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STOCK PICKS: Top 5 Large-Cap for Sept. 3

Union Pacific, The TJX Companies, McDonald's, Northern Trust and Lockheed Martin make the list.

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Ratings compiles a list of the top five stocks in five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap -- and publishes these lists in the Ratings section of our Web site.

This list is based on data from the close of the previous trading session. Today, large-cap stocks are in the spotlight. These are stocks of companies with market capitalizations of over $10 billion that rank near the top of all stocks rated by our proprietary quantitative model, which looks at more than 62 factors. In addition, the stocks must be followed by at least one financial analyst who posts estimates on the Institutional Brokers' Estimate System. The stocks 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.

Union Pacific

(UNP) - Get Union Pacific Corporation Report

provides rail transportation through its principal operating company, Union Pacific Railroad Company, which runs the largest railroad in North America. The railroad covers 23 states across the western two-thirds of the United States, and ships products such as automobiles and automobile parts, agricultural products, coal, liquid and dry chemicals, plastics and liquid petroleum products.

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 improved 12.9%. Additionally, net operating cash flow increased 32.93% when compared with the second quarter last year.

While the recent Midwest flooding 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.

The TJX Companies

(TJX) - Get TJX Companies Inc Report

is an off-price retailer of apparel and home fashions in the U.S. and worldwide. The company operates through its T.J. Maxx, Marshalls, and A.J. Wright chains in the U.S., its Winners chain in Canada, and its T.K. Maxx chain in the U.K. and Ireland.

TJX has been rated a buy since November 2001. On August 12, the company reported that its earnings tripled in the second quarter of fiscal 2009 (ended July 26), supported by sales growth. Net income rose to $200.22 million from $59.03 million in the second quarter of fiscal 2008. Excluding one-time items, the company earned 47 cents per share. During the second quarter, revenue grew 7.1% year over year to $4.31 billion, attributable to 4.0% growth in comparable store sales and a 0.5% contribution from foreign currency translations. Double-digit growth from the Winners, HomeSense, and T.K. Maxx segments also contributed to sales growth. The company added 19 stores during the quarter, and repurchased 7.00 million shares of its common stock for $225.00 million.

Management announced that it was very pleased with TJX's second quarter performance, given the challenging retail environment. The company is looking to build for the future by capturing new customers and maintaining or developing strong vendor relationships in the current environment, while still striving for sustained revenue growth. The company expects third quarter earnings per share to be between 59 cents and 62 cents, and raised its full year EPS forecast to a range of $2.26 to $2.25. Bear in mind, however, that lower retail sales, changing consumer trends and preferences and any failure to introduce new products and services could negatively impact future financial results.


(MCD) - Get McDonald's Corporation (MCD) Report

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(MCD) - Get McDonald's Corporation (MCD) Report

primarily operates and franchises McDonald's restaurants. In total, the corporation has more than 30,000 restaurants in more than 100 countries. More than 52 million people are served each day in McDonald's restaurants, according to the company. McDonald's also has quality assurance labs around the world.

We have rated McDonald's a buy since March 2004, based on strengths such as its solid stock price performance and impressive record of earnings per share growth. The company announced that its comparable sales and guest counts grew across all geographic segments in the second quarter of fiscal 2008. Profitability also increased during the second quarter. McDonald's revenue increased 4.0% year over year, contributing to a significant earnings per share (EPS) improvement from a loss of 59 cents in the second quarter of fiscal 2007 to $1.04 in the most-recent quarter. Net income surged 267.3% when compared with the same quarter a year ago. Additionally, the company experienced double-digit operating income growth in several geographic regions (Europe and Asia/Pacific, the Middle East, and Africa) and produced solid quarterly results in the U.S.

Looking ahead, management stated that it believes the company will continue to have momentum due to a collective focus on delivering quality products at good value. While the company may currently harbor some minor weaknesses, we do not expect them to have a significant impact on McDonald's future financial results.

Northern Trust

(NTRS) - Get Northern Trust Corporation Report

is a provider of investment management, asset and fund administration, fiduciary and banking solutions to corporations, institutions and affluent individuals. The company conducts business in the U.S. States and around the world through the Northern Trust Company, four national bank subsidiaries, a federal savings bank subsidiary, three trust companies and various other subsidiaries in the U.S. and elsewhere.

Northern Trust has been rated a buy since March 2005. On July 16, the company announced that it achieved strong core results in the second quarter of fiscal 2008. Earnings increased 4.2% year over year, aided by revenue growth of 24.0%. The company's revenue growth was driven by higher trust, investment, and other servicing fees; foreign exchange trading income; and net interest income. Net income inched up to $215.60 million from $206.90 million a year ago. During the second quarter, the company repurchased 39,782 shares for a total cost of $2.90 million.

Management was pleased with the second quarter results in the face of a challenging business climate. Bear in mind, however, that any adverse movements in global capital markets may impact Northern Trust's future financial performance.

Lockheed Martin

is a global security company headquartered in Bethesda, Maryland. The company researches, designs, develops, manufactures, integrates, operates and sustains technology systems and products. It also provides a range of management, engineering, technical, scientific, logistic and information services. Lockheed Martin serves customers in domestic and international defense and civil markets.

We have rated Lockheed Martin a buy since May 2004. This rating is based on various strengths, such as the company's impressive record of earnings per share (EPS) growth and increase in net income. For the second quarter of fiscal 2008, the company reported slight revenue growth of 3.6% year over year. The second quarter also brought EPS improvement of 18.1% when compared with the same quarter a year ago. Net income increased by 13.4% in the second quarter, rising from $778.00 million in the second quarter of fiscal 2007 to $882.00 million. In addition, net operating cash flow increased slightly by 6.19%.

Management reported that Lockheed Martin's second quarter results were in line with its expectations for the quarter. We feel that the company's strengths outweigh the fact that it shows low profit margins, and we believe that the stock should have good upside potential under most economic conditions.

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.

This article was written by a staff member of Ratings.