Standard & Poor’s begins with about 1,500 equities, and isolates some 125 as its 5-star best buys. From these, it selects a "Top 10 Portfolio," featuring those stocks offering the best total return potential. Here, Stephen Biggar describes the "finalists."

"We do very rigorous analysis on the companies and industries we cover, both qualitative and quantitative. We look at stocks in three fundamental ways. Our first is intrinsic value analysis, which is generally referred to as discounted cash flow. In our view, cash is king. Second is relative valuation. These metrics are generally those that are most appropriate for that specific industry based on what typically drives a particular company to excel within its peer group. Lastly, we look at the sum of the parts. This generally works well when you have a company that is not readily comparable to many peers. Our overall investment theme is growth at a reasonable price; we like stocks where the p/e multiple is less than the growth rate.

"We cover about 1,500 companies and only 8% to 10% at any given time are in the strong buy category. These 5-star stocks have consistently outperformed the S&P 500 for over 18 years, with an average annual return of 16% vs. 8.9% per year for the overall index. Our Top 10 portfolio was launched back in Dec. 31 2001. Since inception it has increased 15.2% while the S&P 500 index during the same time period gained less than 1%. This portfolio represents the stocks that we believe have the best total return potential.

"The first stock is Burlington Northern (BNI NYSE) a large-cap company, operating the second largest US rail system, mostly in the Midwest and West. They deliver about 45% of the rail traffic out there. They ship a lot of coal, which has seen strong demand. We see economic growth driving increased manufacturing output still, although at somewhat reduced rates. And higher retail sales clearly help this group. Its quality rank is A- and we expect double-digit growth in revenues for the year ahead. It has a very strong balance, which should help it ride out any economic storms.

"Cooper Cos. (COO NYSE) is a small-cap company that produces specialty healthcare products. It is the lesser-known rival of Bausch & Lomb, and is involved in the contact lens market. Its quality rank is B, with a very strong track record of growth, which we do see continuing based on new product flow and acquisitions. The company generates substantial free cash flow growth and has a very strong balance sheet with little to no debt.

"Covance (CVD NYSE) is a mid-cap company, which is a leading research contract organization. They do a wide range of development services in the biotech, biopharmaceutical, and medical device industries. It is very rapidly growing sub-industry of the healthcare group. The company doesn’t have a quality ranking, as that requires ten years of history. Thus far, however, it does have a strong track record, is a strong cash flow generator, with a strong balance sheet with little to no debt.

"FMC Corp. (FMC NYSE) is a mid-cap stock. It is a diversified product of industrial and agricultural specialty and chemicals. It is very well diversified with global operations. Selling prices and profit margins should benefit from strong global demand. Wee see double-digit earnings growth continuing. This is a B- ranked stock. It shows high and rising free cash flow and very stable finances.

"Guitar Center (GTRC NASDAQ) is a small cap. The firm is the leading US retailer of guitars, amplifiers, and other musical instruments. When we look in our small-cap and emerging growth sectors, we try to find companies that have a niche in segments or industries in which consolidation can take place. This company operates in the very fragmented music-store industry, where the top ten players in this space only have about 24% of the market, so there is plenty of opportunity for the company to expand and find new opportunities. We see double digit sales and earnings continuing. It also has less than a ten-year history for a quality rank, but it does have rising free cash flow and very strong margins and a stable debt picture.

"Ingersoll Rand (IR NYSE) is a large-cap company that makes a wide range of construction, commercial, and industrial equipment. They are emphasizing new products, with strong growth in the security and safety business for example, which is benefiting from the post 9/-11 environment. The firm shows solid income and revenue growth. It is an A quality ranked stock, with rising return on investment capital, and a strong balance sheet.

"International Speedway (ISCA  NASDAQ), a mid-cap company, promotes NASCAR racing. They have a long-term agreement with Nextel, which we think is going to do a lot to promote the sport and raise the company’s profile over the next few years. It is ranked A- and we see revenues up about 16% in fiscal 2005. Broadcast revenues are up quite a bit, based on a better deal for corporate sponsorship. There are attractive demographics and underserved markets, such as New York, where they are considering opening a new facility.

"Landstar Systems (LSTR NASDAQ) is a small-cap company in the trucking area, with a unique, non-asset based business model. The firm doesn’t own the equipment. They use independent drivers who are responsible for their own insurance and operating costs. That allows them to be very efficient, even in an industry downturn. They compensate the drivers with a percentage of revenues generated per load rather than at a fixed rate per mile that you would get if you owned the equipment. We think the stock should trade at a premium to the trucking group. It is a strong cash flow generator with a strong balance sheet.

"Lennar (LEN NYSE) is a mid-cap homebuilder, focused mostly on modestly priced homes. We see revenue growth of about 20% in fiscal 2005, split about evenly between the numbers of homes sold and price increases. It has a quality rank of A-. Although rising rates is a modest negative, the general outlook for homebuilding company is favorable, unless mortgage rates get above 7% or so. Demographics and less cyclicality for the company of late should continue to propel earnings.

"St. Jude Medical (STJ NYSE) is a large-cap company in the healthcare sector. It is the leading maker of mechanical heart valves, pacemakers, and defibrillators. It is coming out with new products that are generating strong sales. It has a quality rank of B and generates very strong free cash flow growth, a strong balance sheet, and a market cap of about $14 billion."