What are PowerRatings Saying About the Economy?

I was conducting an interview with Gil Morales, a William O'Neil trained trader and money manager out of Los Angeles yesterday. Among the interesting things that Morales shared over the course of our hour-long conversation was the idea that when it came to studying the market, focusing on his stocks was just as important as focusing on the broader market and other "big picture" metrics.

Morales' point was that often your own stocks will let you know how the market is doing--or at least how the market is doing relative to your stocks. Sometimes you will own stocks that begin to breakdown before the market does, giving you a heads up to greater potential weakness going forward. This was the case with many financial stocks in the fall of 2007, which began moving lower in advance of the market top in October.

Other times, your stocks will continue to advance as the market begins to show signs of weakness. When this happens traders and active investors should continue to take advantage of their stocks' relative strength vis-a-vis the broader market. But at the same time they should be wary of the likelihood that sooner or later whatever weakness has affected the broader market will probably catch up to those remaining strong stocks, as well.

I thought of Morales' comments as I looked at some of the stocks I have been writing about for PowerRatings.net. In the six-odd months that I have been writing articles about our Long Term PowerRatings, the types of stocks that have continued to appear with high Long Term PowerRatings have increasingly come from one of three or maybe for industry groups. Those industry groups have been Major Drug Manufacturers, utilities (both Diversified and Water), Personal Products and Oil and Gas Pipelines.

The guiding principle behind our Long Term PowerRatings is that stocks with high Long Term PowerRatings are the kind of stocks that are expected to outperform the average stock in a year's time. These are the stocks which, according to our research, are more likely than the average stock to be higher in a year's time.

So what does it mean when stocks like Pfizer (PFE@PFE | Quote | Chart | News | PowerRating), Consolidated Edison (ED@ED | Quote | Chart | News | PowerRating), Kimberly Clark (KMB@KMB | Quote | Chart | News | PowerRating) and Atlas Pipeline Partners (APL@APL | Quote | Chart | News | PowerRating)—all of which have Long Term PowerRatings of 8 or higher—are among the stocks that investors should be looking toward in terms of stocks that will be higher in year's time?

All of these stocks come from so-called "recession-proof" industries, industries that have companies who make products and provide services that people will need and seek out regardless of how well the economy is doing. And the fact that the most attractive stocks for the past several weeks have increasingly been stocks from these industries groups suggests that, a year from now, investors who put their money in recession-beating stocks are likely to have fared better than investors who did not. The only way that happens, it seems to me, is if the economy remains weak—or becomes even weaker—driving more and more investors into these names.

I have long taunted the doom and gloomers, calling their fears of a major economic slowdown the "World's Most Anticipated Recession"--and I'm sticking with it. But the behavior of the stocks--and the message from the Long Term PowerRatings--is not to be faded. Whether or not you believe that the economy is headed for hell in a hand basket, you are likely to be better off sticking to these high Long Term PowerRating names until stocks from other industrial groups or sectors begin to challenge them with high Long Term PowerRating of their own.

Stocks in the News

This week's stocks in the news include more capital-raising initiatives from the financial sector, more Microsoft-evading from the technology sector, and continued good news for just about any company with exposure to the booming commodities sector.

After announcing earlier in the week first quarter earnings that were lower than expected, AMD (AMD | Quote | Chart | News | PowerRating) reported on Friday that the company's chief technology officer would be stepping down.

Washington Mutual (WM | Quote | Chart | News | PowerRating) managed to raise $7 billion in cash as the company provided earnings guidance that was significantly worse than expected. The company also announced major job cuts and dramatic reductions in its stock's dividend.

General Electric (GE | Quote | Chart | News | PowerRating) surprised analysts at the end of the week with its earnings miss and lowered forecast. The combination of factor lead to a sell-off in stocks across the board in the first few hours of trading on Friday.

Still casting about for partners to help it fend off Microsoft's (MSFT | Quote | Chart | News | PowerRating) unsolicited bid, Yahoo! (YHOO | Quote | Chart | News | PowerRating) was reportedly close to concluding a deal with AOL that could result in a merger of the two companies.

Stocks with commodity exposure continue to be among the winners in today's markets as DuPont (DD | Quote | Chart | News | PowerRating) announced that its first quarter earnings were likely to be higher than previously anticipated.

What To Look For Next Week

Monday: Retail Sales / Business Inventories
Tuesday: Producer Price Index
Wednesday: Consumer Price Index / Housing Starts / Beige Book
Thursday: Jobless Claims / Leading Indicators
Friday: None

Best Performing Stocks (PR 8-10) of the Last Five Days

Here are some of the best performing, high Long Term PowerRatings stocks of the past five days. This week, all of the listed stocks have PowerRatings of 8, 9 or 10.

NAVTEQ Corporation (NVT@NVT | Quote | Chart | News | PowerRating). Long Term PowerRatings 10
Scana Corporation (SCG@SCG | Quote | Chart | News | PowerRating). Long Term PowerRatings 9
StreetTRACKS Gold Shares ETF (GLD@GLD | Quote | Chart | News | PowerRating). Long Term PowerRatings 9
Rockwell Collins (COL@COL | Quote | Chart | News | PowerRating). Long Term PowerRatings 8
Lockheed Martin Corporation (LMT@LMT | Quote | Chart | News | PowerRating). Long Term PowerRatings 8

Worst Performing Stocks (PR 1-3) of the Last Five Days

Here are some of the worst performing, low Long Term PowerRatings stocks of the past five days. This week, all of the listed stocks have PowerRatings of 1 or 2.

Ethan Allen Interiors (EH@ETH | Quote | Chart | News | PowerRating). Long Term PowerRating 2
Nordstrom (JWN@JWN | Quote | Chart | News | PowerRating). Long Term PowerRating 2
ProShares Ultra Financials (UYG@UYG | Quote | Chart | News | PowerRating). Long Term PowerRating 2
Freddie Mac (FRE@FRE | Quote | Chart | News | PowerRating). Long Term PowerRating 1
Centex (CTX@CTX | Quote | Chart | News | PowerRating). Long Term PowerRating 1