BUSINESSWEEK - Stock Screens July 18, 2008, 12:01AM EST

S&P’s latest list finds seven names that earn the highest rankings under its measures of fair value and 10-year earnings and dividend growth

by Beth Piskora From Standard & Poor’s Equity Research

Undervalued stocks with a superior history of dividend and earnings growth? Sounds like a winning combination. We set out to find stocks that fit both categories in this week’s screen.

First, a word about the tools we used. Fair Value, S&P’s proprietary quantitative model, seeks to outperform the market by buying undervalued stocks and selling them when they reach maximum price appreciation. The model calculates a stock’s weekly fair value, the price at which it determines an issue should trade at current market levels, based on fundamental data such as earnings growth potential, price-to-book value, return on equity, and dividend yield relative to that of the S&P 500 index.

Within the Fair Value system, stocks are ranked in five tiers. Tier 5 is the highest and contains stocks considered the most undervalued. These are issues with a Fair Value considerably greater than their current price, implying superior price appreciation potential.

Our second filter, S&P’s Quality Ranking system, is not intended to be forward-looking at all. Rather, it looks back over 10 years of earnings and dividends to determine consistency and growth. A ranking of A+ is the highest possible score, and indicates the stock is a dividend payer with a very high consistency of earnings and dividend growth over the past decade.

source: BusinessWeek

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