Ten of 15 Gems Index members from Barron's tallied by Yahoo Finance as of market closing prices October 18 were compared with analyst mean target gain results one year hence. The resulting chart of that data showcased ten top stocks exhibiting 8% to 30% price upsides. Apple Inc. (NASDAQ:AAPL) the Cupertino based elegant consumer goods gem with 7.93% showed the lowest upside of the top ten. General Motors Company (NYSE:GM) the refurbished Detroit consumer goods gem exhibited a 30.37% price upside without dividends to lead the index.
The chart above used the one year mean target price set by brokerage analysts matched against October 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.
This article reports the Barron's 15 Gems Index as of the above date by projecting gain results one year hence. Seeking Alpha reader requests prompted this series of fourteen index-specific articles reporting dividend yield plus price upside results for these indices: Dow 30; Barron's 15 Gems; S&P 500; S&P Aristocrats; Russell 1000; NASDAQ 100; NYSE International 100; Dividend Achievers; Champions; Contenders; Challengers; Carnevale's Power 25; Carnevale's Super 29; Russell 2000.
Investor Glossary summarized dividend dog methodology thus: "...[I]nvented to find the 10 stocks of the 30-stock Dow Jones Industrial Average with the highest yield (dividend / price) and invest equally in each, [t]he Dow dividend theory also requires that you repeat this process once a year.
Below, the Arnold Barron's 15 Gems Index top dog selections for October were disclosed step by step.
Dog Metrics Ranked Barron's 15 Gems Stocks by Yield
Author Andrew Bary in his Cheap Stocks in a Pricey Market Barron's article stated:
"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 Barron's 15 Gem dogs encompassed five of nine business sectors. Five sectors were included in the top ten by yield.
Two basic materials firms showed the biggest dividend yields according to Yahoo Finance: Ensco plc (NYSE:ESV); Freeport-McMoran Copper & Gold (NYSE:FCX). Three more "basmat" firms showed up in the top ten by yield: Marathon Petroleum Corporation (NYSE:MPC); Valero Energy Corporation (NYSE:VLO); Phillips 66 (NYSE:PSX) placed seventh, eighth and tenth. Two financials firms, JPMorgan Chase & Co. (NYSE:JPM), and MetLife, Inc. (NYSE:MET), placed third and ninth on this list. One technology firm, Hewlett Packard (NYSE:HPQ), placed fourth. A lone industrial goods firm, Deere & Company (NYSE:DE) was fifth. Finally Apple Inc. . the consumer goods top dog in sixth 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 October 18, 2013. Eight 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.
Actionable Conclusion (1): Gem Dogs Overbought and Bullish; Dow Dogs Muddled
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 285% in March. The Gems overbought gap was $624 or 233% for July and moved to $642 or 232% for September. The October gap was $722 or 276%
The Gems bullish condition was signaled by aggregate single share price of the ten rising 7% since September while projected annual dividend for the ten fell 5.5%.
For the Dow dogs, meanwhile, projected annual dividend from $10k invested as $1K in each of the top ten Dow dogs dropped just 0.6% since September, while aggregate single share price swooned 11%, ending a brief bullish track. The Dow dogs overbought condition in which aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten shrank. The overhang was $198 or 53% in June, then shrank to $153 or 41% in July, compressed to $125 or 33% in August then expanded to $161 or 43% for September, then squeezed down to $111 or 30% for October.
To quantify the top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential and were added to the simple high yield "dog" metric used to sniff out bargains.
Actionable Conclusion Too (2): Wall St. Wizards Forecast 7.2% Net Gain from 15 Gems By 2014
Barron's 15 Gems were graphed below to show relative strengths by dividend and price as of October 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 these fifteen stocks divided by 1.5 created data points for 2013. Projections based on estimated increases in dividend amounts from $1000 invested in these fifteen 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.
Yahoo projected a 9% lower dividend from $10K invested in this group while aggregate single share price was projected to increase nearly 10% 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. A negative beta number indicated the degree of a stocks movement opposed to market direction.
Actionable Conclusion (3): Analysts Say Ten Barron's Gems DiviDogs May Net 8.33% to 28.4% by October 2014
Eight of the top yielding dividend Barron's Gem dogs were verified as top gainers for the coming year by analyst 1 year target prices. So this month the dog strategy as graded by wall street wizards is 80% accurate.
Ten probable profit generating trades from $10k invested as $1k in each stock as revealed by Yahoo Finance data for 2014 were:
General Motors Company netted $283.71 based on price target estimates from fourteen 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.
Ensco plc netted $185.31 based on estimates from thirty-two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 63% greater than the market as a whole
Marathon Petroleum Corp. netted $175.50, based on dividends plus a mean target price estimate by sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 164% greater than the market as a whole.
JPMorgan Chase & Co. netted $154.03 based on a mean target price estimate from thirty 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.
MetLife, Inc. netted $145.42 based on dividends plus the mean of annual price estimates from seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 132% greater than the market as a whole.
Citigroup, Inc. (NYSE:C) netted $138.38 based on dividends plus a mean target price estimate from twenty-eight analysts less broker fees. The Beta number showed this estimate subject to volatility 113% greater than the market as a whole.
Phillips 66 netted $97.52 based on dividends plus mean target price estimate from thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 105% greater than the market as a whole.
Apache Corp. (NYSE:APA) netted $95.49, based on dividends plus mean target price estimate from twenty-nine analysts less broker fees. The Beta number showed this estimate subject to volatility 80% greater than the market as a whole.
Valero Energy Corporation netted $89.97 based on a mean target price estimate from seventeen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 161% greater than the market as a whole.
Apple Inc. netted $83.28, based on dividend plus mean target price estimates from forty-eight analysts less broker fees. The Beta number showed this estimate subject to volatility 42% 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.
The average net gain in dividend and price was near 14.5% on $10k invested as $1k 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.
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.
Disclosure: I am long 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.