Overview: Dogs of the Dow
With it being a slow news period over the next couple of weeks and with 2018 just around the corner, we thought it would be a good time to explore the Dogs of the Dow strategy. In simple terms, the Dogs of the Dow strategy is to consider investing in the poorest-performing Dow components in the prior year with the hope they will make a nice rebound in the following year.
The strategy worked pretty well in 2017. The worst performers in 2016 were Nike (NKE) and Coca-Cola (KO), which were the only two stocks in the red. Other weak components that managed only small gains were Disney (DIS), Visa (V) and Home Depot (HD).
Their performance thus far in 2017 is as follows: V +47%, HD +42%, NKE +24%, KO +11%, DIS +3%. That's pretty good overall. The DJIA is up 25% on the year, so two of the five performed much better than average while one was in-line. Visa and Home Depot really posted big moves in 2017. In fact, Visa wound up being a Top 4 Dow Performer in 2017 and HD was not far behind. Even the two on the lower end (KO, DIS) posted decent but not great gains. But at least they are in positive territory. Overall, these five stocks seem to have held their own pretty well.
2018 Rebound Candidates: Let's turn to 2017 to reveal the dogs this year. First of all, we are excluding DowDuPont (DWDP), which was created via the merger of Dow Chemical and DuPont. The merger was completed on September 1, 2017, so it was not around on January 1 so let's put that name aside.
Of the remaining Dow components, by far the biggest loser in 2017 has been GE -45% and it's not even close. The next few worst performers have been: IBM -7%, XOM -7%, MRK -4% and VZ +0%. Over the next week or two, we will publish a few story stocks that look at some of these names individually. On a final note, in case you're curious, the biggest Dow winner by far this year has been BA +90%. Other big movers include: CAT +70%, AAPL +48%, V +47%, WMT +44%, HD +42%, MCD +42%, UNH +38%.
Dogs of the Dow Spotlight: ExxonMobil (XOM)
Today we wanted to shine the spotlight on ExxonMobil (XOM), the largest publicly traded international energy company. ExxonMobil holds an industry-leading inventory of resources, is one of the largest refiners and marketers of petroleum products, and its chemical company is one of the largest in the world.
Not surprisingly, the performance of this stock will have a lot to do with how oil prices perform in 2018. The good news is that crude oil prices surged to a 30-month high this week as it reached $60 a barrel for the first time in a long while. Recent OPEC cuts, an explosion on a pipeline in Libya and voluntary OPEC supply cuts helped push the price higher.
Looking ahead to 2018, demand is expected to be quite good with demand from China expected to increase at a good clip. The issue with oil prices has been more on the supply side with high inventories. With that said, there has been good news on the supply side as OPEC, Russia and some other oil producers recently announced plans to extend their production cuts until the end of 2018. The caveat is that if prices started to surge, they could back out of the deal so that could limit upside prices for oil.
In sum, whether XOM becomes a successful Dog of the Dow with a nice rebound performance in 2018 has a lot to do with where oil prices go. Overall, the odds seem pretty decent that oil prices will rise in 2018, but it may not be a dramatic move. A nice thing about XOM is you collect a healthy dividend with a current yield of 3.7%. Also, the stock has been trending nicely higher since early September. Hopefully, XOM will see a nice rebound in 2018.