Stock Spotlight: Kellogg (K)

Add to that the fact that shares of Kellogg have earned a Long Term PowerRating of 9 while hailing from an industry group, Processed and Packaged Goods, that has an even better PowerRating of 10, and you will understand why Kellogg is our the featured stock in this week's PowerRatings Featured Stock Spotlight.

If there were only one rule for active investors and long-term traders when it came to using our Long Term PowerRatings, then that rule would likely be this: stick with high PowerRatings stocks, stocks with Long Term PowerRatings of 9 or 10, that come from industries with PowerRatings of 7 or higher.

Our research has found that this combination, which Kellogg fits to a T, has led to some of the best gains for those using Long Term PowerRatings. We have developed a number of trading methods using Long Term PowerRatings which vary from riskier momentum strategies to more conservative ones. But one staple of all our Long Term PowerRatings systems is reliance on high PowerRatings stocks, stocks with Long Term PowerRatings of 9 or 10, from industries that also have relatively high PowerRatings.

Consider the sort of simulated performance statistics that support this. We found that stocks with Long Term PowerRatings of 9 were not only more reliable than the average stock, but also outperformed the average stock after one year. Specifically, 9-rated stocks were higher one year later more than 79% of the time. By contrast, the average stock was higher one year later less than 68% of the time. This is based on our analysis of thousands and thousands of simulated stock trades between 1995 and 2007.

With regard to performance, we discovered through our research that stocks with Long Term PowerRatings of 9 gained an average of more than 18% in a year's time. The average stock over the same time period gained on average between 12-13%. This reveals a significant advantage for the higher PowerRating stock.

Back to Kellogg. In addition to being a high PowerRating stock in its own right, Kellogg belongs to an industry group that itself has the highest possible PowerRating for an industry group, 10. Our research found that 10-rated industries, between 1995 and 2007, produced average annualized returns of more than 35%. This was more than twice the average annualized return of the average industry group over the same time period.

Kellogg has been a 9-rated stock for most of the year. Trading below its 200-day moving average, the stock has ranged as low as $46 when it bottomed in the second half of January to as high as $52.50 in mid-February when it tested its 200-day moving average for resistance.

With regard to the company's fundamentals, Kellogg's net earnings for 2007 increased by almost 10% over the previous year. Net sales were up 8%. The company also recently provided a strong earnings forecast for 2008.

David Penn is Senior Editor at PowerRatings.net.