NYSE: PHG
Price: $37
52-week low: $27
52-week high: $38
P/E ratio: 7
Yield: 1.2%

Our last pick, Royal Philips Electronics, is well known as a maker of consumer products like Norelco shavers, light bulbs (the British royal family recently asked Philips to light Buckingham Palace with its low-energy bulbs) and medical devices such as CT scanners. But on Wall Street, says Franklin's Brugere, analysts have tended to focus on the company's huge but low-margin semiconductor business.

Now in the midst of a turnaround, Philips agreed in August to sell 80% of the chip business to private-equity buyers for more than $10 billion, freeing up cash for higher-margin divisions such as medical devices, as well as an aggressive stock-buyback program. With this transaction, says Brugere, "volatility has been reduced, multiple expansion is taking place, and management is doing what it has promised in terms of restructuring." Wall Street has taken notice: Philips shares have rallied since the August deal, rising from $30 to more than $37, and the company has boosted its multiple to roughly 22 times 2007 earnings. Even so, says Brugere, there's still an upside of 20% as this Dutch giant cuts costs, drives shareholder returns, reallocates capital, and earns new respect from the Street.