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February 07, 2005

Schwab Picks

Amey Stone

I had an interesting conversation recently with Greg Forsythe, who is the mastermind behind Schwab Equity Ratings, a quantitative system for identifying stocks likely to outperform in the coming years. Portfolios developed from his list of A-rated stocks (which usually seem like an unlikely bunch when you look at them) have consistently outperformed the market over time.

In late January, Schwab released a list of ten A-rated stocks, one from each sector. These names aren’t supposed to make up a complete portfolio, but just suggest some ideas for further investigation. Forsythe calls them simply, “a diverse set of stocks which we think are attractive at this point.”

Many of today’s A-rated stocks are mid-to-large cap, while many F-rated stocks are small-cap names -- an indication that stocks of small companies are getting expensive, says Forsythe. Furthermore, A-names are often companies that were either involved in a controversy or are part of a turnaround, which makes them contrarian bets.

“A number of these stocks have something that might make investors cautious,” Forsythe told me. “That probably contributes to their relative under-valuation in our point of view.”

Without further ado, here’s Schwab’s list of 10 “interesting” stocks:

Becton Dickinson (BDX)

Duke Energy (DUK)

Electronic Data Systems (EDS)

Exxon Mobil (XOM)

MetLife (MET)

Newell Rubbermaid (NWL)

PPG Industries (PPG)

Textron (TXT)


Verizon (VZ)

What do you think of the list? Please, let me know.

09:58 AM

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