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Best — and WORST — Dow Stocks of Q1

Financials take the taco, while tech/telecom bottom out

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Anyone who has been paying attention to the market since Thanksgiving can’t help but notice the rip-roaring run of the tech sector and the sharp rebound in financial stocks.

To get an idea of the strength in these industries, consider that the broader Dow Jones Industrial Average is up over 8% through the first quarter — but the Select Sector Financial SPDR (NYSE:XLF) and the iShares Dow Jones US Technology ETF (NYSE:IYW) both soared over 21% in the same period, nearly triple the returns!

So it’s no surprise that tech stocks and financial stocks are the highest flyers among the Dow Jones components for Q1. However, it’s worth noting that some tech stocks indeed got left behind — and some high flyers of 2011 have fallen on hard times.

Here are the best and worst stocks in the Dow as of Q1, based on year-to-date performance:

Best Stock: Bank of America (+72.1%)

Many investors are seriously afraid of financial stocks, and no bank embodies that fear more than Bank of America (NYSE:BAC). The stock crashed 61% in 2011 and has a five-year return of -80%. Its dividend remains a paltry penny per share quarterly, and after being denied a dividend increase in early 2011, BofA didn’t even bother to ask this time around after the latest Federal Reserve “stress tests.” Lawsuits persist, foreclosure backlog abounds … what the heck is to like about this stock?

Well, there appears to be some truth in the Warren Buffett quote that you should “be greedy when others are fearful and fearful when others are greedy.” Obviously, if you wait for the all-clear to sound, the lion’s share of the profits are already had.

Of course, there might be some truth to the fear that BAC stock is artificially inflated by speculators and high-frequency trading and is ripe for a crash. But regardless, any investor who rode the stock in the first quarter did so to 70%-plus profits.

Second Best: JPMorgan Chase (+38.3%)

Jamie Dimon, CEO of JPMorgan Chase (NYSE:JPM), might not win a lot of popularity contests, but he sure knows how to run a bank. The company in many respects has emerged stronger on the other side of the financial crisis, thanks to fire-sale acquisitions that have allowed it to become the largest retail bank by assets (sorry, BofA).

JPMorgan certainly has risks, as do all financial stocks going forward. Regulations such as the Volcker rule and higher capital requirements will affect earnings. Banks generally make profits on the difference between the rates they pay on deposits and the interest they charge on loans, and low rates mean that spread is squeezed very small right now. And let’s not forget the very real threat of a shock to the balance sheet if unemployment or housing take a turn for the worse.

But JPM undoubtedly has momentum on its side after almost 40% gains in the first quarter. In fact, I have recommended JPM as one of my “editor’s picks” for April.

Article printed from InvestorPlace Media,

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