Agrium, 3M Lead High-Flying Stocks - TheStreet

BOSTON (TheStreet) -- The Dow Jones Industrial Average and S&P 500 Index rose less than 1% yesterday. These stocks hit 52-week highs.

3. Warner Chilcott

(WCRX)

rose 2.8% to $26.20.

Morgan Stanley

(MS) - Get Report

initiated coverage of the Irish drugmaker at "overweight." Warner Chilcott specializes in women's healthcare and skin products.

Snapshot

: Third-quarter net income climbed ninefold to $424 million, or $1.69 a share. Revenue grew 9% to $253 million. Warner Chilcott's gross margin widened from 81% to 84%, and its operating margin expanded from 30% to 38%. The company maintains a liquid balance sheet, with $754 million of cash and $380 million of debt. Over the past three years, Warner Chilcott has grown revenue 38% annually, on average, amid recessionary pressures.

Our take

: We rate Warner Chilcott "buy." Despite suffering a fourth-quarter loss of 46 cents a share in 2008, Warner Chilcott tripled its net profit over the past four quarters. The company has cut its debt load 63% since the year-earlier period and increased cash reserves by $740 million. Shares have rallied 80% this year, more than major U.S. indices. Despite the outperformance, the stock is cheap, trading at a forward price-to-earnings ratio of 11.

2. Agrium

(AGU)

climbed 4% to $64.28. The Canadian fertilizer company was upgraded at

UBS

(UBS) - Get Report

on Monday and at

BMO Capital Markets

(BMO) - Get Report

on Tuesday. Agrium is attempting to purchase

CF Industries

(CF) - Get Report

, which is bidding on

Terra Industries

( TRA) to try to preserve its independence.

Snapshot

: Third-quarter profit plummeted 93% to $26 million, or 16 cents a share, as revenue dropped 41% to $1.8 billion. Agrium's gross margin fell from 34% to 22%, and its operating margin decreased from 23% to 3%. Agrium has an adequate liquidity position, reflected by its quick ratio of 1.2. Its 0.4 debt-to-equity ratio is below the industry average, indicating restrained leverage.

Our take

: We rate Agrium "buy." Despite rapid margin deterioration over the past year, Agrium is a compelling long-term investment since food is unlikely to decline in appeal. As the chart above demonstrates, Agrium is cheaper than its average peer based on our valuation measures. However, its shares have a beta of 1.4, so they tend to rise and fall more than the overall market.

1. 3M

(MMM) - Get Report

gained 3.4% to $79.74. The St. Paul, Minn.-based conglomerate was upgraded to "buy" at

Citigroup

(C) - Get Report

. 3M makes office products and medical supplies, among other things.

Snapshot

: Third-quarter net income declined 3% to $957 million, or $1.35 a share. Revenue decreased 6% to $6.2 billion. 3M's gross margin advanced from 53% to 54%, and its operating margin widened from 23% to 24%. About $3.9 billion of cash and a quick ratio of 1.3 demonstrate adequate liquidity. A debt-to-equity ratio of 0.5 indicates conservative leverage.

Our take

: We rate 3M "buy." 3M is expensive relative to its average industrial conglomerate peer based on trailing earnings, book value, sales and cash flow. But shares are inexpensive when considering projected earnings. As the chart above outlines, 3M's return on equity consistently beats the industry average and the S&P 500 average. Investors taking a defensive posture should consider 3M.