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A list of the 25 top performing stocks of 2010 (ex. Financials) from within the S&P 500 index. We have taken the top 25 companies from 2010 and provided our readers 3 attractive and 5 unattractive stocks from this list based on their valuation attractiveness relative to sector peers and overall investment opportunity using key criteria that The Applied Finance Group (AFG) uses in its stock selection process including corporate performance, management quality and earnings quality to see which of the top performers still look to have upside and which look like they have run out of room to run.

Every year Fortune releases a list of the 40 best companies to invest in now to retire on. This long-term portfolio is designed to protect your hard-earned nest-egg as you approach retirement.

Last year Fortune’s portfolio of 40 best stocks to retire on returned -23.07% from 6-20-08 to 6-16-09, relative to the -30.8% returned by the S&P500 during the same time period. This year they are replacing 23 stocks to form the new portfolio.

Provided below are the 40 stocks recommended by Fortune as the best stocks to retire on in 2009 and our outlook of these companies from a valuation perspective based on The Applied Finance Group’s valuation model.

 Fortune's 40 Best Stocks to Retire On - 2009

Related Stock Article:
Is Apple a Buy Hold or Sell?, Click Here to View

According to Bespoke.com these S&P 500 stocks over $5 a share, are those that make the biggest advances/declines the day after reporting earnings since this bear market began in October 07’. Included in this table is the percentage of time these companies beat earnings and their average change on report day, along with their implied sales growth expectations. The implied sales growth measures what a company needs to grow sales at over the next 5 years to justify their current price. Comparing those expectations (VE Sales Growth) with what the company has delivered the past 5 years (5 year median sales growth) is a good way to tell if the current expectations are realistic for the company to meet or exceed. The lower the expectations relative to delivered sales growth, the more likely the company is to out-perform.

 

 

 

In life, the most attractive people are in shape and have good looks, just look at Hollywood. The same is true the majority of the time in investing. The most attractive stocks have healthy financial statements and look good from a valuation standpoint.

The Altman Z-score is a metric that gives insights into the likelihood of a firm going bankrupt in the next 2 years. The model was developed by Professor Edward I. Altman of the NYU’s Stern School of Business and first published in The Journal of FINANCE in September 1968. A common critique to this metric is that it was developed over 40 years ago and is no longer relevant.

In 2001, Professor Joseph D. Piotroski of The University of Chicago Graduate School of Business, published a paper called, Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers. Piotroski showed that value investors were rewarded by looking at a firm’s financial health and he showed that Z-score was a meaningful statistic.
More recently, on December 5, 2008, Dr. Altman was called to testify before a House of Representatives Committee on the condition of U.S. Automakers. In his testimony, he noted that Bloomberg, Inc. reported, “that approximately 1,000 users of their system per day access the Altman Z-Score model.”

The Altman Z-Score breaks down firms into 3 zones:
• >2.99 – Not Likely to Go Bankrupt
• 1.8 - 2.99 – Gray Area
• <1.8 – Likely to Go Bankrupt in the Next 2 Years

Using AFGView.com, we screened for firms that looked relatively attractive from a valuation perspective and had an Altman Z-Score above 2.99. Below is a list of those firms. Later we will look at firms that are expensive and have a Z-Score below 1.8.

Sales Expectations for Companies with an Attractive Valuation and Healthy Balance Sheet