Barron's 500 -- The Top 20

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COVER STORY: Barron's 500 by Vito J. Racanelli

Summary: Investment banks, asset managers and energy/materials producers got top marks in Barron's 500 survey, which ranks companies based on cash-flow return on investment -- trying to identify companies that make the most of their capital. Construction, tech and auto companies were losers. Here are Barron's top 20 companies, followed by a brief analysis of the top five:

• Top twenty companies in order: Goldman Sachs Group Inc. (GS), Franklin Resources Inc. (BEN), Apple Computer Inc. (AAPL), Terex Corp. (TEX), PACCAR Inc. (PCAR), XTO Energy Inc. (XTO), Allegheny Technologies Inc. (ATI), Liberty Media Interactive Corp. (LINTA), Aetna Inc. (AET), National-Oilwell Inc. (NOV), Morgan Stanley (MS), Oracle Corp. (ORCL), Energy Transfer Partners L.P. (ETP), Smith International Inc. (SII), Precision Castparts Corp. (PCP), GameStop Corp. (GME), Reliance Steel & Aluminum (RS), Freeport-McMoRan Copper & Gold Inc.(FCX), Frontier Oil Corp. (FTO), eBay Inc. (EBAY)
• Goldman Sachs Group Inc. (GS) -- its early entry into China is paying off, as is its legendary trading prowess. Shares are up 30% over the past year, but it trades at a discounted 10.6x 2007e earnings -- which could easily expand to 13.
• Franklin Resources Inc. (BEN) -- a four-year stock market rally has benefited this money manager; assets under management rose 20% to $262 billion in 2006. Forty percent of sales and 30% of assets are now international, vs. 25% and 16% five years ago. Shares are up 40% to $135 in the past 12 months, or about 20x 2007e earnings.
• Apple Computer Inc. (AAPL) -- iPod sales could hit 50,000,000 in 2007 vs. 1,000,000 in 2003. The company is asset-light since it doesn't make its own hardware. MAC sales were up 36%, and iPhone interest is high; some analysts feel its price is too. Q2 sales jumped 88%.
• Terex Corp. (TEX) -- sales of its heavy-duty mining trucks and mobile cranes have benefitted from the global commodity boom. Management wants to boost margins by decreasing the number of suppliers it uses. At 14.7x 2007e earnings, its expected growth rate exceeds its multiple.
• PACCAR Inc. (PCAR) -- sales of its trucks and engines have also benefitted from global commodity sales. It keeps capital-expenses down by outsourcing many of its components. While analysts expect growth contraction this year, it handily beat estimates in Q1, and raised its dividend.

Related Links: Barron's 500 (public, .pdf) • Sizing Up Infrastructure Stocks: Which Provides the Best Industry Exposure? • The Bar Mitzvah Portfolio: Five Long Term Winners