15 July Gems Stand Up To Dog Metrics

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 |  Includes: AAPL, APA, DE, ESV, FCX, GM, HPQ, JPM, MET, MPC, PSX, VLO
by: Fredrik Arnold

This article reported results of the Barron's 15 Gems as a thirteenth index in a series of index-specific articles examining dividend yield plus price upside results. Prompted by Seeking Alpha reader requests the series reported results for now a baker's dozen of stock indices: Dow 30; S&P 500; S&P Aristocrats; Russell 50; NASDAQ; NYSE International 100; Mergent Dividend Achievers; Champions; Contenders; Challengers; Carnevale's Power 25; Carnevale's Super 29; lastly this small index recently vetted, called Barron's 15 Gems.

Below the author compared Dow dividend dog theory picks with one year mean target price estimates reported from broker analysts to reveal the following Arnold Barron's 15 Gems selections for July:

Yield Metrics Chose Ten Dogs from 15 Gems

Author Andrew Bary in his Cheap Stocks in a Pricey Market Barron's article states:

"Within the S&P 500, about three dozen stocks are valued at less than 10 times projected 2014 earnings; the nearby table identifies 15 low P/E gems. The single-digit group includes [many] well-known companies..."

The July 18 Barron's 15 Gem dogs encompassed four of nine business sectors. Three sectors were included in the top ten by yield.

Two basic materials firms showed the biggest dividend yields according to Yahoo Finance: Freeport-McMoRan Copper & Gold (NYSE:FCX); Ensco plc (NYSE:ESV). Three more "basmat" firms showed up in the top ten by yield: Valero Energy Corporation (NYSE:VLO), placed fifth; Phillips 66 (NYSE:PSX), and Marathon Petroleum Corporation (NYSE:MPC) placed ninth and tenth. Two technology firms ranked themselves in the second, and eighth slots: Apple Inc. (NASDAQ:AAPL), and Hewlett Packard (NYSE:HPQ). Two financials firms, JPMorgan Chase & Co. (NYSE:JPM), and MetLife, Inc. (NYSE:MET), placed fourth and seventh on this list. A lone industrial goods firm, Deere & Company (NYSE:DE) was fifth and rounded out the top ten Gems list.

Dividend vs. Price Results for Gems Top 10 Stocks vs. Dow Dogs

Relative strength for the top ten Barron's 15 Gems stocks by yield was graphed below as of July 18, 2013. Seven periods of historic projected annual dividend history from $1000 invested in the ten highest yielding stocks and the total single share price of those ten stocks created the data points for each period shown in blue for dividend and green for price.

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Actionable Conclusion (1): Gem Dogs Overbought and Bullish while Dow was Cowed by A Bear

The overbought condition of the top ten Barron's Gems by yield was signaled by aggregate single share price of the ten exceeding projected annual dividend from $1k invested in each of the ten. This gap peaked at $708 or 350% in March. The Gems overbought gap was $624 or 233% for July.

Their bullish condition was signaled by aggregate single share price of the ten rising 4.4% since June while projected annual dividend for the ten dropped 1.6%.

The Dow, meanwhile was bearish as projected annual dividend from $1k invested in each of the top ten Dow dogs increased just 0.03% since June, while aggregate single share price dropped over 8%. Dow dogs decreased their overbought condition as aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten by over $198 or 53% in June was shrunk to $152.51 or 41% in July.

Since gem dogs are not the blue chip high quality equivalents of the Dow list, an additional gauge of upside potential was added to the simple high yield metric used to flush out dog bargains.

Wall St. Wizard Wisdom Was Welcomed

Results from Yahoo Finance tallied as of market closing prices July 18 compared with analyst mean target price results one year hence showed Marathon Petroleum at 33.4%; Freeport-McMoRan at 28.43%; Valero Energy exhibiting at 27.41 % price upside to lead a 15 Gem index selected in Barron's, the Dow Jones business and financial weekly.

