2018 Dow Laggards Could Offer Material Upside Into 2019
Many investors want to buy stocks when they feel they are cheap, but many of those same investors freeze like a deer in the headlights after bad news or after a market correction takes those stocks lower. It’s the age-old conundrum of buying when it feels bad versus buying when everyone is happy about the stock market. With the Dow Jones industrial average down almost 2% so far in the first half of 2018, some value-oriented investors might want to consider some of the more-trodden Dow stocks for upside later in 2018 or even into 2019.
Many investors track the so-called Dogs of the Dow for the highest dividend yields of the Dow stocks. Other investors track what some might call the “pigs of the Dow” as the top laggards of the index. After all, great companies that get beaten down do not always stay down forever. And some come back on strong with a vengeance.
Warren Buffett is considered to be one of the greatest investors of the modern age, and his mantra has been to invest in quality companies at the right price. It turns out that some stocks are sold off during periods of uncertainty for the right reason, but some stocks fall victim to the analogy of throwing the baby out with the bathwater. What if some of the Dow’s biggest disappointments in 2018 are actually hiding as the great value stocks trading at too deep of a discount to analyst price targets and to recent highs?
24/7 Wall St. ran a screen of the Dow’s biggest laggards in the first half of 2018, and it turns out that all those stocks down double-digits or close to it have analyst target prices that imply serious upside for the coming 12 months. Consensus analyst price targets (mean) and forward price-to-earnings ratios have come from Thomson Reuters, while trading history and performance data have come from Finviz.
3M Co. (NYSE: MMM) may be a victim of trade war fears or maybe a strong dollar, or perhaps it’s just an industrial name that needed to see its valuation come down. 3M shares were down over 16% in the first half of 2018, and this company has a history of growing its dividend every year (even during recessions). With shares at $196.72, 3M has a 52-week trading range of $191.44 to $259.77, and they are now down almost 25% from its highs.
The consensus analyst price target on 3M is $212.30, but that consensus target was closer to $240 back in April when shares were higher. 3M shares are now valued at just under 19 times expected earnings for a lower multiple than investors have had to pay since late 2016.
Procter & Gamble
Procter & Gamble (NYSE: PG) is hard to consider a value stock at about 18.5 times expected earnings. After all, it’s a slow-grower in consumer products at a time when private label brands are fighting established brands and when international trade matters. Still, it has a solid set of brands that may be all but irreplaceable, and this stock has already recovered 10% from its lows in 2018.