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McDonald's, DirecTV, Colgate: Top 5 Stocks

Medco Health Solutions, Colgate-Palmolive, DirecTV, McDonald's and General Mills are rated 'buy.'
Author:

BOSTON (

TheStreet

) -- Blue chips have led the stock-market rally since the fall. Investors' preference for stable companies with strong growth prospects could keep large-caps climbing into next year. Here are five stocks that would benefit.

5. Medco Health Solutions

(MHS)

is a pharmacy-benefits manager.

The numbers

: Third-quarter net income increased 13% to $336 million and earnings per share climbed 19% to 69 cents. Revenue grew 18% to $15 billion. Medco's gross margin remained steady at 7%, and its operating margin was unchanged at 4%. A quick ratio of 1 reflects adequate liquidity. A debt-to-equity ratio of 0.7 indicates reasonable leverage.

The stock

: Medco has advanced 54% this year, outpacing major U.S. indices. The stock trades at a price-to-earnings ratio of 26, a premium to the market and health-care-service peers. Medco doesn't pay dividends.

4. Colgate-Palmolive

(CL) - Get Colgate-Palmolive Company Report

sells personal products, including toothpaste and soap.

The numbers

: Third-quarter net income rose 18% to $591 million, and earnings per share climbed 19% to $1.12. Revenue remained flat at $4 billion. Colgate-Palmolive's gross margin expanded from 59% to 61%, and its operating margin stretched from 21% to 24%. A quick ratio of 0.7 indicates less-than-ideal liquidity. A debt-to-equity ratio of 1.1 reflects higher-than-ideal leverage.

The stock

: Colgate-Palmolive has returned 21% this year, beating the

Dow Jones Industrial Average

, but trailing the

S&P 500 Index

. The stock trades at a price-to-earnings ratio of 20, indicating parity with the market, but a premium to household-products peers. The shares pay a 2.1% dividend yield.

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3. DirecTV

(DTV)

provides satellite television.

The numbers

: Third-quarter net income increased marginally to $366 million, and earnings per share climbed 12% to 37 cents. Revenue grew 10% to $5.5 billion. DirecTV's gross margin declined from 50% to 49%, but its operating margin remained steady at 13%. A quick ratio of 1.1 demonstrates adequate liquidity. A debt-to-equity ratio of 1.7 reflects excessive leverage.

The stock

: DirecTV has rallied 48% this year, outpacing major U.S. indices. The stock trades at a price-to-earnings ratio of 26, a premium to the market and cable-and-satellite peers. DirecTV doesn't pay dividends.

2. McDonald's

(MCD) - Get McDonald's Corporation (MCD) Report

sells hamburgers, soft drinks and other food products.

The numbers

: Third-quarter net income increased 6% to $1.3 billion, and earnings per share climbed 10% to $1.15. Revenue declined 4% to $6 billion. The company's gross margin rose from 43% to 45%, and its operating margin increased from 28% to 31%. A quick ratio of 0.9 reflects less-than-ideal liquidity. A debt-to-equity ratio of 0.8 indicates reasonable leverage.

The stock

: McDonald's has inched up 1% this year, lagging behind major U.S. indices. The stock trades at a price-to-earnings ratio of 16, a discount to the market and restaurant peers. The shares pay a 3.5% dividend yield.

1. General Mills

(GIS) - Get General Mills, Inc. (GIS) Report

sells cereal and other food products.

The numbers

: Fiscal second-quarter profit increased 50% to $566 million, or $1.66 a share. Revenue inched up 2% to $4.1 billion. The company's gross margin jumped from 33% to 46%, and its operating margin widened from 12% to 22%. A quick ratio of 0.6 reflects poor liquidity. A 1.1 debt-to-equity ratio indicates sizable leverage.

The stock

: General Mills has advanced 15% this year, less than major U.S. indices. The stock trades at a price-to-earnings ratio of 14, a discount to the market and packaged-food peers. The shares pay a 2.8% dividend yield.

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