Markets for the most part have held up. There are a couple of weak areas. The NQ has lagged both the...
Standard & Poor's: Biggar's Best
08/15/2003 12:00 am EST
Standard & Poor's represents the very best on Wall Street--high quality research and an equally strong focus on integrity. Stephen Biggar is group head of research in the equity department of S&P and a contributor to The Outlook. In a special panel at The Atlantic City Money Show, he shared his current top stock picks.
"I’d like to talk a little about portfolios and diversification. A lot of people would just assume that if you have many stocks in your portfolio that you are well diversified. But we think that portfolios should be diversified both by industry and by company exposure. If you have any overweighting in any one particular stock, you would have company risk and if you are overweighted in particular areas, you have sector risk. We try to take a balanced approach to these recommendations.
"One media related issue we like is Comcast (CMCSA NASDAQ), the cable television system operator. We think that investors are gaining confidence in the AT&T Broadband acquisition. We think that high speed data–which is really the sweet spot in cable right now as consumers want faster access to the Internet–is creating more opportunities for them to bundle their services. We think that that helps limit 'subscriber churn' as they might otherwise go to different providers for services such as DSL.
"On the retail side we like Staples (SPLS NASDAQ), the office products superstore. They have catalog and contract stationery as well. We like their exposure to key metro markets and their small business customer base is one area of growth in the economy. We like their current move to revamp stores, with better lighting and better materials. This new format has helped them rebound in some high ticket items such as computers.
"Also on the consumer side, we like Black & Decker (BDK NYSE), the producer of power tools, hardware, and home improvement products. They are gaining share in some key markets through both the introduction of new products and some acquisitions. On a valuation basis, the stock is trading at 11 times earnings, which is a sharp discount to the company’s peer group, as well as the S&P 500--and at the low end of its historic p/e range.
"Moving over to healthcare, we are partial toward specific sub-sectors. We like that the FDA is creating a more streamlined approach to drug approvals. On the managed care side, we like the current rising spreads between premium rates and costs. Within the healthcare group, we favor medical device stocks such as diagnostics which are definitely benefiting from demographics and the aging population. Among the names we like in this area is Boston Scientific (BSX NYSE), which makes minimally invasive medical devices including the development of stents.
"In the biotech area we like Amgen (AMGN NASDAQ); the firm has treatments for anemia and arthritis. Also sales of agents to fight chemotherapy-induced infections have been quite strong. They also have a growing share in the market for treatments for kidney failure as well as oncology. We see a 24% earnings growth rate next year. We think that on a price to growth basis, the stock is currently undervalued.
"In picking these stocks, we tend to look for catalysts. What is the market missing? We look at valuations, growth at a reasonable price, and compare valuations to other benchmarks, industry peers, and a company’s historical valuation. We look at insider buying and selling and a variety of technical factors. We also take a very strong look at earnings quality and other balance sheet issues. In a downturn, that is extremely important. Indeed, during the recent decline in interest rates, companies with good credit have been able to refinance their debt at much lower rates. As we come out of a downturn, these companies will be much better positioned."
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