STOCK PICKS: Top 5 Large-Caps for July 9

We have rated Diamond a buy since June 2005, on the basis of various strengths displayed by the company. Boosted by solid sales growth from its contract drilling business segment, Diamond's revenue surged 29.3% year-over-year to $666.70 million in the first quarter of fiscal 2008. First quarter earnings rose 29.7%, fueled by a rise in daily rates for the company's deepwater rigs. Net income for the quarter increased to $290.63 million, or $2.09 per share, from $224.15 million, or $1.64 per share, in the first quarter of fiscal 2007. In keeping with its policy of considering the payment of special cash dividends on a quarterly basis, the board of directors recently declared a special cash dividend of $1.25 per share of common stock in addition to a regular cash dividend of 12.5 cents per share of common stock. Both dividends are payable in June 2008. Finally, Diamond's debt-to-equity ratio is very low at 0.17, implying that debt levels have been successfully managed.

While lower than a year ago, Diamond's gross profit margin continued to remain relatively high at 61.80%. However, the company's net profit margin of 37.00% significantly outperformed against the industry. Furthermore, the company has demonstrated a pattern of positive earnings per share growth over the past two years, and we feel that this trend could continue. Although the company may harbor some minor weaknesses, we feel that they are unlikely to offset the company's strengths. Instead, we feel that the slowdown in the U.S. economy and weak job data pose larger risks as they may put pressure on the demand for oil and gas. This could in turn disturb activities related to exploration and production, affecting the number of rigs that are operational in the market and potentially affecting Diamond's future profitability.

Our quantitative rating is based on a variety of historical fundamental and pricing data and represents our opinion of a stock's risk-adjusted performance relative to other stocks.

However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could affect the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.

For those reasons, we believe a rating alone cannot tell the whole story and should be part of an investor's overall research.