Thursday January 17, 2013
by Chuck Carlson, editor DRIP Investor
I first introduced my “Dow Underdogs” investment strategy in my book, Winning With The Dow’s Losers.
The strategy focuses on buying the worst-performing stocks in the Dow Jones Industrial. History shows that the Dow’s worst performers in one year tend to snap back strongly the next year.
The strategy proved its worth in 2012. The worst-performing stock in the Dow Industrials in 2011 was Bank of America (BAC), down more than 58%.
But in true “worst-to-first” fashion, the best-performing stock in the Dow in 2012 was — you guessed it — Bank of America, which rose more than 100% during the year.
Well, guess what stock in the Dow was the worst performer in 2012? Hewlett-Packard (HPQ). The shares are down 44%, far outpacing the 11% decline in the second-worst performer in the Dow in 2012, which was Intel (INTC).
Interestingly, Hewlett-Packard’s dreadful 2012 performance followed a lousy 2011, when the stock declined 39%.
The upshot is that here is a Dow stock that has had a tremendous decline over the last two years and is set up for some “reversion to the mean” in 2013.
To be sure, Hewlett-Packard has plenty of problems — weak earnings, stiff competition in its markets, lots of debt, and a lousy track record when it comes to acquisitions.
Still, while I’m not suggesting that investors fall in love with the stock, I am saying that Hewlett-Packard represents an interesting trade for 2013. The yield of well over 3% compensates while you wait for a rebound.
Please note that Hewlett-Packard offers a traditional dividend reinvestment plan in that investors must own a minimum 10 shares of Hewlett-Packard stock — and have the shares registered in their own name — in order to be eligible to join the plan.
Learn more about this financial newsletter at Chuck Carlson's DRIP Investor.