Top 10 Large Caps In Our Radar






































StockMarket Cap Price Yield Profile Pros Cons
Costco (COST)29.26B67.40 0.86One of the largest membership based consumer shopping center. Trading only slightly below the peak of $70. Strong Balance Sheet. Relative affluence of Costco shoppers. A third of the stores are in California and so there is opportunity for store growth across US and internationally. Housing collapse could have a negative impact down the line.
Conoco Philips (COP)128B80.04 2.05Big integrated oil major. Trading at about 15% below the peak of $90. Proven reserves of 35B barrels. Burlington Resources acquisition should help it maintain 10% oil production growth. Trades at a revenue multiple of well below 1 – profit margin may be less compared to other oil majors. COP’s 12 US refineries are being upgraded. It is being preferred over other oil majors by a lot of Guru portfolios. This is one of Buffet’s relatively new holding. All oil companies are vulnerable to recession. Profit margins have been historically low compared to other oil majors and may remain so.
American Express (AXP) 68.97B58.98 1.22Large credit card issuer popular at best as a business expense card in corporate America. Trading at about 18% below the peak of $66. This should work well as a core defensive holding. Clientèle tend to be affluent with a spending mindset. It is one of Buffet’s big (18% of issued shares) long-term bets. The stock may see a little more downside as housing problems continue and credit card delinquencies keep rising. Slowdown in consumer spending is a big risk for all credit card companies and American Express is not immune to such a situation.
WellPoint Inc. (WLP) 48.11B84.21 NoneBlueCross/BlueShield licensee in several states. Also serving as Unicare and has a Medical insurance business. Prior to 2004, the company was known as Anthem. Trading slightly below the recent peak of 86. Baby boomer retirement should provide growth for the foreseeable future. The political inclination of giving people tax breaks for health insurance should also fuel growth. Health insurance premiums doubling every 7 years is a damper for future growth.
Home Depot (HD) 48.2B28.56 3.15World’s largest home improvement retailer. Housing woes have taken its toll on the stock. The stock trades at an attractive PE of 12.93 comparable to its projected growth rate. Extended downturn in housing is a big risk as growth is dependent on consumers buying and improving their property. The company has ambitious worldwide expansion plans and that has its associated risks.
Burlington Northern Santa Fe (BNI) 28.28B83.52 1.53One of the largest railroad companies in America. Railroads may have a cost-advantage going forward given the rising gas prices for truckers who is their primary competition. Recently Buffet started accumulating this and now holds 18% of the company. Downside risk if oil prices come down significantly.
Johnson Controls (JCI) 22.93B38.62 1.35 Operates in building energy efficiency (heating, ventilation and air-conditioning – HVAC); automotive (instrument panels and consoles) and power solutions (battery OEM and after market). Electric batteries and energy efficiency are growth areas. International expansion may become a growth opportunity eventually. Automotive unit growth is hard to come by. Since that low margin business accounts for a large portion of the revenue, profit margins for the whole company is affected.
Harley Davidson (HOG) 11.60B48.02 2.50Produces heavyweight motorcycles, parts, accessories, clothing, and collectibles under the Harley Davidson and Buelle brand names. Additionally, it also has a financial services wing which provides wholesale financing to dealers and retail financing in the form of installment lending to new and used motorcycle owners. Trading well down from 76 after warnings about slowing sales volumes.It is a proxy for investing on US consumer spending. International expansion is a nascent growth opportunity.Significant sub-prime exposure in the Harley Davidson Financial Services (HDFS) business.
Moody’s (MCO) 9.73B37.66 0.85Debt rating, Issuer rating and certain other associated products. The stock is down from $70 amid concerns regarding conflict of interest. The issue at stake is the accuracy of ratings given to mortgage backed securities offerings in the wake of the sub prime meltdown.The business is a monopoly overseen by Nationally Recognized Statistical Rating Organization (NRSRO). Resolutions on the conflict of interest issue gaining ground are favorable to the company:
· Requiring underwriters of mortgage securities to use a third-party reviewer to ensure information on loans given to investors is accurate.


Requiring workers at rating agencies to have a stipulated waiting period before they commence working at investment banks.
Senators questioned the business model as the debt issuers paying the rating agencies are like a film production company paying a critique to review the movie and then using the review in advertisements. The resolution should be to force the business model to be investor funded. NRSRO is also a source of the problem as Moody’s is not penalized for rating inaccuracy – a free market model that enforces accountability is the solution. It is unlikely that these changes will happen but the risk does exist.
The AES Corp. (AES) 14.62B21.85 NoneGlobally diversified electric utility. Active in both power generation and distribution. Wind farms and green house gas emission offset projects along with the global reach should allow sustained growth. The global business expansion almost resulted in a bankruptcy in the 2002 timeframe. AES Analysis says 20% growth may be conservative - a risky investment for a utility.



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