Playing the “Dogs of the Dow” has historically proved to be a pretty good strategy, beating the Dow Jones Industrial Average by more than 1 percentage point per year on average over the last decade.
In fact, in just three of the last ten years, the “Dogs” trailed the broader index, and on average gained nearly 15% a year over the last decade, beating the Dow’s average 13.4% return and the S&P 500’s 13.5% average during the same time span.
The contrarian strategy favors beaten-up stocks of companies that have had issues and offer a dividend. While the market saw a massive record rally in the last decade, there were a handful of names that sat out the dynamic decade and two of them in particular could soon see a rebound.
Mosaic (NYSE: MOS) fell -64% in the last decade, Schlumberger (NYSE: SLB) lost -39%. Tapestry (NYSE: TPR), the parent of luxury brands Coach, Kate Spade, and Stuart Weitzman, and General Electric (NYSE: GE) both saw their shares fall more than -20%. And while Macy’s managed to just barely eke out a positive return of the decade, it also ended 2019 down -42%.
MKM Partners’ chief market technician J.C. O’Hara sees a possible comeback coming for GE, which saw a big turnaround in 2019 after a terrible 2018 that saw its expulsion from the Dow.
GE gained nearly 50% in 2019, and O’Hara said that the stock’s chart is giving some technical signs that a bigger rally is on the way.
“The 40-week moving average, which has been a negative slope since 2017, has slowly started to hook higher,” O’Hara said. “We’re seeing signs of higher highs and higher lows this year in 2019. So we are encouraged by the longer-term chart, [which is] slowly starting to improve.”
O’Hara said that if the stock pulls back into the $10 – $10.50 range, it would make for a good entry point. But O’Hara isn’t the only one bullish on GE.
UBS analyst Markus Mittermaier recently upgraded the stock to a Buy and boosted his price target to $14 – 17% higher than the current price.
“We believe the stock is at a positive inflection point into 2020,” Mittermaier wrote in a note to clients. “We expect the stock narrative to change from significant cash drag to successful transformation.”
Joule Financial’s Quint Tatro, on the other hand, sees potential for Macy’s, and said the stock “has been trading like the company’s going out of business.”
Tatro believes that Macy’s free cash flow, fairly positive balance sheet, and its dividend offer strong fundamental cases for owning shares.
However, Tatro warns that investors should approach the stock carefully.
“As far as risk reward goes, with a stop at lows, we think Macy’s presents a pretty interesting opportunity here,” Tatro said. “But make no mistake about it, if the fundamentals continue to deteriorate, you cannot just hold and hope. You’ve got to cut your losses. But we like it going forward. We’re long the name”