Best Performing S&P 500 Large-Cap Stocks So Far In 2012

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Includes: A, BAC, CA, CF, MS
by: David Alton Clark

These stocks are the top five best performing large caps in the S&P 500 for 2012. Bank of America (NYSE:BAC) leads the way with a 2012 gain of 32.37% after an abysmal 2011 performance of -47.80%. CA Inc. (NASDAQ:CA) and Morgan Stanley (NYSE:MS) are next with 29.43% and 28.50% 2012 gains, respectively. Bringing up the rear, but still with notable 2012 performances are CF Industries Holdings, Inc. (NYSE:CF) and Agilent Technologies, Inc. (NYSE:A) with 26.78% and 26.51% 2012 gains, respectively.

Please review the table below for detailed performance statistics and a brief review of 2012's market macro catalysts followed by a detailed breakdown of each stock's fundamental and technical state to determine if now is the time to buy.

Company Current Performance Statistics

(Click to enlarge)

Tables and Charts provided by Finviz.com.

2012 Macro-Economic Positive Highlights

2012 began on a strong note by recording its preeminent single-session percentage gain in weeks, closing at a two-month high on the first day of 2012 trading. The markets are all currently trading at multi-year highs. There are a multitude of positives spurring the advance. Please review the following highlights of macro-economic positive indicators.

  • China's PMI beat expectations of 49.6 by rising slightly from last month to 50.5.
  • India recently reported its best manufacturing reading in six months.
  • Manufacturing data from Europe is comparatively inspiring based on the dismal expectations.
  • Recent manufacturing activity in the United Kingdom is better than expected.
  • Eurozone manufacturing activity is somewhat in-line with outlooks.
  • Progress by the ECB with regard to sovereign debt in the form of the LTRO is proving positive for stocks.
  • The U.S. Institute for Supply Management (ISM) Index was reported at 54.1, up from 53.1 last month.

The following is commentary regarding the ISM report Joe Terranova's Virtus Investments Blog:

  • This is the best reading since 55.8 on July 1, 2011.
  • New orders rose to 57.6 from 54.8, the highest reading since last April's 62.7 (Figure 1.2).
  • I view the new orders component of the report as the most important indicator.

Other components:

  • Production Index fell to 55.7 from 58.9
  • Export Orders rose to 55 from 53
  • Employment Gauge fell to 54.3 from 54.8
  • Prices paid increased to 55.5 from 47.5
  • Orders waiting to be filled rose to 52.5 from 48
  • Inventory Index rose to 49.5 from 45.5
  • Customer stockpiles rose to 47.5 from 42.5

Joe's commentary:

I am very impressed with the strength in new orders. Historically, this has been a leading indicator to a rebound in domestic growth. Manufacturing is re-accelerating, as this report is consistent with regional improving reports from Philadelphia, New York, Dallas, Richmond and Kansas City. In fact, I would expect economists to gently uptick their GDP forecasts for Q1 above 2.0%.

Regarding today's Fed report, the Fed specified that domestic economic activity grew slowly, notwithstanding seeming deceleration in growth of overseas economies and continuing monetary complications in the eurozone. The FOMC largely remains sure that the speed of economic activity will increase in the coming years. Nevertheless, many members specified present and future circumstances may well merit further policy accommodation. The Bernanke put is still on.

Finally, the U.S. housing market, unemployment situation and economic indicators are all showing signs of life. Additionally, the government is preparing to introduce a plan to sell Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) foreclosures to investors, which may expedite the recovery of the U.S. housing market.

I believe the markets have continuing upside potential based on these geopolitical and macroeconomic catalysts. As the issues of the eurozone, U.S. and the world fade from the forefront of investors' minds and a renewed focus on fundamentals and company specific catalysts emerges, I expect these stocks to continue their upward march.

Nevertheless, in the market as in life, timing is everything. In the following section we will perform a review of each of these stock's fundamentals and technical state to determine if this is still an ideal entry point. I will assign a buy, sell or hold rating for each stock.

Company Reviews

Bank of America - Buy

Fundamentals (Click to enlarge)

Analysis

Bank of America has a Price to Book ratio of .33, a forward Price to Earnings ratio of 6.37, Price to Sales ratio of 1.09 and a projected EPS growth rate of 51.35% for next year. Bank of America is 11% below its 52-week high. These fundamentals are strong. Bank of America is trading at a third of its book value. This fact coupled with decent EPS growth and reasonable price performance confirms that Bank of America is undervalued. With an RSI 69.16, it is on the brink of becoming overbought but not quite yet. If you choose to start a position in any stock, I suggest layering in a quarter at a time on a weekly or monthly basis depending on your time horizon to reduce risk and setting a 5% to 10% trailing stop loss order to minimize losses.

CA Inc. - Sell

Fundamentals (Click to enlarge)

Analysis

CA Inc. has a PEG ratio of 1.49, a forward Price to Earnings ratio of 10.62, Price to Book ratio of 2.19 and a projected EPS growth rate of 10.27% for next year. CA Inc. is trading at its 52-week high. These fundamentals are mixed. A PEG of over 1 but less than 2 means it may be slightly overvalued at current price levels. Additionally, with an RSI of 85.44 and CA hitting its 52 week high, CA Inc. is technically severely overbought currently. I would wait for a pullback for a better entry point if I was looking to get in and take profits now if I owned it.

Morgan Stanley - Hold

Fundamentals (Click to enlarge)

Analysis

Morgan Stanley has a PEG ratio of 1.44, a forward Price to Earnings ratio of 7.97, Price to Book ratio of 0.60 and a projected EPS growth rate of 21.88% for next year. Morgan Stanley is 35% below its 52 week high. These fundamentals are strong. A PEG of less than 1 is extremely bullish. Morgan Stanley is trading at two thirds of its book value. This fact coupled with decent EPS growth and reasonable price performance confirms that MS is undervalued, although, with an RSI of 72.99, MS is technically overbought currently. I would wait for a pullback for a better entry point if I was looking to get in.

CF Industries Holdings, Inc. - Buy

Fundamentals (Click to enlarge)

Analysis

CF Industries has a has a PEG ratio of 0.68, a forward Price to Earnings ratio of 8.32, Price to Book ratio of 2.86 and a projected EPS growth rate of 14.78% for next five years. CF Industries is 5% below its 52-week high. These fundamentals are strong. A PEG of less than 1 is extremely bullish. These facts coupled with decent EPS growth and reasonable price performance confirms that CF Industries is undervalued, although, with an RSI 67.04, it is on the brink of becoming overbought but not quite yet. Dalmon Rose recently downgraded the stock based on valuation. If you choose to start a position, I suggest layering in a quarter at a time on a weekly or monthly basis depending on your time horizon to reduce risk and setting a 5% to 10% trailing stop loss order to minimize losses. But I still like it. Here the fundamentals outweigh the technical status.

Agilent - Buy

Fundamentals (Click to enlarge)

Analysis

Agilent Industries has a has a PEG ratio of 1.22, a forward Price to Earnings ratio of 12.73, Price to Book ratio of 3.56 and a projected EPS growth rate of 12.71% for next five years. Agilent is 21% below its 52-week high. These fundamentals are positive. A PEG of close to 1 is bullish. These facts coupled with decent EPS growth and reasonable price performance confirms that Agilent is undervalued, although, with an RSI 67.17, it is on the brink of becoming overbought but not quite yet. If you choose to start a position, I suggest layering in a quarter at a time on a weekly or monthly basis depending on your time horizon to reduce risk and setting a 5% to 10% trailing stop loss order to minimize losses. The fundamentals look solid and the technical status is neutral.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BAC, A, CF over the next 72 hours.