A top-rated stock in a top-rated industry group, H. J. Heinz (HNZ | Quote | Chart | News | PowerRating) is our featured stock for the week.
What makes a stock worthy of our Featured Stock Spotlight? More than anything else, we want to find a stock with a high Long Term PowerRating, a Long Term PowerRating of 9 or 10. Why a high PowerRating? Our research, involving thousands and thousands of simulated stock trades between 1995 and 2006, proved to us that stocks with high Long Term PowerRatings of 9 or 10 were both more reliable and better performers than the average stock.
For example, a stock with a 9 Long Term PowerRating—which is the PowerRating that H. J. Heinz has earned as of the most recent close—has been higher one year later, on average, more than 79% of the time. The average stock, by comparison, has been higher one year later less than 68% of the time, on average.
In addition to being more reliable, 9-rated stocks like H. J. Heinz have tended to outperform the average stock in a year's time. We found that stocks with Long Term PowerRatings of 9 have averaged one-year gains of more than 18% since 1995. The average stock lagged significantly behind, averaging a gain of 12-13% after one year.
Whenever possible, we like to feature stocks that also come from industries with high PowerRatings. Here, we are willing to include an industry with a PowerRating as low as 7 as having a relatively high PowerRating. This is in large part to the performance of industry groups, performance we have also monitored and quantified.
Let's again look at Heinz. Heinz is a member of the 7-rated Major Diversified Foods industry group—an industry group the stock shares with companies such as Kraft Foods (K | Quote | Chart | News | PowerRating) and Unilever PLC (UL | Quote | Chart | News | PowerRating), both of which have Long Term PowerRatings of 7.
Our research into industry group behavior showed us that industry groups with PowerRatings of 7 provided investors with average annualized gains of more than 18% from 1995 to 2007. Compare this to the performance of the average industry group over the same period, which was approximately 14.61%.
Heinz is a particularly interesting stock for a number of reasons. Most obviously, is the stock's price movement in 2008. Heinz started the year at $46.50, fell to nearly $41 by the second half of January and, after retesting those lows in early February, rallied strongly over the balance of February and March to its current level just south of $48.
For those of you keeping score at home, Heinz had a Long Term PowerRating of 8 when it made its low in January. But on the retest, Heinz's PowerRating increased to a 9. From there it has been no looking back as the stock has gained more than four and a half points since its PowerRating was upgraded to a 9 in earliest February.
H.J. Heinz recently was upgraded to "outperform" by the analysts at Bernstein Research. The research firm suggested that the company's core businesses in sauces (ketchup, tomato, vinegar), snacks and prepared meals (Weight Watchers) are poised for both strong growth and healthy profit margins.
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David Penn is Senior Editor at PowerRatings.net.
