S&P's 10 Stocks for a Struggling Market

by: David Jackson posted on: May 30, 2006 | about stocks: ADM / AEO / BT / DIS / FS / FTI / IMCL / KSS / TSN / TXU

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In search of stocks that should continue to perform well in this shaky market, Newsweek reported that S&P's equity research team ran a scan with the following four guidelines:

Positive momentum: 'a 13-week relative strength ranking of 90 or better, based on S&P's proprietary measure. That places their performance in the top 10% of stocks over that time.'
Technicals: 'most favorable rating according to S&P's proprietary technical-investing model'
S&P rating: 4 STARS (buy) or 5 STARS (strong buy) from S&P equity analysts
Non-speculative: market cap above $1 billion and share price over $5.00

The results (alphabetical):

American Eagle Outfitters (AEOS)
Archer-Daniels-Midland (ADM)
BT Group (BT)
Disney (DIS)
FMC Technologies (FTI)
Four Seasons Hotel (FS)
ImClone Systems (IMCL)
Kohl's (KSS)
TXU Corp. (TXU)
Tyson Foods (TSN)

(The article is available at BusinessWeek.)

Now, I must admit I find this kind of list amusing. The Ten Best XXX Stocks always makes for a grabbing headline, and business and investing magazines love this sort of story. But there's no explanation of what "S&P's proprietary technical-investing model" actually is, nor its predictive value.

And there's no discussion of the stock picking track record of the S&P analysts.

And momentum -- well, that's just momentum. It won't appeal to value investors or long term investors.

And do you really avoid "speculative issues" by requiring a minimum market cap of over $1 billion? Not clear, particularly since these are stocks with "positive momentum" that could be the recent darlings of momentum investors.

Looks to me as though this is a concentrated large cap portfolio with no exposure to technology and no meaningful explanation as to why these constituents are included. Surprising, given Business Week's usually high standards.

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