Dogs of the Dow fall behind

 

The last time we checked in on this year’s Dogs of the Dow, the group of stocks were trailing the overall Dow Jones by just 0.6%, but over the last month the stocks have appreciated less than the overall market.

With recent gains in the market, the Dow Jones is currently up 22.3% on the year. The ten stocks in this year’s Dogs of the Dow, have appreciated, on average by 18.8%.

There are a couple of major positive outliers in this year’s group, but just three of the ten stocks are currently outpacing the overall market. While the three outliers are keeping the group close to the market, the remainder of the stocks are pulling down the overall average, and could make this the first year in the last four that we have tracked the strategy that it falls to beat the overall market.

For our readers that are new to the Dogs of the Dow strategy, the basic idea is that investors would buy an equal dollar weighte amount of the top ten yielding stocks in the Dow Jones at the beginning of the year, and holding those positions for the entire year regardless of individual performance. The reasoning behind the strategy is that the stock’s yields have risen so high because the underlying security has fallen into oversold territory, and as the stocks trade up to fair value they will appreciate faster than the overall market.

Let’s take a closer look at each of the ten stocks in this year’s group to see which are outperforming the market, and which are dragging down the overall group.

Boeing and Caterpillar are crushing the market

The two strongest outliers in this year’s group remain Boeing (BA) and Caterpillar (CAT). The stocks are up 82.2% and 56.0% respectively. Wall Street has rallied behind both stocks for the last two years, and neither stock is showing any signs of slowing down. Improvements in the overall economy are helping both companies, while Boeing is showing strength from President Trump’s desire to beef up the U.S, military, and CAT is benefitting from Trump’s pledge to boost federal spending on infrastructure. Both stocks remain Wall Street darlings, and will easily close out the year well above the overall market. BA is trading at $276.44 versus an average price target of $285.93, while CAT trades at $141.14 which is basically in-line with the $141.74 average price target.

ba171205

cat171205

Chart courtesy of www.stockcharts.com

Cisco tops the market while Coca-Cola lags

Cisco Systems (CSCO) is currently up 28.0% while soft drink maker Coca-Cola (KO) is up just 14.5% year to date. Cisco has moved steadily higher over the last year, and shares are currently trading just shy of their 52-week high. CSCO is currently outpacing the market, but there are signs that shares may be close to hitting a ceiling. CSCO trades with a P/E of 19.7 with earnings expected to rise just 2.9% during the current year, and the stock trades at $37.38 versus the average price target of $39.00. With the low growth forecast, and shares so close to the average price target, CSCO may struggle to build on its recent gains. Coca-Cola faces a lot of challenges with a shift in consumer taste away from sugary soft drinks, but the company has done a good job growing its other segments, and cutting costs, which has helped drive shares to a new record high. KO has a high P/E of 48.8, and earnings are forecast to rise just 5.3% per annum over the next five years, which could keep the stock from trading too much higher from its current level. KO trades at $46.27, and analysts have an average price target of $48.58 on the stock.

csco171205

ko171205

Chart courtesy of www.stockcharts.com

Pfizer and Chevron remain positive, but trail overall market

Pharmaceutical leader Pfizer (PFE) is up 13.0% during the year, while oil and gas giant Chevron (CVX) has risen a modest 5.4% since the start of the year. Pfizer reported mixed results in both May and August, but a strong report in October has the stock trending higher and it should continue building on recent gains through the remainder of the year. The stock has a P/E of 26, and earnings are forecast to rise 5.8% next year. Chevron is in positive territory, but it remains well below the overall market due to weakness in the first half of the year. The stock has trended higher over the last six months, and recently has moved strongly higher following a very strong quarterly report at the end of October. Earnings are forecast to rise 29.1% next year, and the stock has a P/E of 39. PFE trades at $35.62 versus a $39.90 average price target, while CVX is at $120.82 versus its $127.30 average price target.

pfe171205

cvx171205

Chart courtesy of www.stockcharts.com

Verizon and Merck hover around break-even

Telecom giant Verizon (VZ) has moved into positive territory, with the stock up just 0.3% on the year. Pharmaceutical company Merck (MRK) took a big hit at the end of October, and shares are now down 2.4% on the year. After a positive revenue report in mid-October, Verizon gapped sharply higher, and enthusiasm has returned to the stock. The stock has a low valuation, with a P/E of 13.2, and with a 4.73% dividend yield, it remains attractive and should build on its recent gains. VZ trades at $51.41, with an average price target of $51.17. Merck appears to have bottomed out following its disappointing quarterly report in October, and with the worst behind it, shares could slowly make back some of the recent losses through the remainder of the year. Analysts remain upbeat, with an average price target of $64.00, versus its current trading price of $56.34.

vz171205

mrk171205

Chart courtesy of www.stockcharts.com

IBM and Exxon Mobil remain in negative territory

International Business Machines (IBM) has trended higher over the last three months, but the stock remains in negative territory, down 3.7% since the start of the year. Oil and gas giant Exxon Mobil (XOM) is up nicely in recent months, but the stock has not yet moved into positive, and is down 5.1% year to date. IBM has struggled in recent years with declining revenues, but a much stronger than expected quarterly report in mid-October brought enthusiasm to the stock, which is currently trending higher and could trade into the green by year’s end. The stock is trading at $154.74, and analysts have an average price target of $168.93 on the stock. Exxon Mobil reported solid numbers at the end of October, and the stock recently broke through a solid level of resistance that could allow shares to move higher through the remainder of the year. XOM trades at $83.30, and analysts have an average price target of $87.08 on the stock.

ibm171205

xom171205

Chart courtesy of www.stockcharts.com

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.

You May Also Like