The chart above used the one year mean target price set by brokerage analysts matched against July 18 closing price to compare ten Barron's Gems stocks showing the highest upside price potential into 2014. "Cheap Stocks in a Pricey Market", published in the July 22 edition of Barron's, listed 15 Gem stocks with price/earnings numbers "in the single digits" measured as of July 18. The number of analysts providing price estimates was noted after the name for each stock. Three to nine analysts were considered optimal for a valid mean target price estimate.

Actionable Conclusion Two (2): Wall St. Wizards Forecast 14.73% Net Gain from 15 Gems By 2014

Barron's 15 Gems were graphed below to show relative strengths by dividend and price as of July 18, 2013 and those projected by analyst mean price target estimates to the same date in 2014.

A hypothetical $1000 investment in each equity was divided by the current share price to find the number of shares purchased. The shares number was then multiplied by projected annual per share dividend amounts to find the dividend return. Thereafter the analyst mean target price was used to gauge the stock price upsides and net gains including dividends less broker fees as of 2014.

Historic prices and actual dividends paid from $1000 invested in the ten highest yielding stocks and the aggregate single share prices of those twenty stocks divided by 1.5 created data points for 2013. Projections based on estimated increases in dividend amounts from $1000 invested in the twenty highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 1.5 created the 2014 data points green for price and blue for dividends.

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Yahoo projected a 13% lower dividend from $10K invested in this group while aggregate single share price was projected to increase over 18% in the coming year. The number of analysts contributing to the mean target price estimate for each stock was noted in the next to the last column on the chart. Three to nine analysts was considered optimal for a valid projection estimate.

A beta (risk) ranking for each analyst rated stock was provided in the far right column on the above chart. A beta of 1 meant the stock's price would move with the market. Less than 1 showed lower than market movement. Higher than 1 showed greater than market movement.

Actionable Conclusion (3): Ten Gems Net 8.8% to 33.45% by July 2014

Ten probable profit generating trades from $1k invested in each were revealed by Yahoo Finance data for 2014 were:

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Marathon Petroleum Corp. netted $334.52, based on dividends plus a mean target price estimate by fifteen analysts less broker fees. The Beta number showed this estimate subject to volatility 195% greater than the market as a whole.

Freeport-McMoRan Copper & Gold netted $308.72 based on dividends plus a mean target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 139% greater than the market as a whole.

Valero Energy Corporation netted $277.49 based on a mean target price estimate from eighteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 132% greater than the market as a whole.

Apple Inc. netted $269.89, based on dividend plus mean target price estimates from fifty analysts less broker fees. The Beta number showed this estimate subject to volatility 24% less than the market as a whole. Of all 15 Barron's Gems AAPL was the only stock with a beta number less than 1.

Phillips 66 netted $261.45 based on dividends plus mean target price estimate from thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 134% greater than the market as a whole.

Apache Corp. (NYSE:APA) netted $163.73 based on dividends plus the mean of annual price estimates from twenty-nine analysts less broker fees. The Beta number showed this estimate subject to volatility 92% greater than the market as a whole.

Deere & Company netted $151.29, based on dividends plus mean target price estimate from nineteen analysts less broker fees. The Beta number showed this estimate subject to volatility 56% greater than the market as a whole.

Ensco plc netted $142.52 based on estimates from thirty-four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 55% greater than the market as a whole

General Motors Company (NYSE:GM) netted $132.01 based on price target estimates from sixteen analysts less broker fees. (GM does not yet pay a dividend.) The Beta number showed this estimate subject to volatility 70% greater than the market as a whole.

JPMorgan Chase & Co. netted $87.86 based on a mean target price estimate from twenty-eight analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 80% greater than the market as a whole.

The average net gain in dividend and price was over 21.29% on $1k invested in each of these ten dogs. This gain estimate was subject to average volatility 93% greater than the market as a whole.

The stocks listed above were suggested only as decent starting points for your index dog dividend stock purchase research process. These were not recommendations.

Disclosure: I am long DD, GE, INTC, MCD, MSFT, PFE, T, VZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This article is for informational and educational purposes only and should not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security. Prices and returns on equities in this article except as noted are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.