Michael B. O'Higgins is considered one of the top money managers in the United States and has been featured in such magazines as Barron’s, Forbes, Money Magazine, The Wall Street Journal, etc. But what Michael is most known for his best-selling investment classic: Beating The Dow, which later turned into "Dogs of the Dow" investment strategy.
It involves buying the ten stocks with the highest yields among the thirty in the Dow Jones Industrial Average at the end of each year then holding them until the end of the next year. Since 2010, in the recovery from the recession, the dogs have outperformed the Dow Average in every year but two, and the strategy beats the Dow and S&P 500 indices over 3,5,10, and 20-year average total returns.
According to Hartford Funds, 82% of the total return of the S&P 500 since 1960 is attributable to reinvested dividends. That is a staggering number and a testament to the power of compounding, and it is not lost on big pension and investment funds. They rely on yield to meet their obligations and keep building their capital, but yield has become hard to find.
That is the key as to why the “dogs” strategy could do even better than its already impressive average outperformance over the next couple of years.
The DOW closes slightly higher on Tuesday as Wall Street wrapped up a banner year. The DOW rose 22.3% in 2019, its best annual performance since 2017. However, the DOW trailed both the S&P 500 and the Nasdaq. The S&P 500 was up 28.9% for 2019, its biggest one-year gain since 2013. The Nasdaq also had its best one-year performance in six years. Speaking of trailing, here is the list of the Dogs of the Dow for 2020:
Dow Inc. (NYSE: DOW)
Exxon Mobil Corp. (NYSE: XOM)
International Business Machines Corp. (NYSE: IBM)
Verizon Communications Inc. (NYSE: VZ)
Chevron Corp. (NYSE: CVX)
Pfizer Inc. (NYSE: PFE
3M Co. (NYSE: MMM)
Walgreens Boots Alliance Inc. (NASDAQ: WBA)
Cisco Systems Inc. (NASDAQ: CSCO)
Coca-Cola Co. (NYSE: KO)
However, the three stocks that are the Dogs with the biggest bark among the DOW Dogs are Walgreens, 3M and Pfizer. While the DOW hit all-time highs in 2019, these three stocks were negative for the year. So the question becomes, will Walgreens, 3M and Pfizer outperform all the other Dow Dogs in 2020.
Walgreeens
Over 3000 prescription drugs’ prices have been hiked in 2019, forcing customers to replace prescription medicines with low-cost generic drugs which has negatively impacted Walgreens. In addition, Walgreens has been facing more and more competition from the likes of Walmart, Costco and Amazon.
Price has bounced off the monthly demand at $47, but now find itself back a a major support/resistance line at $60.
3M
3M is an American multinational conglomerate corporation operating in the fields of industry, worker safety, health care, and consumer goods. Quite simply, 3M continues to face slowing conditions in key end markets which impacted their organic growth and margins, and their operational execution continues to fall short of the expectations.
The fact that price broke the monthly demand, price could continue to fall to the $130 level.
Pfizer
Pfizer Inc. develops, manufactures, and sells healthcare products worldwide. It offers medicines and vaccines in various therapeutic areas, including internal medicine, vaccines, oncology, inflammation and immunology, and rare diseases under the Lyrica, Chantix/Champix, Eliquis, Ibrance, Sutent, Xalkori, Inlyta, Xtandi, Enbrel, Xeljanz, Eucrisa, BeneFix, Genotropin, and Refacto AF/Xyntha brands.
Pfizer faced a major setback when one of its key drugs Lyrica lost exclusivity in the United States in July. Other products like Chantix and Sutent will lose exclusivity in the United States in the next couple of years. But the company secured FDA approval for four new cancer medicines last year, which can boost its oncology sales in future years. And Pfizer expects approximately 25-30 drug approvals through 2022 including the nod for 15 products with blockbuster prospects.
Price is stuck in the middle of monthly zones, meaning Pfizer is in a sideways market now. Until price breaks out, a potential strategy would be to deploy an iron condor.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.