Each weekday, TheStreet.com Ratings compiles a list of the top 10 stocks in five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap -- and publishes these lists on the Ratings section of our Web site.The rankings are based on our ratings, which assess risk-adjusted returns, as well as other criteria specific to the type of stock. We update the lists at the end of the business day on the basis of information available at the close of the previous trading session. The following day, we publish an article that takes a closer look at the ratings of the stocks on one of the lists. Today we look at large-cap stocks. These are companies with market capitalizations of over $10 billion that rank in the top 50% 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 IBES. They are ordered by their potential to appreciate. Defense contractor Lockheed Martin ( LMT) tops this week's list. The company has had a buy rating since November 2004 thanks to strong financial performance, growing demand for its commercial satellites and advanced defense systems, and an expanding product base. The company has increasingly sought civilian contracts in air traffic management and IT outsourcing as it seeks to lessen its reliance on the U.S. government. Lockheed has also focused on international expansion through acquisitions and contracts with India and Pakistan, countries that are ramping up their military spending.
Allegheny Technologies ( ATI) deals in specialty metal production and has retained its buy rating since July 2005. The company's margins are increasing and there is steady demand from customers in aerospace, oil & gas, chemical processing and medical equipment industries. As a result, Allegheny has recently been trading at its 52-week high. Further success relies on sustained cost reductions, continued growth opportunities for specialty metals and the successful expansion of its titanium facility in Rowley, Utah, a $325 million investment to bolster production for aerospace and defense clients.
Blackrock ( BLK), an asset management company, has earned a buy rating since January 2005. Though the company's stock price is well above its industry peers, we believe its considerable strengths -- expanding profit margins, small debt-to-equity ratio and stockholders' equity increasing 1,123.17% from the same quarter last year -- validate the high price level. Keep an eye on Blackrock's return on equity, which has plummeted when compared to the same quarter in 2005 and an indication of potential weakness inside the company.
Rated a buy since November 2004, strong demand for computer maker Hewlett-Packard's ( HPQ) products has created robust top line growth. Also due to successful cost-cutting measures, H-P tallied very strong earnings growth (1500%) and net income percentage increase (1783.6%) in third-quarter 2006 compared to the previous period a year ago. Given the fierce competition in the laptop, desktop and printer markets from rivals like Dell ( DELL) and Lexmark International ( LXK), H-P will continue to face constant pricing pressure and will likely need to cut prices to preserve its formidable market share.
Rated a buy since November 2004, Danaher's ( DHR) industrial and consumer instruments, technologies and tools products have created strong core revenue growth and allowed key acquisitions. Though its returns are down of late, the company's recent cost-cutting measures deserve commendation and should position the company for smoother operations going forward. Total revenue grew by 20.2% to $9.6 billion in 2006, aided in no small part by the acquisition of eight businesses in the year's first nine months alone. Possible risks include poor liquidity for short-term cash needs, sagging return on equity and return on assets figures, and obstacles in the integration of recently acquired vision care company Vision Systems.
Iconic burger-flipper McDonald's ( MCD) has had a buy rating since August 2004. The company had a banner year in 2006 due to continued international expansion, opening new locations and renovating old ones, and a fourth-consecutive year of strong revenue growth and higher profitability. Looking to quell criticism about health concerns caused by its food, the company recently announced that it will be phasing out trans fats from its menu.
Rated a buy since September 2004, Lincoln National ( ( LNC) runs insurance and investment management businesses through its various subsidiaries. Acquiring Jefferson-Pilot Corporation (JP) in April 2006, one of the largest life insurance companies in America, made Lincoln an industry leader across all of its product lines and should create annualized, pretax savings of $180 million beginning the third year of the acquisition. Lincoln's strong market share, cash flow, revenue growth and reliable demand from the Baby-Boomer generation position it for steady earnings growth. Potential risks to the buy rating include any adverse regulatory actions, any excessive decrease in the equity market that causes account values to decline, or unanticipated integration problems related to the JP acquisition.
Franklin Resources ( BEN), offering investment advice and management to open-end investment companies, has been rated a buy since July 2005. With the continuously strong performance of its core group of retail mutual funds, steadily improving profitability and growing global asset management market share (particularly in emerging markets), Franklin's earnings per share increased 16.4% last quarter and shows little sign of slowing.
Department store retailer Nordstrom ( JWN) has had a buy rating since December 2004. Positives include revenue growth and profit margins that outpace the industry average, a notable record of earnings-per-share growth over the past two years and consistently strong stock-price performance. The all-important holiday season was a merry one for Nordstrom, with December store sales up 9%, well above the 4.3% forecast. With a favorable outlook for the labor market and consumer confidence levels high, Nordstrom's variety of different merchandise and established niche in the retail sector position it for continued success. Barring a slowdown of the economy, the lack of glaring weaknesses suggests that the company will continue to outperform its peers.
With a buy rating since March 2006, telecom giant AT&T ( T) has been banking on strong growth in its wireless services to propel its revenue, which increased 23.1% to $15.89 billion in fourth-quarter 2006 vs. the same period a year ago. For the quarter, it showed a 17.1% profit increase and added 2.4 million net subscribers to its already sturdy customer base, mainly from its 60% stake in Cingular Wireless, which it will gain full control of after the completion of its merger with BellSouth ( BLS). AT&T announced a net income of $7.36 billion for FY2006. Though AT&T expects double-digit percentage EPS growth in 2007, uncertainty remains. Wire-line and cable competitors pose a constant pricing threat. Plus, possible integration hurdles or any delays in regulatory approval connected to the BellSouth merger could restrict growth potential in upcoming quarters.