Dogs of the Dow continue to lag overall market – Part I

 

After outpacing the overall market the last three years as we tracked the Dogs of the Dow, this year’s group has underperformed through 2017, and continues to do so as we near the end of the second quarter.

The last time we looked at our group in May, the group of ten stocks in this year’s Dogs of the Dow was up an average of 2.0%, while the Dow Jones had appreciated 5.5%. At the current time, the group is up 4.9% (including dividends), while the Dow Jones has gained 7.6% year to date.

As will always be the case, there are some stocks that are putting up strong numbers for the year, while others are dragging down the overall group and pulling it below the overall market.

There is still half a year to go, so there is plenty of time for the group to move higher and succeed at beating the overall market, but for that to happen, a couple of the weakest performers are going to need to gain traction and trend higher through the latter part of the year.

Let’s take a closer look at each stock in this year’s group of Dogs of the Dow, and try to pinpoint where the weakness lies.

Note this will be a two-part series, and so today we will look at the first five stocks in the group, and be sure to check back tomorrow when we look at the second five stocks.

Verizon

Telecom giant Verizon (VZ) continues to be the weakest stock in this year’s group. When we checked in the position last month, the position was down 12.9%, but it has improved slightly, and is currently down 12.3%. The stock made a small rally during the final weeks of May, but shares are once again moving in the wrong direction. Verizon will not report earnings again until July 27, so there will not be a lot of catalyst to drive shares higher for at least another month. VZ has a P/E of 15.3, so the downside is likely limited, but I would not look for the stock to make any meaningful move higher for at least another month. VZ will not make another dividend payment until August 1.

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Chart courtesy of www.stockcharts.com

Pfizer

Pfizer (PFE) has remained in positive territory through the first half of the year, but shares continue to lag the overall Dow Jones. PFE is currently up 6.7%, including a second dividend payment, which is close to the Dow Jones’ 7.6% gain, and shares are trending higher, and within distance of the overall market. The company reported mixed results at the start of May, with earnings beating the consensus while revenues fell a bit short. The weak revenue number initially drove shares lower, but the stock has been trending higher over the last two weeks. The stock has a high valuation, with a P/E of 28.7, which could put a ceiling on the stock at this point. Pfizer will not report earnings again until August 1, and the company will make its third distribution on September 1.

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Chart courtesy of www.stockcharts.com

Chevron

Oil and gas giant Chevron (CVX) is the second worst performer in the group, and shares have lost more ground since we last looked at the position. Last month, CVX was down 8.9%, and it is currently down 9.6%, even with a second dividend payment helping boost the return a bit. Oil prices are pretty stable, but with oil not moving higher, it will be hard for oil and gas stocks to move higher. CVX last reported earnings in late-April, with earnings topping estimates while revenues fell short of the consensus. CVX remains an expensive stock, with a P/E of 68.00, but analysts see earnings rising 361% this year thanks to improvements in oil prices, and an additional 29.3% in 2018. The high growth estimates could push shares higher, but a lot of that forecast growth has already been priced into the stock, and the company is going to need to put up solid numbers moving forward for the street to keep the stock trading at its high valuation. CVX will next report earnings on July 28, and will not make another distribution until mid-September.

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Chart courtesy of www.stockcharts.com

Boeing

Aerospace and defense contractor Boeing (BA) has been the best stock in the group all year, and that continues to be the case at this point. When we last checked in on the position, it was up 19.6%, and it has now appreciated 31.8% on the year including two dividends. Boeing has a good track record of posting better than expected earnings, and the outlook for the entire sector remains strong. President Trump has promised to boost spending on the military, which has driven the entire sector higher over the last six months. Even with BA trading just shy of its record-high, the valuation is not a huge concern, with a P/E of 24.8, and earnings forecast to rise 29.7% during the current year and an additional 9.1% in 2018. The company will next report earnings on July 26, and make its third dividend payment at the start of September.

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Chart courtesy of www.stockcharts.com

Cisco Systems

Cisco Systems (CSCO) took a hit following its most recent quarterly report. The company reported good fiscal third-quarter numbers, but issued disappointing future guidance which drove shares sharply lower. The stock has found solid support and has been trying to recover some of its post-earnings losses, but has been unable to make any material moves to the upside. The entire tech sector took at a hit in recent weeks, which has hurt CSCO’s ability to stage a recovery, but shares could start to move higher as the entire tech sector regains strength. CSCO is up 8.7% on the year, including two dividend payments, so it has slightly outpaced the overall market, and should continue to trade slightly above the overall market ahead of its next quarterly report expected on August 16. The company will make its third distribution on July 26.

csco170626

Chart courtesy of www.stockcharts.com

Symbols: BA CSCO CVX PFE VZ
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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