Investing in Your Backyard: Philadelphia

There are many good reasons for researching investment opportunities in a certain geographic area. Today, it's all about the City of Brotherly Love. The second-largest city on the East Coast, Philadelphia was the original capital of the United States, and the Liberty Bell remains there to remind the nation where the Declaration of Independence first was read. Sports fans can cheer for the Eagles, the Phillies, the Flyers, or the 76ers, and the city's name alone sets off a Pavlovian reaction in me. Those cheesesteaks are powerful stuff, indeed. But what we really care about today are the business prospects in Philly.

If you happen to live in eastern Pennsylvania, you already have a few advantages when it comes to evaluating the local market, such as access to local news sources and the word on the street, and a high probability of being a customer or employee of these companies. And if you're not a local resident, you might still want to know whether the weather matches the business climate -- a hot area could be chock-full of undiscovered treasures on their way to greatness.

Without further ado, here are the largest companies headquartered in Philadelphia:

Comcast is clearly the biggest player in the local market -- not surprising, since it also dominates the national cable TV arena. Though it's a solid three-star CAPS stock, I think I've made it clear that I believe in the company's future way more than that. CAPS player Velobici disagrees, though:

"Comcast relies upon COAX based cable for its life. Verizon will compete with fiber optic cable (FiOS), cherry-picking the best markets that Comcast has, leaving Comcast with its most expensive (least profitable) customers only. Comcast is not ready for competition or adaptable to meet it. Comcast faces a long, slow, painful decline in the face of a superior competititor."

The five stars adorning insurance and investment management specialist Lincoln National sure look good, as does the fact that not a single player has rated the stock "underperform." Here's why RaywoodHousewife likes the company:

"This overlooked stock rises and falls with interest rates, but always paid a dividend that has increased over the years, and is currently rising -- just as surely as it will fall when interest rates sink."

One step below
Employee benefits provider Cigna has all-star player sawtooth2005 licking his chops:

"Lots of CI's consumer-driven work is starting to pay off, and should continue to do so. There are huge opportunities in the health risk management arena (assisting employers get/keep employees healthy) -- I think CIGNA is focused appropriately on those."

And regional bank Sovereign has a possible buyout from Banco Santander -- the largest bank in Spain -- waiting in the wings. Finally, Rohm & Haas is flying under the market's radar, much to muzzybelly's surprise:

"How does everyone miss this stock? Major chemical company, consistent growth, nice dividend, good, well diversified product line, solid financials, and a cheap price. Material and energy costs can be a problem, but those can be passed on because they are endemic to the business."

There is hardly a hard word to find among the top five businesses in the Philly area. We're looking at a mix of established excellence and undiscovered treasures here, at least in the collective opinion of the CAPS community.

Digging deeper
Five companies hardly cover the business activity in this bustling city, though. My screen found 72 businesses with Philadelphia headquarters that trade on one of the three major exchanges. To put that number into perspective, Memphis only had 43 tickers on its list, though 120 companies call the Twin Cities home, and New York City plays host to 282.

The smaller companies include one-star stocks like homebuilder Toll Brothers, but also five-star issues such as specialty insurance boutique Philadelphia Consolidated Holding (NASDAQ:PHLY). Frequent score leader TMFEldrehad likes that one:

"FY 2001 through FY 2005 saw some pretty lofty growth on all fronts. Revenue over this period grew at a compound rate of 33%, operating cash flow at a 39% clip, and diluted EPS at a lofty 42%. Furthermore, analysts estimate earnings over the next 12 months of $3.28/share, translating into a forward P/E at my CAPS buy-in price of about 13.5. A forward P/E of 13.5, for that kind of growth history? Seems pretty darn cheap to this Fool."

Most of the remaining companies tend to fall into financial service operations or heavy industry, with mostly middling star ratings. One departure from the norm is weight management expert NutriSystem, but that's another three-star stock.

Market makers
Did you know that the Philadelphia Stock Exchange opened before the NYSE? The venerable trading board is still in operation, acting as a market maker for stocks listed on the other exchanges. It's also a major options trading hub, and indices like the Philly Semiconductor Index and the Bank Index serve as benchmarks for entire industries. But you don't see a lot of companies rushing to list on the Philadelphia Exchange these days.

Still, Philly is undeniably a major money hub, as the plethora of banking and insurance companies here can attest. It also doesn't hurt to have several of the finest law schools in the country within city limits. The market looks great up top and okay down below, and it's hard to find any real weak spots.

Do you agree? Disagree? Feel free to weigh in on the market in the Rebel Capital -- or on any stocks at all, really -- by joining Motley Fool CAPS and blasting away with your ratings and commentary pitches. And if Philly isn't your 'hood, maybe we'll come around to where you live the next time.

Further Foolishness:

• The Demented Dividend Guru
• Why Dividends Rule the Market
• The World's Finest Stock
• Nice: Comcast's Awfully Nice Year

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Fool contributor Anders Bylund holds no position in any of the companies discussed here, but is nursing a serious addiction to cheesesteaks. You can check out Anders' holdings if you like. Foolish disclosure is always red-hot.