What's behind Wal-Mart's lonely rally?

Wal-Mart shares are doing something pretty unusual this year: They're rising.

Of the 30 stocks in the Dow Jones industrial average, only Wal-Mart is higher on the year. It's also the seventh-best-performing stock in the S&P 500 index, which is down 6 percent overall.

The 5 percent rally that Wal-Mart is enjoying in 2016 represents a substantial turnabout from 2015, when Wal-Mart was actually the Dow's worst-performing stock.

If something sounds familiar about this pattern — the Dow's worst performer in one year turning into its best performer in the next — that's because it's inscribed in market lore that sinking Dow stocks are set to surge.

The "dogs of the Dow strategy," popularized by asset manager Michael O'Higgins in 1991, holds that one can beat the market simply by buying the 10 stocks in the Dow 30 paying the highest dividends. These are quite likely to be names that have sunk in the prior year, which is why they're known as "dogs."

Interestingly, that doesn't quite describe Wal-Mart, which has a dividend yield of about 3.1 percent — substantially below Chevron's 5.2 percent, or Verizon's 5 percent. Nonetheless, it appears that the stock is being seen as a port in the current storm.

Read MoreDividend growth expected to hit 65-year low

"Flight to quality and safe haven" status are behind the stock's early-2016 rebound, Raymond James analyst Budd Bugatch wrote in a Friday research note.

There may also be something else involved. While still-plummeting oil prices appear to be weighing on stocks as a whole, Wal-Mart may be one of the few beneficiaries of sinking energy prices.

Calling Wal-Mart "our best $35 oil idea" in a mid-December note, Nomura analyst Robert Drbul wrote that low oil and gas prices help Wal-Mart "for two key reasons: 1) we believe lower income demographic consumers stand to benefit most from lower gas prices, and 2) we believe its private transportation fleet (>6,650 trucks; one of the largest in the world) will realize cost benefits due to low fuel prices."

On the other hand, Erin Gibbs of S&P Investment Advisory says that given Wal-Mart's earnings picture over the next few quarters, "there are better options out there."

Still, Gibbs granted in a Monday interview on CNBC's "Power Lunch" that it's "a good stock if you want something defensive — more about capital preservation versus growth."


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more