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Sam Stovall is the
chief investment strategist at the highly prestigious Standard
& Poor's, and a member of the S&P policy committee
where he focuses on market history, valuations, and industry
recommendations. Here, he looks at some favorite ideas
"The common factor
in these recommendations is that each of them earns earns S&P's
highest 5-star buy rating.
In addition, each of these stocks also have very high quantitative
rankings. Each one comes from an industry that has good relative momentum and
each of the industries in which these companies are found has a positive
investment outlook.
"Coach (COH NYSE) is in the consumer
discretionary category. The firm makes and markets handbags and apparel items for both men
and women. Our price target is $44. Last year, the company earned 68 cents. We
think it will earn $1 this year and up to $1.30 next year. It has a little bit
of a pricey p/e at 27, yet that is well below the average we’ve seen over
the past five years. The company has given very good guidance, and we
are very enthusiastic about their new product line-up and their efforts to
continue to grow their market share.
"Nabors Industries (NBR ASE) is the world’s largest oil and gas land
driller. Our target price is $78. The company earned $1.92 last year. We think
it will earn $3.88 this year and $4.83 next year. It’s trading at a below market
p/e of 16.9 times 2005 earnings. Our feeling is that there is still upside
potential for drilling companies, not only in the greater efficiency of the rigs
that are in use, but also the increase in capital expenditures that we foresee
for the majors. We see an increase in gas drilling in the US and oil drilling
internationally.
"CIT Group (CIT NYSE) has been around since 1908.
It was owned by Tyco and then recently spun off. It engages in all
types of commercial and consumer financing. Its target price is $55 a share. It
earned $3.50 last year and we think it will earn $4 this year and $4.50 next year.
Its p/e is 11. Basically, this company is a steady-eddy. We think it
will continue to post earnings growth, with very reasonable valuations. We believe
that when the Fed does finish tightening rates, financials will start to come
under greater appreciation by investors. And a very low p/e makes this stock even
more attractive.
"WellPoint (WLP NYSE) is in the managed health care area, and
serves 28 million members. We have an $88 per share target. It earned $3.05 last
year. We think it will earn $4 this year and $4.65 next year. It’s trading at
17.7 times earnings, even though it’s had a very good run recently. We think
that consumers will go to this company because of their long-standing reputation
and thus they will be attracting additional members. Because this employment
picture is improving, this will benefit the health care management
organizations. And because of its size, they have a greater ability to reduce
costs and improve margins.
"Citrix Systems (CTXS NASDAQ) is a leading developer and supplier of
access infrastructure software and services. What the heck is that? Basically,
what they do is make products that allow employees to access a company’s systems
from remote locations anywhere in the world from a landline or a wireless
situation. This allows either customers or employees to access a secure system.
Our target is $29. They earned $0.75 per share last year. We expect it to post
$1.04 this year and $1.23 in 2006. It’s trading at a p/e of 23. In general,
we’re expecting technology spending to be improving both this year and next and
we’re looking for revenue increases in the high teens for this
company."
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