The Sloths of the Dow for 2011: DJIA's 2010 Weaklings (HPQ, CSCO, JNJ, WMT, AXP, DIA)

We have already introduced the 2011 Dogs of the Dow for investors looking into 2011.  The term “dogs” might imply that they are the worst performers when they are actually just the highest dividend yields of the 30 components.  There is a different group of the major underperforming stocks which are DJIA components, a group we’d like to dub “The Sloths of the Dow” for investors looking into 2011.  To qualify as a sloth is simple: the worst performance for the year.  Some derivations of Dogs have been made to include five component rather than ten components, and frankly we do not want to label 10 DJIA components as sloths after such a great 2010.

We have selected five DJIA stocks which have performed miserably in 2010 compared to the 30 DJIA components.  The Sloths of the Dow going into 2011 are Hewlett-Packard Company (NYSE: HPQ), Cisco Systems Inc. (NASDAQ: CSCO), Johnson & Johnson (NYSE: JNJ), Wal-Mart Stores, Inc. (NYSE: WMT), and now the list includes American Express Company (NYSE: AXP).

Hewlett-Packard Company (NYSE: HPQ) has gone as far off the path as it could after the board fired Mark Hurd.  The great PC and IT story became stretched despite its growth guidance ahead. AT $42.35, its 52-week range is $37.32 to $54.75.  The bounce of more than 13% from its year low may seem like a saving grace, but only on the surface.  HP’s dividend-adjusted closing price for 2009 of $51.14 gives HP a dismal negative return for 2010 of -17.2%.  That’s a sloth alright!  Analysts have an average price target of $53.63, which is starting to feel like the Wall Street researchers may have a reality check ahead. HP’s dividend yield is still shy of 1.00%.

Cisco Systems Inc. (NASDAQ: CSCO) is weak on its second poor outlook offered in 2010 that may be more company-specific than an industry-wide issue.  Oddly enough, this is still a developing growth situation and it is still one of our Ten Stocks to Own for the Next Decade.  At $20.25, Cisco’s 52-week trading range is $19.00 to $27.74.  It also closed out 2009 at $23.94.  Shares are barely up 6% from the post-warning lows, yet the stock is down almost 27% from its 52-week high and down about 15% for 2010.  Analysts have an average target price for Cisco of $24.45, much lower than just about six weeks ago. Dear John Chambers, what about that dividend?

Johnson & Johnson (NYSE: JNJ) has been plagued by product recalls and a tough FDA environment. At $62.10, its 52-week trading range is $56.86 to $66.20.  Shares are up 9% from the 52-week lows and the stock is down only about 6% from its 52-week high.  On a dividend-adjusted basis, J&J closed out 2009 at $62.22, making for a loss of less than 1% for 2010 with a day and a half to go in 2010.  Oddly enough, the raised dividend made for that slight drop after the $0.49 payout went to $0.54 per quarter.  J&J is just a quiet and boring story right now and analysts have an average target price of $67.84 for a year out.  J&J investors currently get a 3.5% dividend yield.

Wal-Mart Stores, Inc. (NYSE: WMT) is the great American retailer that represents the common man.  It is also perhaps the most boring story in retail over the last decade despite revenues in 2000 of $165 billion expected to have grown to roughly $424 billion.  Wal-Mart’s stock at $53.90 is actually up almost 13% from its 52-week low of $47.77 and is down only about 4% from its 2010 high of $56.27.  On a dividend-adjusted price basis, its adjusted 2009-end close of $52.25 gives 2010 share performance of only about 3.1%.  Analysts have an average target of $60.80, which would be right at the highest point of its decade-long trading range.  Wal-Mart does at least have an above-average dividend for retailers with a 2.3% yield.

American Express Company (NYSE: AXP) may not have the exact same issues surrounding interchange fees, but it is not immune and many merchants consider its merchant processing fees egregious.  Shares slid from highs as a result.  At $42.50, its 52-week range is $36.60 to $49.19 and its closing price of 2009 was $39.80 on a dividend-adjusted basis.  That puts the gain from the 52-week low at about 16% but the performance for all of 2010 comes to only 6.7%.  Analysts are still looking for an average target price of $50.82, so perhaps AmEx can work past the issues in 2011.  AmEx pays a 1.7% dividend yield.

As far as how the sloths compare to the actual DJIA measured by the SPDR Dow Jones Industrial Average (NYSE: DIA) closed out 2009 at $101.83 on a dividend-adjusted basis and the 52-week low is $96.17.  At $115.40, the gains are almost 20% from the 52-week lows and 13.3% for all of 2010.  Usually, the Sloths of the Dow would include more annual losses for the year.  Some of these have done OK by most standards, but dogs are dogs… and sloths are sloths.

Here is a representation of The 2011 Dogs of the Dow.  This was also some thing shocking: the DJIA’s most recently ejected components significantly outperformed the DJIA itself and almost of the individual components.

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JON C. OGG