Stock Spotlight: Consolidated Edison (ED)

When it comes to stocks that investors can count on, Consolidated Edison (ED | Quote | Chart | News | PowerRating) may not be the sexiest name in the market. But its high Long Term PowerRating and strong industry group make it a stock that more active investors and long term traders should keep in mind.

Thus, it is little surprise that Consolidated Edison would make our Featured Stock Spotlight of the week.

There are two things that we like to see in a stock that we highlight for our weekly spotlight. The first and foremost, we need a stock with a high Long Term PowerRating. The high Long Term PowerRating lets us know that the stock has what investors need in terms of both the reliability of the stock and the stock's performance.

By "reliability" I am referring to the likelihood that the stock will be higher in a year's time. By "performance", I am talking about the gains a stock tends to make, on average after one year.

Consider this: Consolidated Edison has a Long Term PowerRating of 9. Our research, looking at thousands and thousands of simulated trades between 1995 and 2007, indicates that stocks with Long Term PowerRatings of 9 have been higher one year later more than 79% of the time. This gives us a sense of the reliability of 9-rated stocks like Consolidated Edison as longer term investments.

But, as I have noted recently, reliability is a necessary but insufficient characteristic of a stock. After all, the name of the game is not just to be higher in a year's time (though that is a critical first step, of course). The goal of those who invest in stocks is to gain more from the performance of the stock than would have been gained investing in other stocks or in the market itself through index-based exchange-traded funds.

Fortunately, our Long Term PowerRatings help clue us in on stocks that are likely to outperform the average stock, as well. We found, for example, that stocks with Long Term PowerRatings of 9--such as Consolidated Edison--actually gained, on average, more than 18% after one year. This, by the way, compares quite favorably to the average stock, which gained an average of 12-13% in a year's time.

Once we have a high Long Term PowerRating stock whose reliability and performance we expect to be superior to the average stock, there is another factor we take into consideration before considering a stock for our Featured Stock Spotlight: the industry group to which the stock belongs.

Consolidated Edison is a member of the Diversified Utilities industry group, an industry it shares with a number of other high Long Term PowerRatings stocks including 9-rated utilities stocks DPL Inc. (DPL@DPL | Quote | Chart | News | PowerRating), Energy East Corporation (EAS@EAS | Quote | Chart | News | PowerRating), Scana Corporation (SCG@SCG | Quote | Chart | News | PowerRating), and Sierra Pacific Resources (SRP@SRP | Quote | Chart | News | PowerRating). The industry also includes another nine stocks with Long Term PowerRatings of 8.

So, given all those high Long Term PowerRatings stocks, does this sound like a good industry group or a poor one?

If you guessed "good," then you would be right. The Diversified Utilities industry group has actually earned our highest Industry PowerRating of 10. How significant is this? The average industry group--from 1995 to 2007--produced average annualized returns of approximately 14.61%. The top rated industries, the industries with PowerRatings of 10, by comparison, produced average annualized returns of more than 35% over the same time period.

That's more than double the performance of the average industry. Clearly, when it comes to investing in stocks, industries with high PowerRatings are the place to be.

And by combining stocks with high PowerRatings with industries that have high PowerRatings, as well, we believe we have created a winning combination for both active investors and long term traders looking for stocks that are likely to outperform their peers.

So the next time you are looking for stocks to add to your portfolio, screen them for both their Long Term PowerRating as well as the PowerRating of the industry to which the stock belongs. Our research suggests strongly that you will be glad that you did.

Looking for more long-term solutions to your investing problems? Don't let the volatility of this market lead you to miss out on stocks you'll be glad to have bought a year from now. Click here to get a copy of our special, Free Report on the "5 Secrets to Successful Stock Investing," and learn what you need to know as an active investor looking to invest in companies with a history of financial strength and a track record for growth. Call us at 888-484-8220, ext. 1 to get your copy of the "5 Secrets to Successful Stock Investing" today.

David Penn is Senior Editor at PowerRatings.net.