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.
mines, smelts and refines copper in southern Peru. It has had a buy rating since October 2005. Earnings increased by 20.3% in the third quarter compared with the same period last year, continuing a two-year pattern of positive EPS growth. TheStreet.com Ratings feels this trend will continue.
Its stock price rose by 171.89% in the 12 months prior to Nov. 1, and should continue to move higher. The company has also shown notable return on equity. And while no company is perfect, Southern Copper currently shows no weaknesses likely to detract from the generally positive outlook.
L-3 Communications Holdings
, a military-equipment company, has been rated a buy since October 2005. It recently reported that its third-quarter net income rose 21% over the same period last year. The company's revenue increased by 11.1% over the same timeframe, outpacing the industry average of 8.5%.
L-3's earnings grew by 19.1% in the third quarter compared with the same period last year, and stable EPS over the past year indicate the company has sound management over its earnings and share float. Its net operating cash flow rose 24.41% to $324.10 million during the third quarter compared with the same period last year. While the company's stock price rose by 36.16% in the 12 months prior to Nov. 1, it should continue to move higher.
, which makes building heating and cooling systems, has been rated a buy since August 2005, based on its impressive growth in revenue and net income. The company recently reported that its fiscal fourth-quarter profit increased 29.4% to $466 million, or 77 cents a share, while revenue climbed 11% to $9.01 billion, led by strong growth in the building efficiency and the power solutions segments. For 2007, net income increased 21.8% to $1.25 billion, or $2.09 a share, from $1.03 billion, or $1.74 a share. Revenue rose 7.4% to $34.62 billion from $32.34 billion for the year.
Looking ahead, Johnson Controls forecasts first-quarter EPS in the range of 35 cents to 37 cents, up 25% to 32% from a year ago. For full-year 2008, Johnson Controls expects sales to increase 10% to about $38 billion. However, the company's possible downside risks include a slowdown in the U.S. economy, mainly due to further deterioration of the housing market.
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 has begun negotiating a new farm bill, 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 25% to $643.96 million in the third quarter compared with the same period last year. Net income grew by 25% to $205.52 million over the same timeframe.
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.