, the portfolio fell 0.57%, vs. a gain of 1.05% for the index.

On Oct. 26, 2005, the Senior Portfolio Group within the S&P Equity Research Group modified the selection process associated with the construction of the S&P Top Ten Portfolio concept. Effective on that date, stocks in the Portfolio that have been downgraded to 4 STARS (buy) can remain in the Portfolio if the committee believes that the fundamentals are sufficiently intact to remain in the Portfolio despite the S&P analyst's modified stance.

Here's the S&P Top Ten list:

S&P TOP TEN PORTFOLIO

Company

Ticker

Price (11/22/05)

12-Month Target

Investment Rationale

Bank of America

BAC

45.90

54

Attractive risk/return profile

Coach

BNI

34.70

44

Continued market share opportunities

Covance

CVD

47.60

61

Attractive valuation

Guitar Centers

GTRC

51.80

72

Attractive valuation

Ingersoll-Rand

IR

39.90

50

Expected improvements in several end-markets

PepsiCo

PEP

59.30

68

Capturing market share, expanding margins

Oneok

OKE

27.60

36

Highly profitable natural gas business

Wal-Mart Stores

WMT

50.00

56

Solid earnings momentum, attractive valuation

St. Jude Medical

STJ

48.90

61

Positive ICD market data

Nabors Industries

NBR

71.20

90

Natural gas activity expected to rise

Shea is director of Global Equity Research, Biggar is director of U.S. Equity Research, and Gold is senior portfolio group analyst, for Standard & Poor's Equity Research


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