Buying the most unloved stocks by Wall Street has had pretty good results in recent years.
Prior to 2015, there was a seven year stretch, where if had you invested, for the calendar year, in the 10 stocks that Wall Street analysts liked the least, your returns would have been 170% versus 70% for the S&P 500 Index. This does not take into account taxes and trading costs.
These are the stocks that have the most Sell ratings and the fewest Buy ratings. Often times these are stocks that have been beaten up and underpriced in relation to their fundamentals. They are considered deep Value stocks. There have been similar strategies over the years. When I first started in the business back in 1991, one such strategy that I can remember was “The Dogs of the Dow.”
The Dogs of the Dow are the highest dividend yielding stocks of the Dow Jones. In many cases, the reason these stocks are the highest yielding is because their share price was depressed. Because the share price was down, these stocks were referred to as “Dogs” per say.
Surprisingly, there have been many years where these stocks, as a group, had pretty decent performance. They don’t outperform the market every year. But they have had reasonable results.
One limitation to the Dogs of the Dow is that you are picking from just 30 stocks.
There is a similar strategy that we like that’s tied to the highest yielding stocks in the 10 sectors of the S&P 500. You’re buying value stocks but with the S&P sectors and you are getting better diversification.
Date Posted: 06/03/2016 Advice provided in this article is meant for educational purposes only and financial education is important to us. Before making decisions regarding your personal financial situation, please consult an advisor or conduct your own due diligence. If you would like to discuss your Retirement Income Plan with an HCM Wealth Advisor, please give us a call – 513-598-5120. Located in Cincinnati, Ohio, we serve clients in 28 states, and we’d love to help.