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Apple and beyond: Stocks at the core of Wall Street’s affections

A woman uses her iPhone while walking through Times Square in New York, Sept. 20, 2012. Apple tops the list of analyst favourites, but there are plenty of lesser known names on the list.

LUCAS JACKSON/REUTERS

What are we looking for?

The stocks that Wall Street adores and you might too. With Apple Inc. stock riding high, we thought it would be interesting to look at some of the other companies that are garnering rave reviews from analysts.

How we did it

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We used our Bloomberg terminal to search for U.S. stocks with extremely high ratings from analysts. We wanted to steer clear of stocks followed by only one or two analysts, as well as stocks that are too small for comfort. We also wanted to avoid stocks with high valuations, where analyst enthusiasm is already reflected in the price, and stocks without recent, strong revenue growth.

The specific criteria we used:

Companies must have at least $2-billion (U.S.) in market capitalization.

Firms must have a consensus recommendation from analysts of at least 4.5 on a five-point scale, where 1 is equivalent to a "sell" recommendation and 5 equates to a "buy."

Stocks must be followed by at least 10 analysts.

Stocks must have price-to-earnings (P/E) ratios of 20 or less.

Companies must have year-over-year revenue growth of at least 10 per cent.

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What we found

A list topped by the iPhone giant. Despite its enormous size and red hot growth, Apple is still reasonably priced (with a P/E of only 16.5). The 60 analysts who follow the company's stock give it a consensus rating of 4.67 out of five, meaning that the overwhelming majority of Wall Street observers see it as a "buy."

What was interesting was the relative anonymity of many of the other companies on the list. Other than Boeing Co., it's entirely possible that you've never heard of any of these other analyst favourites. Kirby Co.? It operates a fleet of inland tank barges. GNC Holdings Inc.? It peddles health and wellness products.

The high ratings that analysts are slapping on these firms is an encouraging sign. Remember, though, that analysts can be wrong. And it's not entirely impossible that the prospect of an upcoming share offering could result in a company putting an unduly high rating on a firm in a bid to win some investment banking business.

As always, you should do your own research before putting your own money down. But this list can point you in the direction of some promising firms you may otherwise have missed.

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About the Author

Ian McGugan is a reporter with The Globe and Mail's Report on Business and has been writing about investing, economics and business for more than 20 years. He joined the Globe and Mail in 2010. He has been executive editor of Canadian Business magazine and founding editor of MoneySense magazine. More

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