I often talk about overly optimistic sentiment as a leading reason why a stock underperforms its peers or the market.

During the first bear market of this century, Microsoft (MSFT) was considered the poster child for over-loved stocks. Investors and analysts loved the company and the shorts stayed more than an arm’s length from the software giant.

Where did it get Microsoft back then? Nowhere.

Too much optimism means a lack of potential buyers on the sidelines. Such stocks usually trade in a range and fall under continued scrutiny. Such was the case with MSFT.

Now this appears to be the situation with retail favorite Wal-Mart (WMT).

Looking at option activity, call volume is trending higher, pushing WMT’s put/call ratio lower. Currently at 0.68, the ratio is near signaling that there are two calls trading for every put (a ratio of 0.50). This is similar to the activity that we saw on MSFT from 2000-2003.

Similarly, 73% of the analysts covering the stock have it rated a “buy” or higher. This is relatively high compared to the rest of the market, indicating that the firepower represented by potential upgrades on the stock has been spent.

WMT’s over-loved status helps to explain why the stock has lagged the rest of the retail sector.

Look at this comparison of Wal-Mart with long-time competitor Target (TGT). WMT is up about 6% from its March lows while TGT is up 64% for the same period. Not surprisingly, there are more puts traded on Target than Wal-Mart, and a healthy number of analysts cover TGT with a “hold” or “sell” rating.

So, what does this all mean?

Well, those looking for continued opportunities in the retail sector may want to pass over the stock that everyone else appears to own — Wal-Mart — for the less-liked Target.