S&P: Award Winning Buys

06/06/2003 12:00 am EST

Focus:

Fourteen of Standard & Poor’s equity analysts were included in the 11th annual Wall Street Journal ‘Best on the Street’ analysts survey. Of these award-winning S&P analysts, five placed first in their industries. The firm’s excellent newsletter,The Outlook, covers the current favorite stocks chosen by each of the firm’s first-place honorees.

"Analyst Herman Saftlas selects AstraZeneca (AZN NYSE), a major UK-based pharmaceutical company has a solid lineup of new drugs. AstraZeneca is replacing its older, off-patent drug portfolio with a group of potential blockbusters. These include Nexium, which is used to treat heartburn symptoms and erosion of the esophagus caused by acid reflux. The FDA recently approved Iressa, a once-a-day pill that shrinks tumors and causes fewer side effects than conventional chemotherapy. We expect earnings to decline 7% this year. However, we estimate that per-share earnings growth could average 20% a year from 2004 to 2007 fueled by new products. The shares are selling at about a 15% discount to their intrinsic worth and merit accumulation.

"Analyst Robert Friedman selects Boeing (BA NYSE). Investors have fled the shares of this aerospace giant in droves. However, at current price levels, we believe the stock is oversold. This year, for the first time in Boeing’s 86-year history, the company’s commercial jet-manufacturing segment will account for less than 50% of revenues. For all of 2003, we expect Boeing’s military weapons segment to account for more than 52% of sales and for the lion’s share of our $3.12 per-share free cash flow estimate. In spite of this shift, most investors still seem to view Boeing primarily as a passenger-jet maker. We disagree. Our free cash flow model suggests the stock is worth $38 to $43 a share. We believe that the stock merits a strong buy recommendation.

"First Data Corp. (FDC NYSE) is the top choice of analyst Scott Kessler. "This provider of data processing services to credit and debit card issuers, as well as merchants, also operates Western Union, the world’s biggest non-bank money transfer business in terms of sales. Growth continues to be spurred by Western Union’s international operations, reflecting new locations as well as higher revenues from existing agents in fast-growing countries like China and India. Two recent developments should also help the company. In April, First Data announced the proposed acquisition of competitor Concord EFS in an all-stock transaction that we believe would bolster the company’s competitive position. Also, Visa and MasterCard settled a multi-billion-dollar lawsuit that will allow First Data to collect more in related fees. Trading about 19% below our estimate of their intrinsic value, based on discounted cash flow analysis, the shares are well suited for investors seeking capital appreciation.

"Flextronics International (FLEX NASDAQ) is the favorite of analyst Richard Stice. "Flextronics, the largest electronics manufacturing services provider, has been working to expand its offerings beyond the telecom area and to attract customers from other industries. The company is also continuing to reduce costs, in part by shifting the production of goods to low-cost regions like Asia, Eastern Europe, and Latin America. In fact, the company now generates about two-thirds of its revenues from these locations. At 26 times our fiscal 2004 earnings estimate of $0.38 per share, the stock sells at a discount to the S&P 500 on a p/e-to growth basis. Moreover, the company’s price-to-sales ratio is below that of its peers and its own historical average. Given Flextronics’ attractive market position, favorable industry trends and an appealing valuation, we recommend purchase.

Analyst Stewart Scharf says, "Pall Corp. (PLL NYSE) is a global provider of filters for the healthcare, aerospace, and industrial markets. The firm should benefit mainly from strength in biopharmaceuticals, as blood filter sales pick up. It should also benefit from growth in the food and beverage industries. In addition, we see a gradual global rebound in microelectronics. In 2002, the company acquired the filtration and separations group of Vivendi’s US Filter unit. We believe this will lead to significant cost cutting in fiscal 2003 and 2004. We also see cash being used for share buybacks. The stock trades at 18 times our fiscal 2003 estimate of $1.10, a modest premium to the projected multiples for the S&P 500 and Pall’s peers. We expect 14% earnings per share growth in fiscal 2004. We believe the shares are attractive for aggressive investors."

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