PowerRating the News: Wal-Mart Best of an Average Bunch

Wal-Mart announced better than expected same store sales this morning, as did Costco, due to bargain-hunting by consumers. But it looks like the biggest bargain of the bunch may not be what Wal-Mart sells in its stores, but what Wal-Mart sells on the stock exchange.

Wal-Mart (WMT@WMT | Quote | Chart | News | PowerRating) is the highest Long Term PowerRating stock in the Discount/Variety Stores industry group. With its Long Term PowerRating of 9, Wal-Mart belongs to that class of stocks which, according to our research, has been both more reliable and better performing than the average stock. It is an excellent example of the kind of large cap stock that active investors and position traders who are building (or rebuilding) their stock portfolios should be considering.

What do I mean by reliability? Reliability is simply the likelihood that a stock will be higher, as opposed to lower, in a year's time. Reliability is a raw, sense-of-the-stock kind of measurement, which provides a basic understanding of whether the stock is on-balance a strong stock likely to move higher or a weak stock likely to move lower.

Specifically, we found that stocks like Wal-Mart that had high Long Term PowerRatings of 9 were higher one year later more than 79% of the time. We consider this to be highly reliable. By contrast, the average stock was higher one year later less than 68% of the time. This is based on our historical research, examining thousands of simulated stock trades between 1995 and 2007.

Wal-Mart

Not only were 9-rated stocks like Wal-Mart more reliable than the average stock, but also these stocks with Long Term PowerRatings of 9 have been better performers after one year than the average stock.

We found that stocks with Long Term PowerRatings of 9 tended to gain, on average, more than 18% after one year. The average stock, on the other hand, gained an average of between 12-13% in a year's time. Again, the advantage goes to the high Long Term PowerRating stock, all else equal.

Wal-Mart hails from the Discount/Variety Stores industry group, as I mentioned. And Wal-Mart, based on its Long Term PowerRating, is far and away the most attractive stock in the group. This industry group includes such stocks as Costco (COST | Quote | Chart | News | PowerRating) which also reported strong same store sales, but has a much less impressive Long Term PowerRating of 6. We consider a stock with a Long Term PowerRating of 6 to be quite average in terms of reliability and performance.

Family Dollar Stores

This industry group also features a number of stocks that active investors should likely steer clear of, as well. This list includes stocks like the 4-rated Dollar Tree (DLTR@DLTR | Quote | Chart | News | PowerRating) and BJ's Wholesale Club (BJ@BJ | Quote | Chart | News | PowerRating), as well as the 3-rated Family Dollar Stores (FDO@FDO | Quote | Chart | News | PowerRating).

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David Penn is Senior Editor for PowerRatings.net.