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
Top 5 Large-Cap Stocks
Emerson Electric ( EMR), a diversified technology company, has been rated a buy since December 2005. The company reported an 11.2% increase in third-quarter revenue to $6.13 billion, which was driven by double-digit sales growth from three of its five segments. Net income increased 18.4% to $574 million, or 78 cents a share, in the fourth quarter, driven by strong sales performance and a continued focus on cost reduction, which supported the margin. Higher net income boosted return on equity, which expanded 196 basis points to 23.43% in the fourth quarter compared with the same period last year, and return on assets, which improved 97 basis points to 10.85%.
Freeport-McMoRan Copper & Gold ( FCX) engages in the exploration, mining and production of copper, gold and silver. It has been rated buy since November 2005. Third-quarter net income increased by 129.1% to $838 million, or $1.85 a share. The company has demonstrated a pattern of positive EPS growth over the past two years, and this trend is expected to continue. Its third-quarter revenue rose 209.64% compared with the same period last year, supported by higher averaged realized gold and copper prices, up 13.8% and 2.9%, respectively. Freeport-McMorRan has significant development activities under way to expand its copper production capacity, extend mine lives and develop large-scale underground ore bodies. The company is also enjoying favorable industry trends, as the metals & mining industry has recorded steady growth in commodity demand over the past few years, resulting in price increases. Also, increased wealth in emerging economies like India and China could further enhance global demand for gold. In addition, the long-term outlook for copper remains strong. The stock is not risk-free. Any unexpected slowdown in copper demand could lead to an inventory pile-up and result in lower prices. This, when coupled with higher costs for consumables and energy, could further build pressure on Freeport-McMoRan's operating margin and impact its profitability.
Conglomerate Textron ( TXT), whose businesses include making Cessna airplanes and Bell helicopters, has been rated buy since January 2006 on the basis of its impressive growth in revenue, net income and return on equity. The rating is also supported by the company's sound cash position, strong guidance and encouraging business developing initiatives. Third-quarter profit climbed 51% over a year ago to $255 million, or 95 cents a share. The company raised its full-year 2007 revenue guidance to $13 billion, which would represent an increase of 13.3% over fiscal year 2006. Management also forecasts EPS from continuing operations to be in the range of $3.40 to $3.50, up 22 cents a share from prior expectations. Textron has agreed to acquire aeronautics and defense company United Industrial ( UIC) for about $1.10 billion. The company also has agreed to jointly bid on an Army contract to build light armored vehicles with aircraft maker Boeing ( BA). On the risk side, Textron is highly leveraged, with a debt-to-equity ratio of 2.72. A major portion of its revenue stream comes from sales to the U.S. government, so any unexpected governmental changes would adversely affect the company's future performance.
Entergy ( ETR), an integrated energy company, has been rated a buy since December 2005. The company's stock price went up by 16.8% in the 12 months prior to Dec. 17, and although even the best stocks can fall in an overall down market, in any other environment, the stock still has good upside potential. Third-quarter earnings rose 25.7% to $2.30 per share, up from $1.83 a share during the same period last year. Entergy has demonstrated a pattern of positive EPS growth over the past two years, a trend we believe will continue. The company also displays attractive valuation levels and a notable return on equity.
Coca-Cola ( KO) manufactures, distributes and markets nonalcoholic beverage concentrates and syrups worldwide. The company's third-quarter revenue jumped 19.2% to $7.69 billion compared with the same period last year, driven by an increase in concentrate sales, structural changes from acquisitions of certain bottlers and positive impact of foreign currency. Coca-Cola had strong growth across every segment, aside from its corporate division. Net income grew 13.3% to $1.65 billion, or 71 cents per share, in the third quarter, from $1.46 billion, or 62 cents per share, in the same period last year. The company is trying to leverage its strategic acquisitions and expansion of businesses. In the third quarter, Coca-Cola acquired a 34% interest in Tokyo Coca-Cola Bottling Company and 11% additional interest in Nordeste Refrigerantes. It also acquired 18 German bottling and distribution operations for $678 million in order to strengthen its operations in that market. The company is focusing on improving its speed and flexibility, driving supply chain efficiency. Still, Coca-Cola faces risks from diminishing margins and lower returns from assets and equity. Additionally, the cash position is deteriorating and its liquidity level is low. Moreover, any change in consumer preferences, and intense competition could hamper the company's growth prospects.