The Top 500: All-Star Stocks

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From the December 2014 issue of the magazine.

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Double-A stocks

We congratulate PulteGroup and Valero Energy for taking home the double-A prize this year. As it happens, Valero was also highly ranked last year.
PulteGroup (PHM) is a large home builder that operates in about 50 major metropolitan markets and calls Atlanta its home. The firm is still recover- ing from the 2008 downturn, which hit the U.S. real estate and financial markets hard. Despite the slow recovery, PulteGroup returned to profit- ability in 2012, started paying dividends again in 2013, and appears to be on the road to better times. Valero Energy (VLO) owns 15 petroleum refineries and sells transportation fuels in more than 7,400 retail outlets. It operates in the U.S. and the U.K., and many Canadians will recognize its Ultramar stations. The firm has an excellent long-term growth record but it ran into a rough patch in 2008. Since then it has returned to profitability and pays a higher dividend than it did before the crash.

The All-Star team

The double-A stocks are joined by 27 other firms that earned at least one A and one B to form this year’s All-Star team. Not counting the double-A stocks, eight got top marks for value and the other 19 are top growth candidates.
The value side of the All-Star list contains AGCO (AGCO), Ameren (AEE), Archer-Daniels-Midland (ADM), Goldman Sachs (GS), National Oilwell Varco (NOV), Old Republic International (ORI), Rock-Tenn (RKT) and WellPoint (WLP). AGCO makes agricultural machinery that it sells worldwide. Ameren is a large electric and gas utility based in St. Louis. Archer-Daniels-Midland is one of the world’s largest agricultural processors. Goldman Sachs is a giant investment bank that was bailed out by Warren Buffett in 2008. National Oilwell Varco provides equipment and services to oil and gas drillers both on land and offshore. Old Republic International is a property and casualty insurance company that saw its mortgage guarantee business go down in flames in the financial crisis. (I own a few of its shares.) Rock-Tenn makes corrugated and consumer packaging and operates in the U.S., Canada, Mexico, Chile, Argentina and China. Last but not least, WellPoint is in the managed health-care business.

The growth side of the All-Star list is packed this year. Airlines are quite popular with Alaska Air (ALK), JetBlue Airways (JBLU), and Southwest Airlines (LUV) all making it to the top of the class. They are joined by Northrop Grumman (NOC), which is a large aerospace defence contractor. Six insurance companies also made the grade including Allstate (ALL), American Financial Group (AFG), Assurant (AIZ), Hanover Insurance Group (THG), Lincoln National (LNC) and Travelers (TRV). (I happen to own Allstate myself.) DR Horton (DHI) is another All-Star home builder, and Lowe’s (LOW) is a big home improvement retailer. Cinephiles can save their movies on Western Digital’s (WDC) hard drives or get them delivered via FedEx (FDX). But they’d be wise to step away from the TV occasionally to refill their prescriptions at CVS Health (CVS) or shop at Dillard’s (DDS) department stores. Moving into the land of business services, Quanta Services (PWR) provides contracting services to the power and oil and gas industries. Core-Mark (CORE), a food wholesaler, and Jones Lang LaSalle (JLL), a property manager, round out the growth-oriented All-Star roster.

Before buying any stock on this year’s list, it’s important to know that they all come with some risk. While we believe our top stocks have what it takes to succeed, the future is far from certain and some of them will inevitably disappoint. There will also be periods—like the crash of 2008—when stocks generally do poorly.

Stock screens have their limitations. Make sure that a company’s situation hasn’t changed in some important way before investing. Read the latest press releases and regulatory filings. Scan newspaper stories and get up to speed on all of the most recent developments. As always, we endeavour to put you on a profitable path, but it’s wise to do your homework before you set out.

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Norm Rothery, PhD, CFA, is the founder of StingyInvestor.com. He may hold securities mentioned in the Top 200 and Top 500.

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