Finding Large Caps for a Winning Portfolio

This article is part of our Rising Star Portfolios series.

As a Motley Fool investor, I get to scan the universe for investment ideas, no holds barred. I view this as a luxury, but it can also be a curse at times. Why? The problem is that sometimes there is just so much stuff out there that it can be really tough to whittle it all down to a few good choices.

One of the best things we can do as investors is to constantly keep a watchlist, adding and deleting as we work our way toward investing greatness. What I like to do from time to time is throw down a few parameters and run a screen. Then I sift through it and find the gold nuggets that lie within.

So let's give it a whirl. I ran a screen for large caps (between $12 billion and $50 billion market cap) trading on major U.S. exchanges, with inside ownership greater than 1%, and return on equity greater than 20%. Thirty-one companies made the cut; six caught my eye, and two I may just consider for the list:

Company

Inside Ownership

Return on Equity

Nike (NYSE: NKE  )

18.4%

21.2%

Starbucks (Nasdaq: SBUX  )

2.7%

28.1%

Coach (NYSE: COH  )

1.1%

46.9%

St. Jude Medical (NYSE: STJ  )

2.1%

22.9%

Baidu (Nasdaq: BIDU  )

22.9%

48.5%

Intuitive Surgical (Nasdaq: ISRG  )

1.3%

21.4%

Source: Capital IQ, a division of Standard & Poor's.

Coffee nation
We all know Starbucks. Many consider it the place to go for primo java, something to nosh, and a wireless connection. In fact, Starbucks will throw the wireless connection in for free, at least at all of their company-owned stores in the U.S. -- and that's more than 6,700 and counting.

We knew Starbucks had too many stores when The Onion reported that the company was opening a Starbucks inside of a Starbucks bathroom. In reality, the company had saturated the market, and the brand had lost some of its luster. But when Howard Schultz retook the position of CEO in 2008, he was focused primarily on slashing costs and reigniting the brand -- and he is doing just that.

Now loaded with a new logo and a caffeinated zeal to go after international growth, Starbucks has its sights set on two places: China and India. The company already has a presence in China but will look to expand to more than 1,500 stores by 2015. And while there are no stores in India yet, the company's recent agreement with Tata Coffee opens the doors to another fast-growing society of coffee consumers. Trading today around 27 times earnings, the stock is reasonably priced for the potential international growth story.

The only prescription is more cowbell!
A few days ago, I mentioned a medical waste company I was keeping my eye on. Health-care investments can be tough to figure out with the uncertainties of insurance reform, but they can still perform well in a tough economy. People don't plan to get sick, and an aging population is going to see its share of maladies. St. Jude Medical develops technologies to aid in the treatment of cardiac, neurological, and chronic pain patients worldwide.

The medical-device market is highly competitive, to say the least. Bigger companies like Johnson & Johnson (NYSE: JNJ  ) may have the advantage of scale, but with products sold in more than 100 countries and the goal of continuing to allocate at least 12% of sales annually to research and development, St. Jude should remain a key part in developing new technologies.

Medical technology is expensive, and St. Jude has more than $1 billion in net debt on the balance sheet. But with robust cash flows and a coverage ratio of almost 60, the company has no trouble managing its debt load. The stock trades around 16 times earnings and looks like it could be a decent value.

Are they list-worthy?
So there it is: one screen, six stocks, and two ideas for my watchlist. That is one way I get companies on my radar, and I'll keep on searching for more great ideas to take my Motley Fool portfolio to new heights. You can follow along, too; just swing on by my discussion board and let's talk; I'm also on Twitter.

This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. See all of our Rising Star analysts (and their portfolios) here.

Stock Advisor analyst Jason Moser owns no shares of any companies mentioned in this article. Baidu and Intuitive Surgical are Motley Fool Rule Breakers picks. Coach, Nike, and Starbucks are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson, which is a Motley Fool Income Investor recommendation and a Motley Fool Inside Value choice. The Fool owns shares of Coach and Johnson & Johnson. Motley Fool Alpha owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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