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.
( SII) is a worldwide supplier of products and services to the oil and gas exploration and production industry, the petrochemical industry and other industrial markets.
We have rated Smith a buy since May 2006. Various strengths, such as growth in net income and revenue, contributed to this rating. For the first quarter of fiscal 2008, the company's earnings grew 9.3% year over year, propelled by improved earnings from the Oilfield segment. Net income was $174.99 million, or 87 cents per share, compared with $160.16 million, or 80 cents per share, in the first quarter of fiscal 2007. Revenue for the first quarter grew 12.5% year over year to $2.37 billion due to a rise in the Oilfield segment's business volumes. A quarterly dividend of 12 cents per share was paid in April 2008, representing a 20% increase in Smith's quarterly dividend.
Management believes that customers and shareholders will see significant value from an upcoming 50/50 joint venture with Integra Group to supply downhole oilfield services and engineering solutions in Russia and other countries of the Commonwealth of Independent States. The joint venture is expected to close during the third quarter of fiscal 2008. Additionally, management is encouraged by the strength shown by the non-North American market and therefore expects earnings for fiscal 2008 to be in the range of $3.70 to $3.80 per share. However, Smith's future performance is dependent on the level of oil and natural gas exploration and development activities and could be negatively impacted by disruptions in global business and economic conditions.
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 first quarter of fiscal 2008, Chevron's revenue rose 39.6% year over year. The company reported a net income of $5.17 billion, or $2.48 per diluted share, compared with $4.72 billion, or $2.18 per diluted share, in the first quarter of fiscal 2007. This represented a 9.6% increase in net income, while earnings per share improved 13.8% when compared with the same quarter one year ago. Additionally, net sales for the quarter were boosted by higher prices for crude oil, natural gas and refined products, growing to $64.66 billion from $46.30 billion a year ago.
The company reported that strong cash flows from operations allowed it to fund major development projects as a foundation for future growth. Bear in mind, however, that the company's 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.
International Business Machines
uses advanced information technology to provide customer solutions worldwide. IBM operates in more than 160 countries worldwide.
Our buy rating for IBM has been in place since August 2005. This is based on factors such as the company's revenue growth, impressive record of earnings per share (EPS) growth and compelling growth in net income. For the second quarter of fiscal 2008, IBM's revenue rose by 12.8% year over year. This appears to have helped boost EPS, which improved 27.7%, rising from $1.55 per share in the second quarter of fiscal 2007 to $1.98 per share in the most-recent quarter. The company's EPS has trended upwards over the past two years. IBM's net income increased 23.3% when compared with the same quarter one year prior. Additionally, the company's net operating cash flow increased 24.94% to $4.3 billion when compared with the same quarter last year.
Management was pleased with IBM's results for the second quarter and first half of fiscal 2008. With 18% of the company's geographic revenues coming from growth markets, management expressed its belief that IBM has the ability to thrive in both emerging and established markets. Management also stated that IBM has a competitive edge in the global economy due to its business model. The company remains optimistic about its outlook for the full fiscal year 2008 and for its plans to earn between $10 to $11 per share in 2010. Bear in mind, however, that the company's future performance is subject to a variety of factors, including its ability to continue developing and marketing new and innovative products and services, the overall economic environment, and the business condition of IBM's distributors or resellers.
operates an international chain of membership warehouse clubs. It bases its warehouses on the concept that offering its members low prices on a limited selection of nationally-branded and selected private label products in a range of merchandise categories will produce high sales volumes and rapid inventory turnover. The company also operates Costco Online, an electronic commerce web site.
Costco has been rated a buy since March 2004. The company's strengths can be seen in its revenue growth, impressive record of earnings per share (EPS) growth and compelling growth in net income. For the third quarter of fiscal 2008, Costco's revenue rose 11.6% year over year. This helped produce EPS growth of 36.7%, which added to the company's pattern of positive EPS growth over the past two years. Net income increased by 31.7% when compared with the same quarter one year prior. Additionally, the company demonstrated solid stock price performance in the past quarter, along with reasonable valuation levels.
Looking ahead, Costco plans to open nine to ten new or relocated warehouses before its 2008 fiscal year ends on August 31. The company's future economic performance is subject to risks from domestic and international economic conditions and exchange rates, the effects of competition and regulation, consumer and small business spending patterns and debt levels, and other conditions that could affect the acquisition, development, ownership and use of real estate.
Diamond Offshore Drilling
engages in the contract drilling of oil and gas wells. The company's fleet of 30 submersibles enables it to offer a range of services in various markets worldwide, including the deep water, harsh environment and conventional semisubmersible markets.
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% 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 believe that this trend could continue. Although the company may harbor some minor weaknesses, we think 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.
This article was written by a staff member of TheStreet.com Ratings.