Best — and WORST — Dow Stocks of Q1

by Jeff Reeves | April 3, 2012 1:29 pm

Best — and WORST — Dow Stocks of Q1

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[1]) and the iShares Dow Jones US Technology ETF (NYSE:IYW[2]) 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[3]). 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.”[4] 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[5] 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[6] 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[7]), might not win a lot of popularity contests[8], 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[9] 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.[10]

Worst Stock: Hewlett-Packard (-7.5%)

Only three stocks out of 30 Dow components posted a loss in Q1, and Hewlett-Packard (NYSE:HPQ[11]) was far and away the biggest loser with a significant -7.5% slide.

The reasons are nothing new: Antics in the executive suite persist after the recent ouster of Leo Apotheker after less than one year in the corner office, and his replacement by former eBay (NASDAQ:EBAY[12]) exec Meg Whitman[13]. There’s the recent mash-up of PC and printer divisions[14], a thinly veiled exercise in continued streamlining of cumbersome operations. There’s also a rather pathetic 10% dividend increase[15] that is small consolation to investors after tens of billions wasted on buyouts over the last several years.

About a year ago, I wrote a piece with the headline, “Hewlett-Packard Embodies What’s Worst In Corporate America.”[16] It just so happens that HP’s lack of vision and leadership also represents the worst of the tech sector — and some investors’ portfolios — too.

Second Worst: Verizon (-4.7%)

There’s no obvious reason why Verizon (NYSE:VZ[17]) has taken a slide in Q1 while the broader market has rallied. But I suspect it has a lot to do with sector rotation out of low-risk income investments like utilities and telecoms and into areas where investors see growth or profit potential.

As I wrote in December[18], the reality is that these investments ran up too much as investors plowed cash into shares simply to insulate their portfolios from volatility. Any time a utility stock that is a legalized monopoly soars 30% in six months … well, you have to know the fundamentals just aren’t there.

Verizon is an entrenched telecom that’s going nowhere; however, the stock did soar 12.5% from August to December 2011 — six times the 2% added by the Dow Jones Industrial average. It was destined to cool off, and cool off Verizon has in early 2011.

Complete Dow Jones Returns

Here’s the complete list of components and Q1 returns, in alphabetical order:

Dow Jones Industrial Average: +8.1%
3M
(NYSE:MMM[19]): +9.2%
Alcoa
(NYSE:AA[20]): +15.8%
American Express
(NYSE:AXP[21]): +22.7%
AT&T
(NYSE:T[22]): +3.3%
Bank of America
(NYSE:BAC[3]): +72.1%
Boeing
(NYSE:BA[23]): +1.4%
Caterpillar
(NYSE:CAT[24]): +17.6%
Chevron
(NYSE:CVX[25]): +0.8%
Cisco
(NASDAQ:CSCO[26]): +17%
Coca-Cola
(NYSE:KO[27]): +5.8%
DuPont
(NYSE:DD[28]): +15.6%
ExxonMobil
(NYSE:XOM[29]): +2.3%
General Electric
(NYSE:GE[30]): +12.1%
Hewlett-Packard
(NYSE:HPQ[11]): -7.5%
Home Depot
(NYSE:HD[31]): +19.7%
Intel
(NASDAQ:INTC[32]): +16%
International Business Machines
(NYSE:IBM[33]): +13.5%
Johnson & Johnson
(NYSE:JNJ[34]): +0.6%
JPMorgan Chase
(NYSE:JPM[7]): +38.3%
Kraft Foods
(NYSE:KFT[35]): +1.7%
McDonald’s
(NYSE:MCD[36]): -2.2%
Merck
(NYSE:MRK[37]): +1.9%
Microsoft
(NASDAQ:MSFT[38]): +24.3%
Pfizer
(NYSE:PFE[39]): +4.6%
Procter & Gamble
(NYSE:PG[40]): +0.8
Travelers Companies
(NYSE:TRV[41]): +0.1%
United Technologies
(NYSE:UTX[42]): +13.5%
Verizon
(NYSE:VZ[17]): -4.7%
Wal-Mart
(NYSE:WMT[43]): +2.4%
Walt Disney
(NYSE:DIS[44]): +16.8%

Jeff Reeves is the editor of InvestorPlace.com, and the author of “The Frugal Investor’s Guide to Finding Great Stocks.”[45] Write him at editor@investorplace?.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff did not hold a position in any of the aforementioned securities.

