Portfolio Review

12/17/2012


The Quadrix Overall score is a key driver of our stock selections. But we will sometimes hold onto a stock after its score has dropped if we believe Quadrix doesn't fully reflect its merits, especially if we expect coming earnings reports to help push the scores higher.

Below we review five stocks we're keeping despite low Overall scores.

Express Scripts ($55; ESRX): Disappointing profit guidance sparked a share-price pullback, hurting the Earnings Estimates and Performance scores and driving the Overall score down to 54. We think management is being conservative, and the Buy and Long-Term Buy seems cheap at 13 times the current consensus for 2013 earnings.


Chevron ($108; CVX): Chevron, with a Value score of 79, trades at nine times trailing earnings, 39% below the sector median and 12% below the median for integrated oil companies. A blend of size ($212 billion stock-market value), diversified business mix, and yield (3.6%) gives the Buy and Long-Term Buy defensive appeal.


Google ($697; GOOG): In the wake of Google's May purchase of Motorola, its Momentum score of 48 understates true operating momentum. Google trades at 18 times trailing earnings, 16% below its three-year average P/E ratio. This Focus List Buy and Long-Term Buy should deliver double-digit profit growth over the next few years.


Intel ($21; INTC): We underestimated the weakness of personal-computer sales. So did Intel, which has posted three consecutive quarters of lower per-share operating profits. The Long-Term Buy could lag over the next year, but its dirt-cheap valuation leaves wide recovery potential over the next 24 to 36 months.


Visa ($149; V): Visa's Value score has dipped to 25, but its growth prospects are well-defined. A rally to $165 or $170 could cause us to reappraise Visa. But for now the stock qualifies as Buy based on its operating momentum.


Rank Changes

No rank changes were made this week in Dow Theory Forecasts.


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