S&P's 10 Stocks for a Struggling Market

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:

1. 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.'
2. Technicals: 'most favorable rating according to S&P's proprietary technical-investing model'

3. S&P rating: 4 STARS (buy) or 5 STARS (strong buy) from S&P equity analysts
4. 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.