Endnotes:
  1. XLF: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLF
  2. IYW: http://studio-5.financialcontent.com/investplace/quote?Symbol=IYW
  3. BAC: http://studio-5.financialcontent.com/investplace/quote?Symbol=BAC
  4. Federal Reserve “stress tests.”: http://investorplace.com/2012/03/federal-reserve-stress-tests-jpm-dividend-citi/%27
  5. Warren Buffett quote: http://investorplace.com/2012/04/10-famous-warren-buffett-quotes-for-any-market/
  6. speculators and high-frequency trading: http://investorplace.com/2012/02/high-frequency-trading-is-high-tech-cheating/
  7. JPM: http://studio-5.financialcontent.com/investplace/quote?Symbol=JPM
  8. might not win a lot of popularity contests: http://investorplace.com/2012/04/3-editors-picks-for-april/2012/03/investorpolitics/jpmorgan-chase-jamie-dimon-jpm-fat-cat/
  9. as do all financial stocks: http://investorplace.com/2012/04/2-financial-stocks-for-the-second-quarter/
  10. “editor’s picks” for April.: http://investorplace.com/2012/04/3-editors-picks-for-april/2/
  11. HPQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=HPQ
  12. EBAY: http://studio-5.financialcontent.com/investplace/quote?Symbol=EBAY
  13. Meg Whitman: http://investorplace.com/2011/12/meg-whitman-hewlett-packard-ceo-hpq-ebay/
  14. PC and printer divisions: http://investorplace.com/2012/03/hp-shuffles-some-chairs-on-the-titanic/
  15. 10% dividend increase: http://investorplace.com/2012/03/hp-dividend-hike-meg-whitman/
  16. “Hewlett-Packard Embodies What’s Worst In Corporate America.”: http://investorplace.com/2011/08/hewlett-packard-hp-stock-buyback-autonomy-buyout-hpq/
  17. VZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=VZ
  18. As I wrote in December: http://investorplace.com/2011/12/dividend-stock-darlings-2012-tobacco-stocks-utility-stocks/
  19. MMM: http://studio-5.financialcontent.com/investplace/quote?Symbol=MMM
  20. AA: http://studio-5.financialcontent.com/investplace/quote?Symbol=AA
  21. AXP: http://studio-5.financialcontent.com/investplace/quote?Symbol=AXP
  22. T: http://studio-5.financialcontent.com/investplace/quote?Symbol=T
  23. BA: http://studio-5.financialcontent.com/investplace/quote?Symbol=BA
  24. CAT: http://studio-5.financialcontent.com/investplace/quote?Symbol=CAT
  25. CVX: http://studio-5.financialcontent.com/investplace/quote?Symbol=CVX
  26. CSCO: http://studio-5.financialcontent.com/investplace/quote?Symbol=CSCO
  27. KO: http://studio-5.financialcontent.com/investplace/quote?Symbol=KO
  28. DD: http://studio-5.financialcontent.com/investplace/quote?Symbol=DD
  29. XOM: http://studio-5.financialcontent.com/investplace/quote?Symbol=XOM
  30. GE: http://studio-5.financialcontent.com/investplace/quote?Symbol=GE
  31. HD: http://studio-5.financialcontent.com/investplace/quote?Symbol=HD
  32. INTC: http://studio-5.financialcontent.com/investplace/quote?Symbol=INTC
  33. IBM: http://studio-5.financialcontent.com/investplace/quote?Symbol=IBM
  34. JNJ: http://studio-5.financialcontent.com/investplace/quote?Symbol=JNJ
  35. KFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=KFT
  36. MCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=MCD
  37. MRK: http://studio-5.financialcontent.com/investplace/quote?Symbol=MRK
  38. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  39. PFE: http://studio-5.financialcontent.com/investplace/quote?Symbol=PFE
  40. PG: http://studio-5.financialcontent.com/investplace/quote?Symbol=PG
  41. TRV: http://studio-5.financialcontent.com/investplace/quote?Symbol=TRV
  42. UTX: http://studio-5.financialcontent.com/investplace/quote?Symbol=UTX
  43. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  44. DIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DIS
  45. “The Frugal Investor’s Guide to Finding Great Stocks.”: http://www.amazon.com/Frugal-Investors-Finding-Stocks-ebook/dp/B007KB9CSI/ref=ntt_at_ep_dpt_2#reader_B007KB9CSI

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