3 Up And 1 Down

6/21/2010


McKesson ($70; MCK), a leading distributor of pharmaceuticals and surgical supplies, is being added as a Buy and a Long-Term Buy. McKesson enjoys strong earnings-estimate and share-price trends, and free cash flow has exceeded $7.40 per share over the past four quarters. Yet the stock trades at an attractive valuation versus its five- and 10-year norms. Like Focus List selection AmerisourceBergen ($32; ABC), McKesson should benefit from rising drug volumes and greater use of generic drugs. Unlike Amerisource, McKesson also has exposure to improving demand for medical-technology solutions, supported by this year’s health-care legislation. McKesson is a Buy and a Long-Term Buy.


Lubrizol ($90; LZ), which has posted strong results in the past two quarters, is being added to the Focus List. Profit estimates are rising, and with costs for raw materials easing and demand so far holding firm, estimates should remain on an upswing. Lubrizol, with a Quadrix Value score of 92, is a Focus List Buy.


General Dynamics ($67; GD) is being dropped from the Buy List and Long-Term Buy List. Looming cuts to defense spending have made the shares volatile. General Dynamics, with a Quadrix Value score of 91, already reflects plenty of uncertainty. But the company also suffers from choppy cash-flow trends and slowing operating momentum. General Dynamics is now rated B (average).


Raytheon ($53; RTN) is being removed from the Focus List but remains a Buy and Long-Term Buy. Of the major defense contractors, Raytheon appears best positioned to avoid defense-budget cuts, as its intelligence equipment plays a crucial role for war efforts in Afghanistan and the Middle East. No longer one of our favorite 12 to 18 stocks, Raytheon still ranks among our favorite 27 picks for 12-month gains and 34 picks for two- to four-year gains.

  RANK CHANGES

Newmont Mining ($56; NEM), Intel ($21; INTC), and Lubrizol ($90; LZ) are being added to the Focus List. Raytheon ($53; RTN) is being dropped from the Focus List but remains a Buy and a Long-Term Buy. McKesson ($70; MCK) is being initiated as a Buy and a Long-Term Buy. General Dynamics ($67; GD) is being dropped from the buy lists.


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