STOCK PICKS: Top 5 All-Around for Oct. 7

Chevron, Union Pacific, CSX, Hewlett-Packard and Petrobras-Petroleo Brasileiro S.A. make the list.
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Each business day, TheStreet.com Ratings compiles a list of the top five stocks in five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap.

This list is based on data from the close of the previous trading session. Today, all-around-value stocks are in the spotlight. These are stocks of companies that meet a number of criteria, including annual revenue of more than $500 million, lower-than-average valuations such as a price-to-sales ratio of less than 2, and leverage that is less than 49% of total capital.

In addition, they must rank near the top of all stocks rated by our proprietary quantitative model, which looks at more than 60 factors. The stocks must also be followed by at least one financial analyst who posts estimates on the Institutional Brokers' Estimate System. They are ordered by their potential to appreciate.

Note that no provision is made for off-balance-sheet assets such as unrealized appreciation/depreciation of investments, market value of real estate or contingent liabilities that might affect book value. This could be material for some companies with large, underfunded pension plans.

Chevron

(CVX) - Get Report

is one of the world's largest integrated energy companies. The company is engaged in every aspect of the oil and natural gas industry, with major operations in many important gas and oil producing regions worldwide.

We have rated Chevron a buy since October 2003. This rating is based in part on the company's strong growth in revenue and earnings, as well as its attractive valuation levels. For the second quarter of fiscal 2008, the company reported revenue growth of 49.0% year over year. This appears to have helped boost earnings per share (EPS), which improved 15.1% over the same quarter a year ago, thus continuing a trend of positive EPS growth over the past two years. Net income increased 11.1%, rising from $5.4 billion to $6.0 billion.

Chevron's future performance depends largely on the movements of crude oil and natural gas prices. Any adverse changes in these prices could negatively impact revenue. Furthermore, lower sales volumes and margins on the sale of refined products could also negatively affect the company's bottom line. However, we currently feel that the company's strengths outweigh the fact that its shows low profit margins and give the stock good upside potential under most economic market conditions.

Union Pacific

(UNP) - Get Report

provides rail transportation through its principal operating company, Union Pacific Railroad Company, which runs the largest railroad in North America.

Union Pacific has been rated a buy since February 2005 due to its record of earnings per share growth, improvements in revenue and net income, consistent cash flow from operations, and solid stock price performance. During the second quarter of fiscal 2008, the company's earnings grew 19.1% year over year, boosted by higher shipments of coal, grain, and fertilizer. Earnings were partially offset by rising fuel costs and the recent flooding in the Midwest. Net income rose to $531.00 million in the quarter from $446.00 million in the second quarter of fiscal 2007. Earnings per share also increased, rising 23.6% to $1.02 per share from 82 cents per share in the same quarter last year, while revenue has improved 12.9%. Additionally, net operating cash flow increased 32.93% when compared with the second quarter last year.

While the Midwest flooding earlier in the year caused a decrease in earnings for the second quarter, management was pleased with the resiliency that Union Pacific's network exhibited after the crisis, with a quick restoration of service allowing the company to finish the quarter strongly. The company anticipates challenges from high fuel prices and a soft economy going forward, but expects that it will be able to take advantage of the opportunities presented by a diverse business mix. However, any failure to counter these issues could affect the company's future prospects.

CSX

(CSX) - Get Report

owns one of the largest rail networks in the U.S.

CSX has been rated a buy since September 2004. We are encouraged by the company's strong financial performance in the second quarter of fiscal 2008, including its growth in net income and revenue. The second quarter results reflected a 14.9% year-over-year increase in revenue and a 17% increase in operating income, both of which were all-time records for the company. Revenue increased in eight of the company's ten markets due to strong demand for export coal, grain, ethanol, metals and phosphates and fertilizers. Net income grew 18.8% to $385.00 million. Additionally, the company experienced strong earnings growth of 31.0%, which helped drive the stock price up 27.58% over the past year.

Looking ahead to full year 2008, the company reiterated that it expects to achieve the upper end of its previously announced EPS guidance of $3.40 to $3.60 per share on a comparable basis. Bear in mind, however, that CSX's business is cyclical in nature. While the company has done well so far at avoiding problems caused by changing economic conditions, it could still be sensitive to such changes in the future.

Hewlett-Packard

(HPQ) - Get Report

provides products, technologies, solutions, and services to individual consumers and businesses worldwide.

Our buy rating for Hewlett-Packard has not changed since November 2004. This rating is based on the company's impressive record of earnings per share (EPS) growth, increases in net income and revenue, attractive valuation levels, and good cash flow from operations. Hewlett-Packard's total revenue for the third quarter of fiscal 2008 grew 10.5% year over year, which allowed EPS to improve by 21.2% when compared to a year ago. The company has, in fact, demonstrated a pattern of positive EPS growth over the past two years, and we feel that this trend should continue. Net income increased by 14.0%, rising from $1.8 billion in the third quarter of fiscal 2007 to $2.03 billion in the most-recent quarter.

Management attributed the company's third quarter results to the acceleration of its enterprise growth and good execution across its portfolio. Hewlett-Packard's global position, broad product and services offerings and incremental cost saving opportunities led management to state that it is confident in the company's ability to deliver expanded earnings in the future. For fiscal 2008, Hewlett-Packard expects revenue to range between $30.2 billion and $30.3 billion.

Petrobras-Petroleo Brasileiro S.A.

(PBR.A)

is the national oil company of Brazil, engaging in the exploration, exploitation, and production of oil from reservoir wells, shale and other sources.

Petrobras has been rated a buy September 2004. The company reported that its net income increased 29.0% year over year in the second quarter of fiscal 2008, fueled by higher international oil prices, higher oil and gas production, and the increase in gasoline and diesel prices in Brazil in May. In its release discussing the quarterly results, management reported that operating cash flow increased 27.0% over the same quarter last year. It also reported that domestic sales of oil products and national gas increased 8.0% when compared with the second quarter of fiscal 2007.

Although almost any stock can decline in a broad market decline, we feel that Petrobras should continue to move higher. The company continues to make investments in human resources and infrastructure in order to achieve its objectives, including investing in refineries and vertical integration of the production change to add value to its oil, thereby generating higher revenue from domestic and international sales. Additionally, the company made several new discoveries during the second quarter, such as light oil in shallow water in the southern portion of the Santos Basin. Bear in mind, however, that any unexpected sharp downturn in oil and gas prices could negatively affect Petrobras' future earnings. In addition, oil prices are highly volatile and cyclical in nature and could be vulnerable to weaker economic conditions. High prices may also create heightened demand for lower-cost alternatives, and could thus hurt overall demand for oil and gas products.

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 impact 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.

This article was written by a staff member of TheStreet.com Ratings.