STOCK PICKS: Top 5 Large-Caps for July 9

We have rated Hess a buy since August 2004 due to a variety of strengths. Propelled by price increases for natural gas, natural gas liquids, and oil, the company's total revenue and non-operating income for the first quarter of fiscal 2008 rose 45.4% year-over-year. An increase in the company's average daily production of natural gas and crude oil also contributed to the improvement in total revenue and non-operating income. Hess also announced that its first quarter net income surged to 105.1% to $759 million from $370 million a year ago, again due to higher crude oil prices and increased production. Additionally, net operating income increased significantly in the first quarter, rising 84.03% when compared to the same quarter last year.

While oil prices are currently trading at record levels, these prices are also highly volatile and cyclical in nature. Because Hess generates a significant portion of its income from the production of oil and gas, any significant unexpected downturn in oil prices could negatively affect the company's earnings. Such a downturn could occur if high oil prices generate higher demand for low-cost alternatives or if the slowdown in the U.S. economy and weakness in the U.S. labor market put further pressure on the demand for oil and gas products.

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Smith International(SII Quote) is a worldwide supplier of products and services to the oil and gas exploration and production industry, the petrochemical industry, and other industrial markets. Smith provides a comprehensive line of technologically-advanced products and engineering services, including drilling and completion fluid systems, waste-management services, three-cone and diamond drill bits, drilling tools, and liner hangers. The company also offers supply-chain management solutions. Smith markets its products and services through subsidiaries, joint ventures, and sales agents located in nearly all the petroleum-producing areas of the world.