This Jan. 25, 2012 photo shows large, stainless steel, hydraulic couplings at the Eaton Corp. plant in Berea, Ohio. © AP Photo, Mark Duncan

Compiled from StockScouter ratings by Verus Analytics

Investors punished Walgreen (WAG) this week, driving share prices down by double digits after the pharmacy chain decided not to move its headquarters abroad to save money on corporate taxes – a move often called a tax inversion.

Meanwhile, industrial conglomerate Eaton (ETN) suffered a similar fate, for a slightly different reason. Eaton already performed a tax inversion in 2012, when it acquired Ireland-based Cooper Industries and moved its corporate headquarters from Cleveland to Dublin. But Wall Street analysts had been hoping Eaton would unload its vehicle business in a tempting tax-free spinoff. 

Those hopes were dashed when the company reported second-quarter earnings on July 28. Eaton CEO Alexander Cutler said such a move was out of the question for the next few years, due to rules governing the original inversion maneuver. "Any spinoff would result in a very significant tax liability," Cutler said.

Eaton also lowered its full-year profit forecast, spooking both analysts and investors. Shares tumbled 13 percent, and Goldman Sachs, Deutsche Bank and JPMorgan Chase all issued downgrades on the stock.

But CNBC’s Jim Cramer defended the stock, saying, "When everyone downgrades a stock, what have we learned? . . . It’s probably closer to a bottom than a top."

Eaton gets a '10' from the StockScouter rating system on MSN Money, the highest score possible, and appears on StockScouter's latest list of 10 recommended stocks. Based on StockScouter’s analysis, shares of Eaton are expected to significantly outperform the market over the next six months with less than average risk.

Read the full Scouter report on Eaton here

StockScouter Top 10 for Aug. 8, 2014

Company

Sector

Dividend yield

Forward P/E

Scouter score

Southwest Airlines (LUV)

Airlines

0.9%

14.7

10

Union Pacific (UNP)

Railroads

2.1%

15.68

Cognizant Technology Solutions (CTSH)

Information technology

NA

15.2

10

Eaton (ETN)

Industrials2.9%12.910

Itau Unibanco Banco Multiplo S.A.  (ITUB)

Regional banks, Latin America0.5%9.210

Mastercard (MA)

Credit services

0.6%

21.0

10

SanDisk (SNDK)

Data storage

1.3%

13.9

10

Symantec (SYMC)

Software

2.5%

11.7

10

Teva Pharmaceutical Industries (TEVA)

Drug manufacturers

2.3%

10.2

10

Taiwan Semiconductor Manufacturing (TSM)

Semiconductors

2.0%

62.9

10

StockScouter beats the market

We think the StockScouter rating system developed by Verus Analytics for MSN Money is one of the best tools you can use when you're trying to decide where to invest.

StockScouter looks for stocks whose business fundamentals, price behavior, valuation and stock-ownership characteristics appear to predict a rising price in the future, based on how those factors have influenced stock prices in the past.

The system assigns each stock an expected six-month return and balances that return against the stock's expected volatility.

Scouter rates stocks on a scale of 1 to 10, and ratings can change daily. Ratings and data in the chart above were current as of this article's publication date.

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In addition to the daily top 10 list described above, StockScouter is used by investment research firm Verus Analytics (previously known as the quantitative business unit of Gradient Analytics) to generate a monthly benchmark portfolio of stocks that, refreshed monthly, has outperformed the market since its inception in August 2001.

An investor who began in 2001 by investing in each of the benchmark portfolio's top 10 stocks at the start of the month, selling them at the end of the month and then starting fresh with a new group of 10 stocks, would have generated returns, before trading costs and taxes, of 1,084 percent through June 30, 2014.

Writer Jon Markman, at the time a columnist for MSN Money, collaborated with company researchers on the tool.

Markman suggested rolling over the top 10 stocks every six months to hold down trading costs, a strategy that might be a better fit for most investors; that would yield different results, which would vary based on your starting point.

Performance through June 30, 2014

Full 50 position portfolio    

Index

1 month

3 month

6 month

1 year

Since
inception

Average
annual
return

Portfolio

3.9%

3.5%

5.7%

24.9%

617.5%

16.9%

Nasdaq

3.9%

5.0%

5.5%

29.5%

117.5%

8.1%

S&P 500

1.9%

4.7%

6.1%

22.0%

61.8%

4.9%

DJIA

0.7%

2.3%

1.5%

12.9%

59.9%

4.7%

Top 10 portfolio

Index

1 month

3 month

6 month

1 year

Since
inception

Average
annual return

Portfolio

2.3%

1.3%

3.9%

19.4%

1,084.2%

20.9%

Nasdaq

3.9%

5.0%

5.5%

29.5%

117.5%

8.1%

S&P 500

1.9%

4.7%

6.1%

22.0%

61.8%

4.9%

DJIA

0.7%

2.2%

1.5%

12.9%

59.9%

4.7%

Inception: August 2001