Each weekday, 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, updated daily, 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 60 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.
Leading the list today is
, which designs, manufactures, distributes and repairs diesel and natural gas engines and electric power generation systems. It has been rated a buy since August 2005. The company's second-quarter revenue grew by 17.6% year over year, powered by double-digit growth in engine sales in the light-duty automotive, recreational vehicle and medium-duty truck engines. Power generation sales improved by 28.6%, with strong performance in North America, the Middle East, Europe and India. In addition, total debt decreased 33.7% to $666 million, resulting in an improved debt-to-equity ratio of 0.21.
The stock is not without risk. Cummins' performance depends on the economic conditions of various competitive geographical markets, particularly in the automotive, construction and general industrial sectors. Going forward, a decline in margins as well as return on equity could restrain the company's growth.
produces, sells and distributes industrial gases. It has been rated a buy since August 2005. The buy rating is supported by the company's robust revenue growth, expanding profit margins, increased net income and notable return on equity.
Revenue growth in North America has been driven by higher pricing and increased sales volume. European revenue has grown as a result of both favorable currency effects and volume growth, and revenue in South America has increased from new business and plant start-ups. Risks to the company's performance include any inability to derive synergies from the acquisition of Mills Welding and Specialty Gases, failure to drive growth from new capacity additions or unfavorable effects of currency fluctuations.
Agricultural and commercial equipment manufacturer
Deere & Co.
has been rated a buy since August 2005. It recently completed the acquisition of Lesco, strengthening its foothold in the American market, and plans to expand its financial services arm into Canada. Deere also entered into a definitive agreement to acquire Ningbo Benye Tractor & Automotive Manufacture to expand its small tractor manufacturing business in China. This acquisition will enhance its product line and worldwide capacity to produce low-horsepower tractors.
Deere is well-positioned to benefit from the surge in corn production -- driven by increased demand for ethanol -- which could compel farmers to buy more equipment. Risks include any adverse weather conditions, which could hurt farmers' production and income and leave them with less money to spend on new equipment.
In addition, Congress will begin negotiating a new farm bill this year, which could reduce farm subsidies and likewise leave farmers with less money to invest in capital. The current housing construction slump could put pressure on the company's construction and forestry businesses.
Offshore gas and drilling contractor
Diamond Offshore Drilling
has been rated a buy since July 2005. The company's revenue increased by 26.7% in the second quarter compared with the same period last year, primarily due to an increase in so-called day rates, as well as a rise in the number of operating days. Net income grew by 43.4% to $251.93 million over the same timeframe due to factors including lower production cost and higher net income. (Over the past three years, revenue and net income increased at a compounded annual growth rate of 46.9% and 208.1%, respectively.)
There is also a favorable industry outlook. Demand for oil and gas is continuously increasing in the U.S on the back of increased automobile ownership and an energy-dependent lifestyle. (According to the International Energy Agency, U.S crude oil demand is expected to rise by 1.5% for fiscal year 2007, and natural gas is expected to grow by 2.4% for 2007 and 2008.)
However, there has been a rise in the oil price level over the past two years, with oil and gas currently trading near 12-month highs. That could disturb the demand for oil and gas and can affect the number of rigs that are operational in the market. That may in turn negatively affect the profitability of the company.
manufactures and sells a broad range of medical supplies, devices, lab equipment and diagnostic products. It has been rated a buy since August 2005. Its revenue grew by 11.9% in the third quarter of fiscal 2007 compared with the same period last year, due to volume increases and favorable currency translation. Net income increased 18.6% to $244.1 million during the same time frame.
In July, the company announced plans to expand its distribution center in Temse, Belgium. The expansion is intended to help meet increased demand for its biosciences and diagnostics products in Western and Eastern Europe. Becton Dickinson operates in Canada, Europe, Japan, Asia Pacific and Latin America. Given the company's current market presence and continued focus on geographic expansion, TheStreet.com Ratings believes it is positioned to benefit from continued global demand for medical products.
The stock is not risk-free. Increasing competitive pressure resulting from consolidation among the players in the medical device industry is a cause of concern. In addition, decreasing reimbursements by governments to trim medical costs could hamper the company's growth in the future.