10 Companies That Prove Stock Picking Is Still Alive

BOSTON (TheStreet) -- Many individual investors have made it clear they're no longer interested in stocks, as they're stampeding out of the market directly or via mutual fund redemptions in favor of the relative safety of U.S. bonds.

But that may be short-sighted, because for those willing to do homework and take on some risk, the rewards are there.

With a conservative bent in mind, I screened Morningstar's database for the 10 top-performing U.S. stocks this year with a three-year track record of relatively steady appreciation belonging to companies with market values of at least $10 billion and solid fundamentals.

Their returns this year range from the 57% of corporate information-data-services provider Teradata ( TDC), to 149% for drug designer and manufacturer Regeneron Pharmaceuticals ( REGN). Four of the 10 have more than doubled this year.

There is seemingly no common denominator to their success as they are an eclectic bunch and include a paint maker, a retail clothing chain, two drug makers, two financial companies, a telecommunications firm and three technology firms, including the world's most valuable company ever, Apple ( AAPL), given its $621 billion market value as of yesterday.

Surely these companies are benefiting from investors' efforts to avoid European exposure, given the ongoing sovereign debt problems there, and minimize risk by going with a proven, large-cap winner.

But given the run-up in their shares, some may now expect that most have sky-high valuations and not much room left to run.

But, apparently, that's not the case, as analysts remain bullish on most of them. Apple, for example, has 34 "buy" ratings from analysts, and Regeneron, despite its 149% return, still garners eight "buys" from the 18 analysts that follow it, while three of the companies on this list have 10 analysts' "buy" ratings on them.

And to sweeten their appeal, several of these companies pay dividends, led by computer hard-disk maker Seagate Technology's ( STX) 3.59%.

Here are summaries of the 10 top-performing U.S. large-cap stocks this year, in inverse order of their year-to-date return:

10. Teradata ( TDC)

Company profile: Teradata, with a market value of $13 billion, is a 32-year-old IT company focused on developing and commercializing data warehousing services to the world's largest 3,000 organizations. It was spun off from NCR Corp. in 2007.

Investor takeaway: Its shares are up 57% this year and have a three-year, average annual return of 43%. Analysts give its shares six "buy" ratings, seven "buy/holds," and seven "holds," according to a survey of analysts by S&P.

S&P has it rated "hold," based on valuation, but adds that "we continue to see many positives for the company." Analysts' consensus estimate is for earnings of $2.80 per share this year, growing by 14% to $3.19 per share next year.

9. Discover Financial Services ( DFS)

Company profile: Discover Financial, with a market value of $19 billion, issues credit cards and acquires transactions. It operates a closed-loop credit card network and also uses third parties to issue its cards. The company's sales growth has averaged about 2% a year over the past 14 years.

Dividend Yield: 1%

Investor takeaway: Its shares are up 58% this year and have a three-year, average annual return of 47%. Analysts give its shares 10 "buy" ratings, six "buy/holds," and eight "holds," according to a survey of analysts by S&P.

In March, the company announced a strategy shift toward becoming a more full-service direct-payments provider. Morningstar says the trend of moving from cash and checks to electronic payments, such as credit or debit cards, "is a major tailwind for Discover."

8. Sherwin-Williams Co. ( SHW)

Company profile: Sherwin-Williams, with a market value of $14 billion, makes paints, coatings and wall coverings worldwide. It is the U.S. market leader, with a 30% share.

Dividend Yield: 1.09%

Investor takeaway: Its shares are up 59% this year and have a three-year, average annual return of 34%. Analysts give its shares one "buy" ratings, one "buy/hold," 11 "holds," and one "weak hold," according to a survey of analysts by S&P.

S&P has it rated "sell" given its high valuation as it has a $112 price target on it, but its shares are at $140. 67. Earnings are strong as analysts' consensus is for $6.36 per share this year, and that they will grow by 19%, to $7.59, next year.

7. Apple ( AAPL)

Company profile: Apple, with a market value of $621 billion, designs and makes consumer electronic devices, including PCs (Mac), tablets (iPad), phones (iPhone) and portable music players (iPod). Its iTunes online store is the largest music distributor in the world; it sells and rents TV shows and movies, and sells applications for the iPhone and iPad.

Dividend Yield: 0.4%

Investor takeaway: Its shares are up 61% this year and have a three-year, average annual return of 60%. Analysts give its shares 34 "buy" ratings, 15 "buy/holds," three "holds," and two "sells," according to a survey of analysts by S&P.

S&P has it rated "buy" with an $800 price target, a 23% premium to the current price. S&P says its projected earnings growth, large cash position, strong free cash flow generation and relatively high return on equity, continues to make the shares "attractive."

