STOCK PICKS: Top 5 Large-Caps for Oct. 15

McDonald's and General Mills make the list.
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Each business day, Ratings compiles a list of the top five stocks in one of five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap -- 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.


(BUD) - Get Report

produces and distributes beer in the U.S. and internationally, brewing the world's largest-selling beers, Budweiser and Bud Light. In July 2008, Anheuser-Busch announced that it would combine with InBev, a Belgian company, to create Anheuser-Busch InBev, which will be one of the world's five largest consumer products companies. This pending merger has a takeout price of $70, which is roughly

11% above the current price

for Anheuser-Busch stock. We have rated Anheuser-Busch a buy since July 2006 based on a variety of positive investment measures, including the company's solid stock price performance, expanding profit margins and growth in EPS, revenue and net income.

For the second quarter of fiscal 2008, the company reported that its revenue increased slightly by 4.6% year over year. While this growth was lower than the industry average, it appears to have trickled down to the bottom line, helping to boost EPS by 8% compared with the same quarter a year ago. Net income also increased, rising 1.8%. In addition, the company stated that it had solid sales growth of 4.6%, with U.S. beer shipments and wholesaler sales-to-retailers increasing. This increase was led by the launch of the new Bud Light Lime product, along with improved performance from other core brands.

In July, management's outlook for the remainder of its summer selling season was optimistic. Price increases on the majority of the company's U.S. beer volume were planned for September and October at that time, covering approximately 85% of the company's domestic volume. Due to these pricing measures, the company announced that it expects to achieve 4% growth in revenue per barrel for full-year fiscal 2008. Cost reduction and operating efficiency measures are also expected to contribute to future profit growth. The company shows generally poor debt management on most measures that we evaluated, but we feel that its strengths outweigh any weakness at this time.

Baxter International

(BAX) - Get Report

is a medical products and services company, providing medical devices, pharmaceuticals, and biotechnology for the treatment of a variety of diseases including hemophilia, cancer, and kidney disease. Baxter has been rated a buy since May 2005, based on such positive investment measures as earnings per share growth, revenue growth, solid stock price performance and notable return on equity.

For the second quarter of fiscal 2008, the company reported revenue growth of 12.7% year over year. While this growth was less than the industry average of 14.3%, Baxter's revenue growth appears to have helped boost EPS, which improved 30.8%. The company has demonstrated a pattern of positive earnings per share growth over the past two years, and we feel that this trend is likely to continue. Net income rose from $4.31 billion to $5.44 billionan increase of 26%. In addition, Baxter's return on equity improved slightly from 24.53% to 24.57%. The company credited continued gross margin expansion due to enhanced business, product and geographic mix for its second-quarter results.

Looking ahead to the remainder of fiscal 2008, management feels that Baxter is well-positioned for success in a shaky global economy. Due to its second-quarter results, Baxter raised its fiscal 2008 guidance from previous estimates. The company now anticipates sales growth of 5% to 6%, along with earnings per diluted share of $3.28 to $3.32. Previous earnings guidance was announced as $3.18 to $3.24 per diluted share. The company does show weak operating cash flow, but we believe that Baxter's strengths outweigh any weakness and that there is still good upside potential for this stock

Abbot Laboratories

(ABT) - Get Report

is a global, broad-based healthcare company that discovers, develops, manufactures and sells a diversified line of product, including pharmaceuticals Humira and Simcor and nutritional products Ensure, Pedialyte, Pediasure and Similac. We have rated Abbott a buy since April 2007, based on a variety of strengths, such as the company's revenue growth, impressive record of earnings per share growth and notable return on equity.

For the second quarter of fiscal 2008, the company reported revenue growth of 14.8% year over year, with strong international results leading an overall strong performance across the company's diverse mix of global businesses. Revenue growth appears to have helped boost EPS, which improved 34.9% when compared with the second quarter of fiscal 2007. Net income increased 33.7%. Abbott's return on equity increased from 12.56% a year ago to 22.05% in the most recent quarter, which we take to be a clear sign of strength within the company. In addition, net operating cash flow increased by 9.69%.

Looking ahead, Abbott raised its fiscal 2008 sales growth and EPS guidance based on its first-half results and its outlook for the remainder of the year. Full-year EPS guidance was changed from a range of $3.20 to $3.25 to a range of $3.24 to $3.28, while its sales guidance was increased to mid-teens growth for the full fiscal year. EPS guidance for the third quarter of fiscal 2008 was given as 76 cents to 78 cents per share. We do not currently see any significant weaknesses that are likely to detract from the generally positive outlook for this company, but keep in mind that the Pharmaceuticals industry as a whole is vulnerable to patent expirations and legislative threats to pricing power.

General Mills

(GIS) - Get Report

is the world's sixth-largest food company, producing packaged consumer foods that are marketed in more than 100 countries. We have rated General Mills a buy since November 2004.

For the first quarter of fiscal 2009, the company reported that it achieved strong results, primarily due to strong consumer demand in worldwide markets. First-quarter revenue rose 13.8% year over year, but General Mills displayed a decline in EPS for the quarter. However, we feel that the company is poised for EPS growth in the coming year, despite reporting somewhat volatile earnings recently. Net sales grew 14% from $3.07 billion in the first quarter of fiscal 2008 to $3.5 billion in the most recent quarter. Net operating cash flow also increased significantly, rising 1,007.35%. In addition, we consider the company's 37.30% gross profit margin to be strong.

Management was pleased with what it considered to be a great start to fiscal 2009, as sales and profit results for the first quarter exceeded management's expectations. General Mills increased its earnings guidance for fiscal 2009 to a range of $3.81 to $3.85 per share, up from its previously released forecast of $3.78 to $3.83 per share. The company also expects fiscal 2009 net sales to grow at a mid single-digit rate. Although the company's growth in net income has been subpar, we feel that its strengths outweigh any weaknesses it may display. Even the best stocks can fall in an overall down market, but in any other environment, we believe that this stock still has good upside potential despite the fact that it has already risen in the past year.


(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. 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% year over year, contributing to a significant 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.

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.