This monthly report tallied results from here as verified using Yahoo Finance data for basic materials sector stocks as of market closing prices January 13 along with analyst mean target price results one year hence. The comparison found six stocks projected to flaunt a 20.3% to 35.8% price upsides:
- Eagle Rock Energy Partners (NASDAQ:EROC) from Houston showed the low 20.3% upside;
- Atlas Resource Partners, LP (NYSE:ARP) out of Pittsburgh displayed 22.07%;
- Mid-Con Energy Partners (NASDAQ:MCEP) from Dallas at 23.88% topped the bottom three;
- EV Energy Partners L.P. (NASDAQ:EVEP) also based in Houston with 27.17% upside placed third best;
- Alon USA Partners LP (NYSE:ALDW), another LP from Dallas, was second best at 27.47% upside;
- The best was the lone trust of the six, Enduro Royalty Trust (NYSE:NDRO) from Austin showing a 35.8% estimated upside.
Four basic materials dogs trailing these six showed 8.86% to 18.02% price upsides. This was the first of four actionable conclusions within this article.
The chart above used one year mean target price set by brokerage analysts matched against January 13 closing price to compare ten sector stocks showing the highest upside price potential into 2014 out of 20 selected by yield. 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.
Thirty For the Money
Since the fall of 2011 this report series applied dog dividend methodology to uncover possible buy opportunities in each of eight major market sectors listed by Yahoo Finance: basic materials (BasMats), consumer goods (ConGo), financials (Fins), healthcare (Heal), industrial goods (IndiGo), services (Svcs), technology (Tec), and utilities (Utes). In the past year the series has expanded to report (1) dividend yield; (2) price upside; (3) net gain results based on analyst 1 yr. target projections.
Dog dividend methodology is based on Michael B. O'Higgins book "Beating The Dow" (HarperCollins, 1991), which revealed how high yielding stocks whose prices increased (and whose dividend yields therefore decreased) could be sold off once a year to sweep gains and reinvest the seed money into higher yielding stocks in the same index. Now named Dogs of the Dow, O'Higgins system also works to find bargains in any collection of dividend paying stocks. Utilizing analyst price upside estimates has expanded the stock lists to include popular growth equities, if desired.
The report below tallied yield (dividend / price) results from Yahoo Finance for the basic materials sector as of market closing prices January 13 and compared them to results for the top ten dogs of the Dow. Arnold top dog selections for January were disclosed below step by step. Three additional actionable conclusions were drawn to total four including the price upside insight noted above.
Dog Metrics Sorted Basic Materials Sector Stocks by Yield
Eight of the top ten basic materials stocks showing the biggest dividend yields per the Yahoo screen as of January 13 represented oil and/or gas (o&g) industries. These included the top dog, SandRidge Mississippian Trust II (NYSE:SDR) tops and only driller in the top ten. Five independent o&g firms were slotted two, four, seven, eight & nine: Sandridge Permian Trust (NYSE:PER); Enduro Royalty Trust ; LRR Energy L.P. (NYSE:LRE); QR Energy LP (NYSE:QRE); Atlas Resource Partners, L.P. . The last two O&G refiners and marketers, Alon USA Partners LP, and BP Prudhoe Bay Royalty Trust (NYSE:BPT) placed third and sixth.
So, merely two of the top ten basic materials firms by yield did not mention oil or gas in their industry description. The highest of these placed fifth, PetroLogistics LP, a major chemicals firm. An agricultural chemicals firm, CVR Partners L.P. (NYSE:UAN) was tenth by yield.
Sector Leader Dividend vs. Price Results Compared to Top Dow Index Dogs
The graph below of the relative strengths of the top ten basic materials dogs by yield was plotted as of market close 1/13/2014 compared to those of the Dow of 1/10. Historic projected annual dividend history from $10,000 invested as $1k in each of the ten highest yielding stocks and the total single share prices of those ten stocks created the data points shown in green for price and blue for dividends.