Morningstar analyst Michael Holt writes that, although the company's recent third-quarter results were below expectations "because of an unexpectedly sharp drop in iPhone shipments, we believe the headwinds are primarily short-term in nature and product-cycle driven." He also said that long-term, that "as users become more tethered to Apple's iOS ecosystem rather than a specific device, integrating additional Apple devices into users' routines becomes seamless."

6. Vertex Pharmaceuticals ( VRTX)

Company profile: Vertex Pharmaceuticals, with a market value of $12 billion, is a biopharmaceutical company that uses structure-based drug design to discover and develop small molecule therapeutics for the treatment of a wide range of diseases, including hepatitis C and cystic fibrosis.

Investor takeaway: Its shares are up 65% this year and have a three-year, average annual return of 17.5%. Analysts give its shares 10 "buy" ratings, nine "buy/holds," and six "holds," according to a survey of analysts by S&P.

S&P has it rated "buy" with a $62 price target, a 13% premium to its current price. Analysts' consensus estimate is for earnings of $1.82 per share this year, growing by 2% to $1.86 per share next year.

5. Regions Financial ( RF)

Company profile: Regions Financial, with a market value of $10 billion, and with $122 billion in assets, is a financial holding company that operates 1,800 banking offices in 16 states mostly in the Sunbelt. Its operations include banking, brokerage and investment services, as well as mortgage banking and insurance brokerage.

Dividend Yield: 0.56%

Investor takeaway: Its shares are up 67% this year and have a three-year, average annual return of 11.5%. Analysts give its shares three "buy" ratings and four "holds," according to a survey of analysts by Morningstar. S&P has it rated "hold," with an $8 price target. Its shares are currently at $7.16.

4. Gap Inc. ( GAP)

Company profile: Gap, with a market value of $17 billion, is a specialty apparel retailer that operates Gap, Banana Republic and Old Navy stores. They sell casual clothing to moderate, upscale and value-oriented consumers. The company operates more than 3,000 corporate-owned stores throughout the U.S., Canada, Western Europe and Japan, and 250 franchise stores internationally.

Dividend Yield: 1.32%

Investor takeaway: Its shares are up 107% this year and have a three-year, average annual return of 39%. Analysts give its shares seven "buy" ratings, four "buy/holds," 14 "holds," one "weak hold," and four "sells," according to a survey of analysts by S&P. Analysts' consensus estimate is for earnings of $2.07 per share this year, and growth of 11% to $2.30 next year.

S&P reiterated its "sell" rating last week, noting the valuation, which it says indicates investors are assuming a second-half turnaround for retail sales that might come. But in July, Gap posted 10% higher same-store sales and 12% higher total sales.

3. Seagate Technology ( STX)

Company profile: Seagate, with a market value of $15 billion, manufactures hard disk drives used in computer servers, PCs, laptops and personal-entertainment players. Of the company's revenue, 65% to 75% comes from original-equipment manufacturers.

Dividend Yield: 3.59%

Investor takeaway: Its shares are up 122% this year and have a three-year, average annual return of 46%. Analysts give its shares seven "buy" ratings, two "buy/holds," 11 "holds," one "weak hold," and two "sells," according to a survey of analysts by S&P. Analysts' consensus estimate is for earnings of $7.54 per share this year and a decline of 9% to $6.87 per share next year.

S&P analysts recently lowered the firm's opinion on the shares to "buy" from "strong buy," on valuation concerns (the shares are now at S&P's 12-month price target of $35), but it says "we still believe it has strong fundamentals."

2. Sprint Nextel ( S)

Company profile: Sprint Nextel, with a market value of $15 billion, is the third-largest wireless carrier in the U.S., serving 48 million customers directly and 8.4 million via resellers, using two separate nationwide networks.

Investor takeaway: Its shares are up 122% this year and have a three-year, average annual return of 11%. Analysts give its shares 10 "buy" ratings, seven "buy/holds," 16 "holds," two "weak holds," and three "sells," according to a survey of analysts by S&P.

UBS Securities upgraded it to "buy" from "neutral" at the end of July (the same rating as S&P) after second-quarter earnings indicated a significant increase in the outlook for EBITDA (earnings before interest, taxes, depreciation and amortization) and free cash flow over the next three years is warranted.

1. Regeneron Pharmaceuticals ( REGN)

Company profile: Regeneron, with a market value of $13 billion, develops products that fight inflammation, cancer and eye disease.

Investor takeaway: Its shares are up 149% this year and have a three-year, average annual return of 86%. Analysts give its shares eight "buy" ratings, three "buy/holds," and seven "holds," according to a survey of analysts by S&P.

S&P has it rated "hold" because it sees "modest upside" for its shares given their run-up, which has been driven by strong demand for its new product Eylea. That drug has been FDA-approved for the treatment of wet age-related macular degeneration. For fiscal 2013, analysts estimate earnings per share will grow by 33% to $4.70.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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