9. Altria (MO)
Company Profile: Altria is the parent company for Philip Morris USA, John Middleton, U.S. Smokeless Tobacco Company, Ste. Michele Wine Estates and Philip Morris Capital. The company's brands include Marlboro, Parliament, Virginia Slims, Stag's Leap Wine Cellars and Basic.Sector Representation: Consumer staples Share Price: $28.31 (Dec. 5) Potential Upside: 9.5% based on a price target of $31 Investment Thesis: Lisa Lewandowski says that tobacco is the firm's preferred staples industry, and that Altria gets the nod because it is the highest yielding S&P 500 tobacco stock. "Altria is the largest U.S. cigarette producer, with about a 50% market share," she writes. "While the tobacco litigation environment has improved in recent years, consumption trends continue to decline. We expect price growth, cost cutting and share repurchases to drive above category earnings growth and we expect returns to shareholders to rise. As such, we believe Altria should trade at a premium to peers."
8. Union Pacific (UNP) Company Profile: Union Pacific operates a railroad franchise that covers 23 states in the western U.S., extending as far east as Chicago and New Orleans. Sector Representation: Industrials Share Price: $105.30 (Dec. 5) Potential Upside: 12.1% based on a price target of $118 Investment Thesis: Analyst Ken Hoexter says that Union Pacific comes up under the firm's screens for yield and high quality. Specifically, he highlights Union Pacific as a solid investment opportunity in a slow-growth environment. "We continue to believe the rail group will improve service metrics and raise core rates," Hoexter writes. "Union Pacific has improved its operating ratio from the mid-80s to 70% most recently, which has led to sustained upper-teens earnings growth. Ongoing benefits look to be derived as it moves to reprice the approximately 12% of its business that has not re-priced since 2004."
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