Long Term PowerRatings and Rules for the Active Investor

The first rule of active investing, as money managers and financial analysts across the spectrum have suggested, is to determine whether or not you want to be invested in stocks or not.

It sounds simple--even simplistic. But for active investors looking at a stock market that seems unable to move higher on a consistent basis, this is simplicity worth keeping in mind--if not abiding by.

If you cannot handle--either emotionally or financially--the occasional volatility of stocks or the fact that stocks will often pull back sharply and deeply--then perhaps investing in bonds is a better bet. Bonds may not provide great returns--especially in the current economic climate of monetary accommodation--but those returns are virtually guaranteed for at least the duration of the bond.

However, if you are looking to grow your money, to invest in assets that historically have shown greater rates of appreciation than most other asset classes over the long term, then you have few better choices than to invest in stocks. The only question is which stocks.

Obviously, the work we have done with our Long Term PowerRatings makes us want to encourage active investors and long term traders to use those Long Term PowerRatings to help guide them towards stocks that are both more reliable and better performers than the average stock. But even our Long Term PowerRatings will be of little use for an active investor who has not committed him or herself to the sometimes-difficult-to-reconcile-idea that stocks, though a better long term bet than other assets, will disappoint from time to time.

When stocks are in correction mode and disappointing their investors, we believe it is the most critical time to examine your stock portfolio, see what is working and what is not working, and then make the appropriate changes.

For example, does your portfolio have more than 20-25% stocks from the same industry? If your portfolio's performance is suffering, then check to see if part of the reason has to do with having too many stocks in the same weak or under performing industry group. Along those lines, review your portfolio to see if it is diversified. Even if you do not have an overwhelming number of stocks that are all from the same industry group, you may be overexposed to those industries that are lagging and underexposed to those industries that are holding their own or even appreciating in value.

By diversifying your stock portfolio, you increase the likelihood that while some stocks you own may be performing poorly, others may be keeping pace or doing even better than the market and the average stock. For those are a bit more active in their investing, traders can rotate out of the best performing stocks in their portfolios, taking profits after strong gains, and apply that money to new investments in stocks that have not yet begun to move higher.

A last item for investors to consider is dividends. How many of the stocks in your portfolio pay a dividend? If you are like many active investors who still own a sizable amount of technology stocks year round, then there is a good chance that you are not taking advantage of the relatively large cash hoards that many companies have--and have been using to pay out dividends.

True there are a number of companies--mostly in the financial sector--that have reduced or even eliminated their dividends. These are companies that tend to have developed low or below average Long Term PowerRatings anyway, and are thus not particularly attractive as investments, at all.

But there remain a number of companies that have both high Long Term PowerRatings and healthy dividend yields that investors can take advantage of. Many of these companies can be found in the Utilities and Diversified Utilities industry groups, as well as among the Personal Products and Drug Manufacturers.

Active investors and long term traders have to deal with markets they have rather than the markets they may want--to steal a phrase. But that does not mean that active investors and long term traders should sit idly by as the swings of the market ravage their hard-earned investment gains. Even taking a modest active role in building and maintaining your stock portfolio can go a long way toward improving your portfolio's bottom line.

So, remember: avoid putting too much into any one industry group or stock, make sure you have exposure to different industry groups, try to include at least a few good, dividend paying companies in your portfolio to help boost returns, and last but not least, make sure that every stock in your portfolio has a Long Term PowerRating of at least 8. These are the stocks which, according to our research, are the stocks best equipped to weather whatever storm the economy or the stock market throws our way.

Stocks in the News

This week's stocks in the news includes typically positive news from stocks with commodity--especially agriculture--exposure, as well as more dueling between Microsoft and Yahoo over the bid the former has offered for the latter.

More trouble in the banking business it seems as Bank of America (BAC | Quote | Chart | News | PowerRating) announced that its first quarter earnings would be lower by some 77%.

Investment gains helped Yahoo! (YHOO | Quote | Chart | News | PowerRating) notch more than triple quarterly profits, though Microsoft (MSFT | Quote | Chart | News | PowerRating) insisted that the news would not cause the software giant to increase its bid for the company.

Growth in overseas operations helped McDonalds (MCD | Quote | Chart | News | PowerRating) post a quarterly profit gain of 24% this week. News was less positive with regard to the domestic market.

American Express (AXP | Quote | Chart | News | PowerRating) beat earnings this week and reaffirmed guidance for the year.

A stronger-than-expected surge in profits to the tune of 38% for the quarter helped boost shares of Boeing (BA | Quote | Chart | News | PowerRating) earlier this week

Starbucks (SBUX | Quote | Chart | News | PowerRating) warned that profits would be weaker than expected for both the quarter and the year due to decreases in customer traffic and what Starbucks described as a "weak consumer environment."

The good news for stocks related to commodities and agriculture continues as DuPont (DD | Quote | Chart | News | PowerRating) announced a profit surge of some 26% due to sales of its pesticides and genetically modified corn and soybean seeds.

Cost-cutting in North America and increased sales in developing economies helped Ford (F | Quote | Chart | News | PowerRating) record a profit for the first quarter.

Increases in new customer subscriptions helped AT&T (T@T | Quote | Chart | News | PowerRating) post first quarter earnings growth of more than 20% this week.

What To Look For Next Week

Monday: Dallas Fed Manufacturing Production Index
Tuesday: Consumer Confidence
Wednesday: ADP Employment Report / FOMC Announcement
Thursday: Jobless Claims / Manufacturing Index
Friday: Factory Orders / Non farm Payrolls

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 or 9.

Sierra Pacific Resources (SRP@SRP | Quote | Chart | News | PowerRating). Long Term PowerRating 9
Nustar Energy L.P. (NS@NS | Quote | Chart | News | PowerRating). Long Term PowerRating 9
Carolina Group (CG@CG | Quote | Chart | News | PowerRating). Long Term PowerRating 8
iShares Dow Jones U.S. Telecommunications (IYZ@IYZ | Quote | Chart | News | PowerRating). Long Term PowerRating 8
Unisource Energy Corporation (UNS@UNS | Quote | Chart | News | PowerRating). Long Term PowerRating 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 1or 2.

Guess Inc. (GES@GES | Quote | Chart | News | PowerRating). Long Term PowerRating 2
MBIA Inc. (MBI@MBI | Quote | Chart | News | PowerRating). Long Term PowerRating 2
NutriSystem Inc. (NTRI@NTRI | Quote | Chart | News | PowerRating). Long Term PowerRating 2
UAL Corporation (UAUA@UAUA | Quote | Chart | News | PowerRating). Long Term PowerRating 1
ProShares UltraShort Real Estate (SRS@SRS | Quote | Chart | News | PowerRating). Long Term PowerRating 1

David Penn is Senior Editor at PowerRatings.net.