We all want the best in life, whether it's the best clothes, the best cars, the best houses, or the best stocks.
One way to find the best stocks is to look for companies that multiple analysts have picked to outperform. It's the analysts' job to rate companies based on their fundamentals, outlook, and valuation, so if several analysts have a buy rating on a particular stock, that might just mean it's a winner.
Take deep-sea oil driller Transocean (NYSE: RIG ) or pharmaceutical giant Johnson & Johnson (NYSE: JNJ ) , which both have 31 "outperform" calls from Wall Street analysts, according to Motley Fool CAPS. Check under the hood of these analyst ratings, and you do indeed find strong companies.
Despite a decrease in demand for oil and gas, Transocean is doing a good job of navigating through the financial storm. The driller recently reported first-quarter earnings that beat analyst expectations because of lower-than-expected operating costs. Dayrates are holding at historically strong levels in the $500,000 to $600,000 range. The company is reducing debt and also increased its cash balance in the first quarter. Cash flow from operations has steadily increased year over year and quarter to quarter, and management expects quarterly operating cash flow to continue to increase during 2009. In addition, Transocean shareholders just approved a share buyback program.
Johnson & Johnson is working on strengthening its pipeline as it braces for certain products losing patent protection. The company recently acquired Cougar Biotechnology, a developmental-stage biopharmaceutical company that focuses on oncology, which could be a boon for J&J. Cougar Biotechnology has a drug to treat prostate cancer in two phase 3 trials, as well as treatments in development for breast cancer and multiple myeloma (a cancer of the blood). In addition, the Food and Drug Administration recently approved J&J's drug Simponi for treating rheumatoid arthritis, among other conditions.
Benefiting investors, Johnson & Johnson recently increased its quarterly dividend by 6.5%, showing that it remains solid financially, despite the recession. The company has about $12.6 billion in cash and equivalents on the balance sheet, and cash flow from operating activities remains strong.
As you can tell, analyst ratings can lead to strong investment candidates. So wouldn't it be great to know which companies Wall Street favors the most? To find some of the Street's favorite companies, I used the screening tool at the "wisdom-of-crowds" club we call CAPS. I screened using the following criteria:
- Stocks with 10 or more outperform ratings from Wall Street analysts.
- Stocks with 1,000 or more outperform ratings from members of the CAPS community.
- Stocks with CAPS ratings of five stars -- the highest possible.
- Stocks with market caps of $5 billion or greater.
Here are some of the companies that showed up when I ran the screen. (You can view today's version of my screen here.)
|
Company
|
Market Cap (in billions)
|
Outperform Picks
|
Wall Street Outperforms
|
|
3M (NYSE: MMM )
|
$41.56
|
3,873
|
21
|
|
Anadarko Petroleum
|
$22.38
|
1,345
|
17
|
|
Chesapeake Energy (NYSE: CHK )
|
$14.65
|
6,499
|
28
|
|
Diamond Offshore Drilling
|
$12.05
|
1,792
|
15
|
|
EMC (NYSE: EMC )
|
$25.85
|
2,891
|
21
|
|
Johnson & Johnson
|
$153.87
|
11,597
|
31
|
|
Transocean
|
$26.22
|
5,222
|
31
|
|
UnitedHealth Group (NYSE: UNH )
|
$32.44
|
3,083
|
23
|
|
XTO Energy (NYSE: XTO )
|
$24.11
|
2,212
|
25
|
Source: Motley Fool CAPS.
Keep in mind, though, that while analysts understand equities well, you shouldn't purchase stocks based solely on their buy recommendations. Instead, make their calls an indicator for further research, to see whether a particular stock is right for your portfolio.
Start searching for your favorite stocks at Motley Fool CAPS today. Let the collective wisdom of our 135,000-member community help you make better investing decisions.
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