STOCK PICKS: Top 5 Large-Cap Stocks, Sept. 10

The TJX Companies, McDonald's, Alcon, Union Pacific and Becton, Dickinson & Company make the list.
Author:
Publish date:

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 -- 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.

The TJX Companies

(TJX) - Get 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 United Kingdom 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 EPS 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.

McDonald's

(MCD) - Get 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.

Alcon

(ACP) - Get Report

is a research and development driven, global medical specialty company focused on eye care. Alcon develops, manufactures, and market pharmaceuticals, surgical equipment and devices, and consumer eye care products to treat diseases and disorders of the eye. The company has operations in 75 countries, and its products are sold in more than 180 countries.

Alcon has been rated a buy since September 2004. Our rating is based on the company's solid revenue growth, strong sales growth from its key products, and increasing earnings. A healthy cash position, new product launches, and regulatory approvals further support the rating. For the second quarter of fiscal 2008, Alcon reported that its net earnings rose 26.3% year over year to $566.4 million. The increased earnings combined with strong volume growth to boost total sales by 17.9%, from $1.47 billion in the second quarter of fiscal 2007 to $1.74 billion in the most recent quarter. Gross profit margin improved to 78.63% from $78.42%, while operating margin advanced 75 basis points to 37.21%. In addition, Alcon announced that it would build a fully functional pharmaceutical manufacturing plant in Singapore by 2012 in order to take advantage of growing demand in Asia. The company also received Food and Drug Administration approval for its Patanase nasal spray, which is used in the treatment of symptoms associated with allergic rhinitis.

Looking ahead to full year 2008, the company increased its sales guidance to a range of $6,460 million to $6,510 million, primarily due to a currency environment that remains more favorable than anticipated. The company also increased its guidance for diluted earnings per share to a range of $6.48 to $6.54. It is important to remember, however, that any regulatory denial of the company's new product developments and market penetrations could hamper its future revenue growth. In addition, the company's weak leverage level and disappointing returns on assets and equity may be a threat to its future rating.

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. The railroad covers 23 states across the western two-thirds of the U.S., 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.

Becton, Dickinson and Company

(BDX) - Get Report

is a global medical technology company that manufactures and sells a broad range of medical supplies, devices, laboratory equipment and diagnostic products worldwide. The company serves healthcare institutions, life science researchers, clinical laboratories, industry and the general public. Headquartered in the U.S., BDX has offices in nearly fifty other countries.

We have rated BDX a buy since January 2003, based on its strong revenue growth, expanding net income and increasing operating margin. In addition, the company has high liquidity, improved debt leverage, and impressive returns. For the third quarter of fiscal 2008, the company reported that its sales were boosted by growth across product categories and favorable currency translation of 7.0%. Total revenue increased 14.5% year over year to $1.87 billion. Net income for the third quarter grew 21.4% when compared with the same quarter last year, driven by strong revenue growth and improved spending control. As a result, return on equity expanded 205 basis points to 21.54% and return on assets jumped 230 basis points to 13.59%. In addition, BDX recently acquired Cytopeia, a privately held flow cytometry shop whose influx cell sorter will help BDX reach new cell-based research markets.

Based on its third quarter results, Becton, Dickinson, and Company raised its guidance for full fiscal year diluted earnings per share from continuing operations to approximately 16% from previous guidance of approximately 13% to 14%. Bear in mind that continued increased in raw material and manufacturing start-up costs may adversely affect the company's future profitability. Other downside risks to our rating include products patent expiry, changes in domestic and foreign healthcare industry regulations and difficulties inherent in product development.

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 TheStreet.com Ratings.