Focus on our best ideas

8/18/2008


Looking for a portfolio capable of beating the market in good times and bad? Check out our equal-weighted Focus List.

Our Focus List has substantially outperformed the S&P 500 Index. Since the Focus List’s inception on Dec. 23, 1994, it has gained 291%, more than 110 percentage points higher than the gain of the S&P 500. While the Focus List is down this year, it is on pace to beat the index for the fourth time in the last five years.

Nobody likes losing money, but we believe the stocks on the Focus List are poised to outperform during both up and down markets. Every stock in this fairly diversified portfolio seems capable of exceeding Wall Street expectations in coming quarters — and delivering strong capital gains over the next 12 months.

The Focus List contains our top 11 selections for 12-month gains. Most of them have outperformed the S&P 500 since we added them to the list, as shown in the table below.

ANATOMY OF THE FOCUS LIST
Eight of the 11 stocks on the Focus List have outperformed the S&P 500 Index since we added them to the list. On average, our top selections have outgained the index by 19%.
Performance
— On Focus List —
Company (Price; Ticker)
Date
Added To
Focus List
Price
Change
(%)
Price
Change
Minus
Change In
S&P 500
(%)
Trailing
P/E Ratio
Quadrix
Overall
Score *
Accenture ($41; ACN)
1/11/2007
10
20
17
97
BMC Software
($34; BMC)
12/13/2007
(3)
10
16
74
Freeport-McMoRan
($88; FCX)
12/15/2005
57
55
10
88
Harris ($49; HRS)
9/8/2005
26
22
15
90
IBM ($129; IBM)
5/15/2008
(3)
7
15
94
Lockheed Martin
($107; LMT)
9/7/2006
37
37
15
93
Manitowoc ($24; MTW)
10/4/2007
(50)
-33
7
92
Oceaneering Int’l
($59; OII)
10/12/2006
66
72
16
80
Qualcomm ($56; QCOM)
5/15/2008
20
30
25
88
St. Jude Medical
($48; STJ)
8/7/2008
(3)
-5
22
92
Transocean ($132; RIG)
10/4/2007
(22)
-5
11
99
Focus List average
12
19
15
90
* Quadrix scores are percentile ranks, with 100 the best.

Two of our favorite Focus List selections are reviewed in the following paragraphs.

Accenture ($41; NYSE: ACN) has delivered strong results in recent quarters, with per-share-profit growth of 34% in the year ended May. About 60% of revenue comes from consulting, with the rest from outsourcing. Both units enjoy robust sales momentum. The difficult economic climate is driving businesses to improve efficiency, and they are increasingly turning to Accenture to achieve that goal.

The company operates throughout the world — 150 offices in 49 countries — and serves clients in a variety of industry groups, limiting its dependence on the fortunes of any single industry. Consensus estimates have been trending upward over the last three months and project per-share-profit growth of 34% in the August quarter and 10% in fiscal 2009 ending August. Accenture, a Focus List Buy and a Long-Term Buy, seems capable of exceeding expectations over the next year.


Shares of Freeport-McMoRan ($84; NYSE: FCX) have fallen 22% since copper peaked on July 2, a period in which copper prices have dropped 17%. Fears of a global economic slowdown contributed to the copper-price decline, but demand for the metal should remain strong, particularly in developing countries working to expand their infrastructure. Futures markets project copper prices will fall no more than 5% over the next two years from current levels near $3.30 per pound.

Freeport expects copper supplies to remain fairly tight in coming months and plans to increase copper production at existing mines by 25% over the next 18 months. The company generates enough cash to fund a July dividend hike and increase share buybacks without stopping its aggressive payback of long-term debt. At seven times projected year-ahead earnings, Freeport, a Focus List Buy and a Long-Term Buy, looks cheap even if copper prices fall somewhat from current levels.


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