Top 5 Large-Cap Stocks for Dec. 17

McDonald's, General Mills, Southern, Amgen and Procter & Gamble 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.


(MCD) - Get Report

primarily operates and franchises McDonald's restaurants. We have rated it a buy since March 2004, based on strengths such as its expanding profit margins and growth in net income, revenue, and earnings per share.

On Oct. 22, the company reported that global comparable sales growth of 7.1% year over year fueled strong results in the third quarter of fiscal 2008. Revenue increased 6.2% when compared with the prior year's quarter. Although this trailed the industry average of 23.2%, it appears to have led to EPS growth. EPS improved 26.5%, rising from 83 cents in the third quarter of fiscal 2007 to $1.05 in the most recent quarter. Although McDonald's reported that earnings have been somewhat volatile recently, we feel that it is poised for EPS growth in the coming year. Net income increased by 11.2% when compared to the same quarter a year ago. In addition, we consider the company's 37.7% gross profit margin to be strong, especially as it has managed to decrease from the same period last year and compares favorably to the industry average of 19%.

Management was pleased with its reported higher margin dollars, comparable sales, and a double-digit operating income increase. The company plans to continue its focus on disciplined financial practices in order to continue driving strong financial performance in the future. Although no company is perfect, we do not currently see any significant weaknesses that are likely to detract from McDonald's generally positive outlook.

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 it 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 this revenue does not appear to have trickled down to the company's bottom line, as 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 1,007.4% when compared to the same quarter last year. In addition, we consider the company's 37.3% 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 sub par, 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.


(SO) - Get Report

is an Atlanta-based energy company that engages in the generation, transmission, distribution, and sale of electricity in the southeast U.S. We have rated it a buy since August 2004 on the strength of its revenue and net income growth.

Despite challenges from the economy and weather, the company reported positive earnings results for the third quarter of fiscal 2008. Its revenue growth of 12.3% year over year slightly outpaced the industry average. Net income growth also increased, rising 3.1% from $772.5 million in the third quarter of fiscal 2007 to $796.6 million in the most recent quarter. Although Southern Company has had somewhat volatile earnings recently and reported flat earnings for the third quarter, we feel that it is poised for earnings per share growth in the coming year. The company reported that it earned $1.01 per share, excluding the impact of synthetic fuel investments. Its current debt-to-equity ratio is somewhat high at 1.3, but this is still below the industry average, suggesting that its debt level is acceptable within the electric utilities industry.

Management stated that the company remains on track to meet its financial and operational goals for the year. Although the company is currently trading at a premium valuation compared to most other stocks in its industry, we feel that its overall strengths outweigh this slight negative.


(AMGN) - Get Report

is a global biotechnology company. We upgraded our rating on Amgen to a buy in August 2008 based on a few notable strengths. These include the company's solid stock price performance, impressive record of EPS growth, growth in revenue and net income, and notable return on equity.

For the third quarter of fiscal 2008, the company reported that its revenue grew slightly by 7.3% year over year. While this growth was less than the industry average of 17.2%, it does appear to have helped boost EPS, which improved significantly from 18 cents a year ago to $1.09 in the most recent quarter. This represents the continuation of a trend of positive EPS growth over the past year, a trend which we feel should continue. Net income also increased significantly, surging 476.1% when compared to the same quarter a year ago. Amgen reported a slight improvement in its return on equity, which rose from 18.7% to 20.5%. This can be construed as a modest strength for the organization.

Management stated that Amgen's third quarter financial results demonstrated strong operating performance. Looking forward, the company is excited to focus on bringing to market its denosumab treatment for post-menopausal osteoporosis. Amgen raised its full-year 2008 revenue guidance to a range of $14.9 billion to $15.2 billion, and also increased its 2008 adjusted EPS guidance to a range of $4.5 to $4.6. Although the company shows weak cash flow at this time, we feel that the strengths detailed above outweigh any potential weakness.

Procter & Gamble

(PG) - Get Report

and its subsidiaries markets more than 300 branded products in more than 160 countries. We've rated it a buy since October 2002. Our recommendation is based on the company's revenue growth, increase in net income, notable return on equity, and good cash flow from operations. These strengths are further supported by P&G's EPS growth.

For the first quarter of fiscal 2009, the company reported earnings growth of 8.7% year over year, as earnings rose to $3.4 billion, or $1 per share. Earnings per share increased 11.9% when compared to the same quarter last year, continuing a trend of positive EPS growth that we feel should continue in the future. P&G's revenue growth of 9% slightly outpaced the industry average of 8.8%. This growth was supported by favorable foreign exchange rates and a 5.0% increase in organic sales. Return on equity improved slightly from 15.6% in the first quarter of fiscal 2008 to 18.8% in the most recent quarter and can therefore be considered a minor strength for P&G. Net operating cash flow remained constant at $3.3 billion.

Looking ahead to the second quarter of fiscal 2009, Procter & Gamble anticipates sales growth of about 4% as a result of pricing and product mix, with organic sales expected to grow 4% to 6%. P&G expects earnings to be in the range of $1.45 to $1.50 per share. In addition, the company increased its full fiscal year 2009 EPS to a range of $4.15 to $4.25 per share. However, the company faces risks from rising commodity and energy costs, as well as the increasing volatility in foreign exchange markets. These factors could negatively impact P&G'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.