The Dow's 5 Most Loved Stocks
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The Dow’s 5 Most Loved Stocks
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Even though the Dow Jones Industrial Average rose 26.5% in 2013, optimists aren't ready to pack their bags and give up quite yet. Here's a look at five Dow components that short-sellers wouldn't dare bet against, as well as a look at what characteristics these companies share which might help you become a better investor.
Transcript of The Dow's 5 Most Loved Stocks
The Dow’s 5 Most Loved Stocks
What Are the Dow’s 5 Most Loved Stocks?
• The Dow’s five most loved stocks are its components with the least amount of short interest.
• With the Dow Jones Industrial Average (INDEX: ^DJI) up 26.5% in 2013, roughly three times its average historical return, pessimists have generally kept their distance or been quickly put in their place. Source: Herval, Flickr.
Why You Should Care About These 5 Stocks
Low short interest can be important for a number of reasons including the fact that:
• Companies with low short interest tend to head higher over the long run
• Low short interest could be an indication of a healthy and sustainable business model.
• Short-sellers dislike betting against dividend stocks, and all 30 Dow stocks currently pay out a quarterly stipend.
Let’s have a closer look at these five most-loved Dow stocks to see if they have any similarities we can apply to locating similar investments in the future.
No. 1: Procter & Gamble (0.74% short interest)
Why are short-sellers avoiding Procter & Gamble (NYSE: PG)?
• P&G offers dozens of inelastic demand items such as detergent and toothpaste which are immune to economic fluctuations.
• A.G. Lafley, largely responsible for P&G’s growth between 2000 and 2009 has returned to lead as CEO following the retirement of Bob McDonald.
• A 56-year streak of increasing its annual dividend.
Should P&G Shareholders Be Worried?
Unless the U.S. were to dip into another moderate recession, investors have little reason to worry. A few factors working in P&G’s favor include:
• The expectation of 5%-7% EPS growth and 3%-4% organic sales growth this year.
• The fact that it held or grew market share in businesses that represented roughly two-thirds of its revenue in its latest quarter.
• The fact that costs at P&G are well under control with promotional activity in its North American market down 7% in its most recent quarter.
No. 2: General Electric (0.76% short interest)
Why are short-sellers avoiding General Electric (NYSE: GE)?
• Diverse business operations ranging from the energy and health-care sector to finance and aerospace.
• Recently reported double-digit order growth in its U.S., China, and European operations.
• Currently paying out an impressive 3.2% yield.
Should GE Shareholders Be Worried?
Like P&G, General Electric’s diversified operations put it in a position to succeed in all but the most dire of market conditions. Some of the factors that should make pessimists think twice about getting against its stock include:
• A steadily improved financial arm which is demonstrating higher credit quality and looking less and less like a crutch.
• Its aforementioned double-digit growth in domestic and overseas markets, resulting in record order backlog.
• An incredibly consistent history of dividend increases with the exception of the recent recession.
No. 3: Chevron (0.78% short interest)
Why are short-sellers avoiding Chevron (NYSE: CVX)?
Source: Chad Teer, Wikimedia Commons.
• Chevron offers a basic necessity product that has a finite supply, helping buoy oil and natural gas pricing.
• It has raised its dividend in each of the past 26 years, placing it among an elite class of Dividend Aristocrats.
• Chevron delivers vertically integrated operational diversity. Even when times are rough, one aspect of its exploration & production, midstream, and refining businesses is likely doing well.
Should Chevron Shareholders Be Worried?
With the exception of a large global recession or severe pullback in oil prices, Chevron’s long-term outlook remains bright. Some of the factors that will help shape this outlook include:
• Chevron’s gigantic natural gas liquid assets off the coast of Australia (21 known finds thus far).
• An ongoing shale boom in the U.S. which should play perfectly to its refining, and even production, operations.
• Chevron’s ability to continue to boost its dividend.
No. 4: United Technologies (0.79% short interest)
Pratt & Whitney JT9D turbofan, Source: Cliff, Flickr.
Why are short-sellers avoiding United Technologies (NYSE: UTX)?
• Strong third-quarter U.S. GDP growth of 4.1% could signal a lessening decline in U.S. government spending.
• Impressive operational diversity that spans the aerospace and industrials sector.
• Currently paying out a 2.1% annual yield, but has more than doubled its quarterly payout since mid-2007.
Should United Technologies Shareholders Be Worried?
Shareholders in United Technologies are still sitting in the driver’s seat over the long run, but there are a few key points worth watching in the interim. Primarily:
• Cost controls are a vital component to growing UTC’s bottom-line. There are ample avenues for UTC to improve its efficiency in the coming years, perhaps even including a spin-off.
• Government spending will be an important driver of top-line growth. The U.S. government has made no qualms about reducing its federal deficit, and that could mean weaker defense spending, which would negatively impact UTC. It’s important that investors pay attention to the latest budget developments out of Washington.
No. 5: Johnson & Johnson (0.80% short interest)
Why are short-sellers avoiding Johnson & Johnson (NYSE: JNJ)?
• J&J offers investors a bevy of inelastic consumer products, medical devices, and branded pharmaceuticals with fat margins.
• It has also increased its dividend an impressive 51 consecutive years and is currently paying out a nearly 3% yield.
Should J&J Shareholders Be Worried?
Unless short-sellers are a glutton for punishment, there’s not a lot for current shareholders to be concerned about. Two factors in particular are keeping the J&J growth engine moving forward.
• The Synthes acquisition – J&J’s purchase of medical device maker Synthes in 2012 for $21.3 billion allowed it to establish an emerging markets presence it was lacking previously. If you recall, emerging markets often yield much higher growth rates.
• New drug approvals – J&J has delivered numerous exciting drug approvals over the past year including Invokana to treat type 2 diabetes and Imbruvica which was co-developed by Pharmacyclics (Nasdaq: PCYC).
