I want to take a moment to answer a question you may have had about why Apple (NASDAQ:AAPL) wasn’t included in my Top 5 Blue-Chip Stocks for February. It’s a fair question considering the stock has boomed 22% since then.
In selecting my Top 5 stocks, I take several things into account, including fundamental health and buying pressure. But one thing that works behind the scenes is a stock’s risk-to-reward ratio. That’s because I want to include the most stable stocks with the steadiest returns on my Top 5 list. Apple has a history of dramatic price swings, so its risk-reward ratio is higher than my usual threshold for this list.
I know what you’re thinking: “But Apple is such a great stock!” Yes, that’s true. But while Apple is still a premium stock, my monthly Top 5 list is more of a starting point for new investors, so it requires a lower risk-to-reward ratio.
With that said, let’s get to our latest batch of Top 5 stocks:
Alexion Pharmaceuticals (NASDAQ:ALXN) has been the undisputed champion of the Top 5 list, having claimed the No. 1 spot for six out of the past seven issues! And with the company’s stunning earnings announcement on Feb. 10, it’s easy to see why. Thanks to booming sales of Soliris, the company’s rare-blood-disorder treatment, the company reported blowout operating results for last year’s fourth quarter.
Sales climbed 46%, to $227.6 million, and earnings soared 89% year-over-year, to $48.2 million. Adjusted earnings per share came in at $0.41, which topped the consensus estimate by 21%! Plus, the company is similarly bullish about this year.
The company expects 2012 sales in the range of $1.04 billion to $1.07 billion. Its adjusted earnings guidance falls in the range of $1.60 to $1.70 per share. Alexion’s guidance tops the Street view of $1.67 per share on revenues of $1.04 billion.
AutoZone (NYSE:AZO) is another Top 5 veteran because it continues to capitalize on the growing trend of getting more mileage out of used cars. As a leading retailer of automotive replacement parts and accessories, the company has more than 4,832 stores across the U.S., Puerto Rico and Mexico. As a sign of the company’s continued commitment to returning value to shareholders, AutoZone is in the thick of a $659 million share-repurchase program.
The company’s second-quarter earnings announcement on Feb. 28 was positive. Analysts expected 7% sales growth and 20% earnings growth, which outpaced the 15.3% estimate for the rest of the auto-parts-stores industry. AZO ended up reporting second-quarter EPS of $4.15, up from $3.34 in the previous year.
Dollar General (NYSE:DG) was one of my new buys for February, and it has already proved its mettle. As I mentioned last month, this company operates just under 10,000 stores in the continental U.S. and has big plans to open an additional 625 stores in 2012.
The interesting thing is that Dollar General is in direct competitor with Dollar Tree (NYSE:DLTR), which I’ll discuss next. However, there are merits to owning both stocks. Currently, both are neck-in-neck in terms of sales growth and operating margins, but Dollar General is slightly larger in terms of market cap. And while Dollar Tree lives up to its name and caps its prices at $1, Dollar General prices its goods at $10 or less. This means that Dollar General carries a wider range of groceries and durable goods, including electronics.
Dollar General is currently slated to announce earnings on March 22, and analysts forecast 17.8% sales growth. The company is also expected to grow earnings by 26.2%, which is almost four times the 6.9% industry average for earnings growth.
Dollar Tree (NASDAQ:DLTR) is another discount retailer with fantastic prospects that is worth owning along with Dollar General. Although Dollar Tree is smaller than Dollar General, it’s growing at a good clip. During the third quarter alone, the company opened 98 new stores, which meant its store count grew by almost 3%.
Dollar Tree also boasts higher return on equity and long-term growth than Dollar General. Dollar Tree’s earnings announcement on Feb. 22 noted a profit of $187.9 million, or $1.60 per share, compared to $162.5 million, or $1.29 per share, for the same time last year.
McDonald’s (NYSE:MCD) rounds out this month’s Top 5. By now you may have noticed that some of the hottest companies out there are those that cater to the U.S. bargain hunter. Spending by American consumers is picking up, but value is prized. And in fast food, no chain offers customers more bang for their buck than McDonald’s and its Dollar Menu.
It’s no wonder, then, that the company reported better-than-expected results for the fourth quarter, including 10% sales growth and 11% earnings growth. Looking head, management forecasts global January sales growth of 5.5% to 6.5%. With its sizeable 2.8% dividend yield, MCD remains a great buy for the long run.