The 100 Best Stocks You Can Buy 2012 Part 17

Reasons for Caution.

ExxonMobil is the biggest and the best at a lot of things in a key strategic industry. But there can be such a thing as too big, and if any integrated energy company is to suffer for being too big, this may be the one. While we applaud the share buybacks, we would like to see a higher dividend payout, although the recently low yields reflect a resurgence in the stock pricealso not a positive for entering investors. We don't expect XON to outperform the market to any great extent, but it should continue to be a solid cornerstone holding.

AGGRESSIVE GROWTH.

Fair Isaac Corporation.

Ticker symbol: FICO (NYSE) S&P rating: NA Value Line financial strength rating: B++ Current yield: 0.3%.

Company Profile.

Fair Isaac Corporation provides decision support a.n.a.lytics, software, and solutions to help businesses improve and automate decision making and risk management. The most well-known and best example of these solutions is the "FICO score"an a.n.a.lytic single-figure estimate of a consumer's creditworthiness used in the credit industry and for other purposes such as employment and insurance.

FICO provides its a.n.a.lytic solutions and services to a variety of financial and other service organizations, including banks, credit reporting agencies, credit card processing agencies, insurers, retailers, marketers, and health care organizations. It operates in three segments: Applications, Scores, and Tools. The Applications segment provides decision and risk management tools, market targeting products, and fraud detection tools and a.s.sociated professional services. The Scores segment includes the business-to-business scoring solutions, as well as myFICO solutions delivering FICO scores for consumers and a.s.sociated professional services. The Tools segment provides software products and consulting services to help organizations build their own a.n.a.lytic tools.

About 76 percent of the company's revenues are derived from transaction and unit-priced products, such as the access and sale of a FICO score. About 71 percent of revenues are derived from the consumer credit, financial services, and insurance industries. Overseas revenue has grown from 29 percent to 33 percent of total revenues in the past three fiscal years.

Financial Highlights, Fiscal Year 2010.

As most of its leading customers are in the financial and financial services industries, FICO suffered among other suppliers of products and services to this industry during the downturn. Loan and transaction volumes declined, businesses closed or downsized, and those still left tightened budgets. Revenues and earnings dropped more than 25 percent from their 2007 peak, reaching a low in 2010. Company efforts to improve products for the financial sector, including a new formulation for the FICO score and a special version for the mortgage industry, and deeper penetration into areas like fraud prevention and ID theft a.n.a.lytics for all industries are helping the business in 2011. The company is expected to earn $1.65 a share in 2011, on par with 2008 before the lights went out.

Reasons to Buy.

There are a number of companies, large and small, in the a.n.a.lytics business. But few have the brand reputation and leadership enjoyed by FICO. FICO is the gold standard for this type of product, and has built its leadership, and really a pretty large moat, on its brand. We also think a stabilizing financial industry with new rules, fewer workers, and a greater recognition for risk and risk management will bode well for the FICO product suite. FICO products offer a good combination of streamlining and sophistication to financial and other decision making. Long term, we can easily see their modeling approaches being extended to a.n.a.lyzing customer behavior and providing decision support for insurability, employability, acceptance into schools, and other areas well beyond a consumer's ability to repay extended credit. International demand for FICO's products continues to grow. Although the percentage of revenue generated from international orders has remained relatively flat at approximately one-third of total revenues over the last three years, new products, a growing market acceptance of a.n.a.lytics, and a focus on the international market is expected to provide increased leverage here.

Although revenues and earnings have fallen for two consecutive years, the company is well capitalized and has maintained respectable operating margins, due in large part to effective cost controls and restructuring efforts. And although the company has divested itself of some operations and is a bit leaner, its core businesses are well funded and well positioned for growth as the smoke clears from the recent recession.

Reasons for Caution.

Most of the changes afoot in the credit card and financial services industry bode well for FICO, but we wonder if credit demand will ever be what it was in 200407. The company's business is still heavily tied to transaction volumes. There is some public concern that scoring models oversimplify lending and insurability decisions and should not be used or relied on so heavily.

AGGRESSIVE GROWTH.

FedEx Corporation.

Ticker symbol: FDX (NYSE) S&P rating: BBB Value Line financial strength rating: B++ Current yield: 0.5%.

Company Profile.

FedEx Corporation is the world's leading provider of guaranteed express delivery services, and is a major player in the overall small shipment and small package logistics market. The corporation is organized as a holding company, with individual businesses that compete collectively and operate independently under the FedEx brand. The company offers a wide range of express delivery services for the time-definite transportation of doc.u.ments, packages, and freight. The company also offers freight services for less time-sensitive items and small or less than truckload (LTL) shipments under the FedEx Ground and FedEx Freight brands. Finally, the company has ventured into more comprehensive business services with its 2004 acquisition of Kinko's copy and office centers, now operating under the "FedEx/Kinko's" brand.

The company's operations include:.

The world's largest express transportation company (FedEx Express).

North America's second-largest ground carrier for small-package business shipments (FedEx Ground).

The largest U.S. regional less-than-truckload freight company (FedEx Freight).

A "24/7" option for urgent shipments, providing nonstop, door-to-door delivery in the contiguous United States, Canada, and Europe (FedEx Custom Critical) The largest-volume customs filer in the United States, providing freight forwarding, advisory services, and trade technology (FedEx Trade Networks) The infrastructure supporting these businesses is enormous. For example, the FedEx Express business alone operates 135,000 ground vehicles and 664 aircraft and employs 265,000 people. In addition, they maintain over 700 World Service Centers, over 1,800 FedEx Office locations, nearly 7,000 authorized ShipCenters, and over 43,000 Drop Boxes. They serve over 375 airports in over 200 countries. In FY2010, the Express segment accounted for 62 percent of revenues, Ground 21 percent, Freight 12 percent, and Services 5 percent.