Actionable Conclusion (2): Basic Materials Top Ten Dogs Dither Down As Dow Sagged
Dividend from $10k invested as $1k in each basic material top ten dog fell while the aggregate single share price of those ten also dropped since December. Dividend dropped at a rate of 1.2% while total single share price decreased 4.8% in that period. The dithering market signal was largely evoked by new stocks entering the top ten.
For the Dow dogs, meanwhile, projected annual dividend from $10k invested as $1K in each of the top ten Dow dogs increased over 2.5% since November 20, while aggregate single share price fell 3.9%. The Dow dogs overbought condition in which aggregate single share price of the ten exceeded projected annual dividend from $10k invested in those ten (@$1k each) shrank again. The overhang was $161 or 43% for September; shrank down to $111 or 30% for October; rose to $140 or 38% in November; shrank back to $111 or 29% as of January 10.
To quantify the top dog rankings, analyst mean price target estimates provided a "market sentiment" gauge of upside potential and so were added to the simple high yield "dog" metric used to dig out bargains.
Actionable Conclusion (3): Wall Street Wizards Weighed A 22% Net Gain from Top 20 Basic Materials Dogs In 2014
Top twenty dogs for the basic materials sector were graphed below to show relative strengths by dividend and price as of January 13, 2014 and those projected by analyst mean price target estimates to the same date in 2015.
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 upsides to 2015.
Historic prices and actual dividends paid from $1000 invested in each of the ten highest yielding stocks and the aggregate single share prices of those twenty stocks divided by 2 created the data points for 2014. 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 2 created the 2015 data points green for price and blue for dividends.
Yahoo projected an 11% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 12.8% 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 charts. Three to nine analysts was considered optimal for a valid projection estimate. Estimates provided by one analyst were not applied (n/a).
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 opposite of market direction.
Actionable Conclusion (4): Analysts Forecast 10 Basic Materials Sector Dogs to Net 22.8% to 48.6% By 2015
Six of the ten top dividend yielding bas mat dogs were verified as being among the top gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy for basic materials as graded by Wall St. wizards was 60% accurate.
Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:
Enduro Royalty Trust netted $486.17, based on dividends plus mean target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 6% less than the market as a whole.
Alon USA Partners LP netted $435.70, based on dividend plus mean target price estimates from three analysts less broker fees. No Beta number was available for ALDW.
EV Energy Partners L.P. netted $342.54 based on estimates from nine analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 48% less than the market as a whole.
Mid-Con Energy Partners netted $312.27, based on dividends plus a mean target price estimate by seven analysts less broker fees. The Beta number showed this estimate subject to volatility 90% more than the market as a whole.
Atlas Resource Partners, LP netted $305.82 based on estimates from eight analysts plus dividends less broker fees. No Beta number was available for ARP.
Eagle Rock Energy Partners netted $334.72 based on dividends plus mean target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 10% less than the market as a whole.
CVR Partners LP. netted $260.94 based on a mean target price estimate from four analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 12% less than the market as a whole.
Sandridge Permian Trust netted $251.38 based on estimates from two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 32% greater than the market as a whole.
Seadrill Limited (NYSE:SDRL) netted $249.00 based on dividends plus the mean of annual price estimates from fourteen analysts less broker fees. The Beta number showed this estimate subject to volatility 35% greater than the market as a whole.
PetroLogistics LP (NYSE:PDH) netted $228.38 based on a mean target price estimate from four analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 58% opposed to the market as a whole.
Average net gain in dividend and price was over 31.5% on $10k invested as $1kin each of these ten dogs. This gain estimate was subject to average volatility 10% less than the market as a whole.
The stocks listed above were suggested only as decent starting points for your basic materials sector dog dividend stock purchase research process. These were not recommendations.
These gains as reported do not factor-in any tax problems resulting from distributions. Consult your tax advisor regarding the source of "dividends" from any investment.
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 CSCO, CVX, 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.