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.
, a publicly owned investment manager, has been rated buy since December 2005. Its products include a variety of fixed income, cash management, equity and alternative investment separate accounts and mutual funds.
The company is reaping substantial benefits from its September 2006 merger with Merrill Lynch Investment Managers (MLIM) and the October, 2007 acquisition of the fund of funds business of Quellos Group, LLC, which have allowed it to become one of the world's largest asset management firms. The beneficial impact of these business combinations is reflected in the firm's cross-selling successes, which supported its top-line growth throughout fiscal 2007.
The company reported robust results for the fiscal year 2007 on January 17th, with assets under management up 21% compared with the end of 2006, standing at $1.36 billion. Along with the acquisition of the Quellos business, this helped drive revenue growth of 42% for the quarter and 131% for the year. The firm continues to focus on product diversification, and has made efforts to mitigate any damage caused to its results from current turmoil in the credit markets by adopting stricter risk management procedures. Management feels that this focus will enable it to grow despite current challenging market conditions.
Our rating is subject to the risk of any unexpected downturn in the securities markets or the economy in general, any deterioration in relative investment performance, and any adverse regulatory developments. Furthermore, slowing trends in the US economy and fluctuations in interest rates could adversely affect the company's performance.
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. The company manufactures products in 28 countries and sells them in over 100 countries, with more than 50% of its revenues generated outside the United States.
In addition to a 10.4% increase in earnings year over year in the fourth quarter of 2007, Baxter International's plans for strategic expansion are a positive sign. The company recently entered into an agreement with Halozyme Therapeutics Inc. to apply Halozyme's proprietary Enhanze Technology in Baxter's treatment of immunodeficiency disorders. Baxter also signed an agreement with Japan-based Kaketsuken to develop a treatment for rare blood disorders and received Premarket Notification clearance from the U.S. Food and Drug Administration for its V-Link Luer-activated Device with VitalShield protective coating. This product is designed to reduce the contamination of IV fluids.
Looking ahead to 2008, the company expects earnings per share before items to be in the range of $3.10 to $3.18 per share on sales growth of 5.0% to 6.0% excluding foreign exchange transactions. However, potential delays in regulatory approvals or an unfavorable market response to the company's products could affect this stock. Pricing pressure from generic competitors is another area of concern.
provides a variety of communications, intelligence, surveillance, and reconnaissance-related services, primarily in the U.S. Customers include the Department of Defense, the Department of Homeland Security, various other U.S. government departments and agencies, allied foreign government ministries of defense, and commercial customers.
The buy rating on this stock is based primarily on expected benefits from a higher defense budget, an impressive bottom line performance in the fourth quarter of 2007 and strong fundamentals. For the fourth quarter, L-3 Communications recorded 19.5% growth year over year, fueled by robust top-line growth, operating margin expansion and essentially flat interest expense. Because the company ranks among the top ten largest federal contractors, it is well positioned to benefit from current government spending on defense and homeland security. The company could also see an increased demand for its baggage-screening and surveillance systems due to higher security measures at airports.
Looking forward, management raised first-quarter 2008 guidance to be in the range of $6.48 to $6.62 per share, up from an earlier view of earnings per share of $6.41 to $6.55. This boost was based mainly on the company's healthy backlog position and a favorable industry outlook. It is important, however, to keep in mind that the company is heavily dependent on government spending, so any change in current trends or loss of key contracts could adversely affect the stock.
provides health insurance coverage and related services in the U.S. Headquartered in Louisville, KY, the company is one of the largest publicly traded health and supplemental benefits companies in the country. Humana has been rated buy since February 2006, based on factors such as revenue growth, largely solid financial position and solid stock price performance.
Humana's revenues rose 12.1% year over year in the fourth quarter of 2007. Net income increased 56.9% in the same period, rising from $155.02 million to $243.22 million. The stock price has surged 37.78% over the past year, powered by earnings growth of 55.43%. The recent acquisition of KMG America Corporation, an insurance holding company, is expected to broaden and diversify Humana's commercial portfolio. The company also acquired CompBenefits during Q3 FY07. This acquisition is expected to generate annualized revenue of more than $700 million.
Looking forward, management has raised its 2008 guidance to the range of $5.35 to $5.55, with a 5 cent per-share recurring benefit from a lower overall state tax rate.Over the past year, Humana expanded its Medicare Advantage memberships by 14%, and they expect to continue growing these memberships in 2008, due to the expansion of product offerings into 15 new markets during the third quarter of 2007. This increased penetration, along with planned expansions for 2008 and a favorable industry outlook should boost Humana's growth going forward. However, the recent lowering of funding for government-sponsored programs like Medicare and Medicaid, from which Humana generates a large portion of its revenue, could negatively impact the company's revenue and profit margins.
is a holding company whose insurance and reinsurance activities are conducted through more than 60 domestic and foreign-based insurance companies. Additionally, the company's subsidiaries write property and casualty insurance; sell building products and architectural coatings; supply connector products and engineering software; manufacture apparel and aircraft; provide high-technology training for aircraft; and operate utility and energy businesses. The company has been rated buy since January 2006.
The company's strengths can be seen in multiple areas, such as revenue growth, largely solid financial performance, attractive valuation levels, solid stock price performance, and increase in net income. Revenues rose 18.0% in the third quarter of 2007 from the year-ago quarter. This growth appears to have helped boost the company's earnings per share. Net income increased by 64.2% year-over-year, rising from $2.77 billion to $4.55 billion. Strong earnings growth has positively affected the stock price over the past year.
Looking forward, even the best stocks can fall in an overall down market, but in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
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 impact 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.