Financial Highlights, Fiscal Year 2010/2011.

FedEx's revenues during and shortly after the recession took an expected dip due to the slowdown in worldwide trade. Revenue declines were offset somewhat by absorption of some business from DHL, which ceased domestic express operations in 2008. Driven by a resurgent global economy, revenues are expected to top $38 billion in 2011 (ending May 2011), an all-time high. Operating efficiencies are expected to raise operating margins slightly and deliver EPS in the $5.10$5.20 range, short of 2007's $6.67, but good historically. Cash flow has been and will be more than double EPS, a good sign for the true health of the business.

Reasons to Buy.

FedEx has a strong brand and offers a diverse set of services, really a complete logistics solution, for a large group of customers. The resurgence in the economy and growth in online shopping and delivery will certainly help volumes and pricing, and a resumption of strong U.S. exports not only helps volume but also helps fill up planes traveling from the United States. The logistics business is always ripe for innovation, and FedEx has long been an innovator in the transportation and small package shipment business; we expect this to continue. As pointed out, strong cash flows are also an attraction, and some of that is cautiously being paid back to shareholders.

Reasons for Caution.

FedEx is obviously vulnerable to fuel price increases, and the same economic factors that create business growth can lead to growth in costs, so efficiency is Job Number One. The company has recently been investing in its ground businesses, which to a large degree compete head to head with UPS. These are relatively low margin businesses that we feel will succeed the most if effectively integratedand marketedwith other services into a total solution. FedEx/Kinko's hasn't worked out as well financially as the company had hoped, although some of the integration we just spoke of has happened. Yes, you can have a FedEx Ground shipment held at FedEx/Kinko's for you to pick up, but too few people know about such services. Most still perceive FedEx/Kinko's as a good place to get copies. FedEx could do a better job of marketing what they really do to the general public, and perhaps, to businesses.

AGGRESSIVE GROWTH.

Fluor Corporation.

Ticker symbol: FLR (NYSE) S&P rating: A- Value Line financial strength rating: A++ Current yield: 0.7%.

Company Profile.

Fluor is one of the world's largest publicly owned engineering, procurement, construction, maintenance, and project management companies. They provide a diverse portfolio of large-scale infrastructure and infrastructure services, primarily for five industry segments: Oil & Gas (37 percent of revenues, 55 percent of gross profit in 2010), where they serve all facets of the traditional energy industry, including upstream, downstream, and petrochemical markets, including oilfields, refineries, and pipelines.

Industrial and Infrastructure (33 percent of revenue, 27 percent of profits) is their most diverse organization, which includes transportation, mining, life sciences, telecom, manufacturing, and commercial and inst.i.tutional projects. This segment also covers the emerging alternative energy projects, including major windmill farm developments.

Government (9 percent of revenue, 9 percent of profits) addresses the U.S. Departments of Energy, Defense, and Homeland Security.

Global Services (9 percent of revenue, 11 percent of profits) provides operations and maintenance, supply chain, equipment services, and contract staffing.

Power (6 percent of revenue, 10 percent of profits) designs, builds, commissions, and retrofits electric generation facilities using coal, natural gas, and nuclear fuels.

Financial Highlights, Fiscal Year 2010.

Fluor's revenues continued to fall slightly from an already diminished 2009, with gross revenue of $20.8 billion compared to a 2008 peak of $22.3 billion. Needless to say, the recession cut into construction activity across virtually all sectors, and since these projects are long in decision and in duration, the effects of the downturn lag the actual low point of the recession. Earnings held steady in 2009, however, but fell considerably in 2010 to 1.98 per share due to, of all things, a major cost overrun on a contracted offsh.o.r.e wind farm in the United Kingdom.

The rest of the business remains firm and with healthy prospects for 2011 and beyond. At the end of 2010, the company reported a $33 billion backlog, the highest since December 2008, including a company record $9.3 billion in new orders placed in the second quarter of 2010.

Reasons to Buy.

For investors tolerant of some economic risk, Fluor's shares represent a solid way to play an economic recovery. General large-scale construction should regain health across all industries including oil and gas as the construction cycle becomes more favorable. In our view, there are two growth "kickers" not to be ignored: one is their presence in the alternative energy industry; the other is their presence in the utility infrastructure industry. Both will see waves of new investment to capitalize on new energy technologies; in addition, there are thousands of miles of old water pipes, electric lines, and other infrastructure that is due, or overdue, for replacement. These two megatrends will boost Fluor's business for quite some time to come.

Reasons for Caution.

Fluor is more cyclical and more responsive to economic trends than most companies, as is clear from its relatively high beta of 1.28. A ten-year stock price chart shows how the company hit a wall in 2008. Additionally, the company's ten-year growth rates in revenues, earnings, dividends, and cash flows are relatively anemic compared to other companies on our list; that said, the most recent five years have been considerably stronger.

AGGRESSIVE GROWTH.

FMC Corporation.

Ticker symbol: FMC (NYSE) S&P rating: BBB+ Value Line financial strength rating: A Current yield: 0.7%.

Company Profile.

FMC Corporation is a diversified chemical company serving global agricultural, industrial, and consumer markets. The company, founded in 1883, employs some 4,800 people throughout the world. FMC operates its businesses in three segments: Agricultural Products, Specialty Chemicals, and Industrial Chemicals. The company is one of the world's largest producers of strategic materials like phosphorus, hydrogen peroxide, and lithium compounds.