2017 will go down as an extremely memorable bull run in the US stock market, but among all of the gains, there were also some losers in the mix. I’ll look at the five worst performing companies, which coincidentally were the ONLY Dow companies to also end the year in the red. The 30 companies that comprise the Dow Jones Industrial Average are considered the bluest of the blue chips, so I think it’s very interesting to look at the worst performers of this distinguished group. The returns listed do not include dividend reinvestment.
5. Verizon Communications Inc
2017 Returns- -0.87%
P/E-13.58
Dividend Yield-4.46%
4. Merck & Co Ltd.
2017 Returns- -4.42%
P/E-54.55
Dividend Yield-3.41%
3. Exxon Mobil Corporation
2017 Returns- -7.33%
P/E-27.28
Dividend Yield-3.68%
2. IBM Corp
2017 Returns- -7.57%
P/E-12.8%
Dividend Yield-3.91%
1. General Electric
2017 Returns- -44.78%
P/E-20.38
Dividend yield-2.75%
I’ve chosen to look at these stocks because of the strategy known as the “dogs of the dow.” This strategy simply seeks to buy the 10 highest yieldings companies in the Dow, and then rebalances annually. This approach is rather simplistic and based on the notion that higher yield equals lower share price, and blue chip share prices are expected to rise again after a fall(which causes the higher yield).
I don’t endorse this strategy, but I do think it’s a decent starting point to search for bargains among the most well known blue chips. As far as the five companies listed, one thing that stands out to me is that only one of the five is actually has a P/E ratio below 15. Strictly speaking, this would mean the other companies are still overvalued in spite of negative returns in 2017. This tells me that the market is still quite frothy.
Verizon and GE are the only interesting companies to me at this time. Verizon pays a hefty dividend, has increased its dividend for 11 consecutive years, and is eyeing more big acquisitions in 2018. I see the dividend yield as being the biggest driver in the long term performance of the stock.
General Electric could be considered a potential crisis buy at the moment. 2017 saw the company change CEOs, slash it’s dividend, and announce plans to spin off certain non-core assets. There is still a big question mark over what will happen in the future, which is reflected in the share price. For shares of a mega-cap company to decline 44% in one year is a rather big deal, and should be investigated further. I haven’t done extensive research on either Verizon or GE, but I wonder if GE might be the ideal contrarian trade in the medium to long term.
*This post is not intended as financial advice. It is for informational purposes only.
Returns taken from https://finviz.com/screener.ashx