Dan Dzombak of The Fool looks into contrarian plays. In this environment, it's interesting to sift through companies that have been hammered recently but still remain strong, long term players. It may be worth picking these stocks and riding the wave back up.
- Cisco (CSCO) has been on the ropes, and is down 25% over the past six months. However, they are dominant in their market, and networking isn't going away.
- Annaly Capital Management (NLY): Although the stock has been unchanged, the shares have a 14% yield and REITs are delivering strong returns at the moment. With continued low interest rates, NLY looks like a good bet.
- Research In Motion (RIMM) has been hammered by the iPhone and all the other smart phones with the Android OS -- however, there are lots of reasons (security for one) that they will be around for a while once they get their phones up to current smart standards
- CSC (CSC): One of the world's largest IT services firms, CSC runs essential IT processes and functions for governments and businesses. The U.S. government is CSC's biggest customer, making up 37% of its revenue in fiscal 2011. The company is a cash cow, generating $900 million in free cash flow for the trailing 12 months ended April 1. You rarely find solid companies trading this low.
- AIG (AIG) is down 48% over the past six months. The company remains strong in property & casualty insurance, with a 7.4% market share, and life insurance, with a 1.4% market share. The stock is down, but has strong upside potential.
This is going to be a portfolio that will look ugly today but worth tracking to see whether the contrarian view pays off. We will check back on it quarterly.
We will compare it with the Fool's Matt Koppenheffer selection of what he considered five stocks for long term dividend performance. Bear in mind this this is likely to be something that will show growth in future and will determine how effective insider buying strategies are.
|Johnson & Johnson (NYSE: JNJ )|
|McDonald's (NYSE: MCD )|
|Kimberly-Clark (NYSE: KMB )|
|Sysco (NYSE: SYY )|
|Mattel (NYSE: MAT )|
We will also compare this with our ETF dividend portfolio benchmark:
|Asset||Fund in this portfolio|
|REAL ESTATE||ICF (iShares Cohen & Steers Realty Majors)|
|FIXED INCOME||TIP (iShares Barclays TIPS Bond)|
|Emerging Market||VWO (Vanguard Emerging Markets Stock ETF)|
|US EQUITY||DVY (iShares Dow Jones Select Dividend Index)|
|US EQUITY||VIG (Vanguard Dividend Appreciation ETF)|
|INTERNATIONAL EQUITY||IDV (iShares Dow Jones Intl Select Div Idx)|
|High Yield Bond||HYG (iShares iBoxx $ High Yield Corporate Bd)|
|INTERNATIONAL BONDS||EMB (iShares JPMorgan USD Emerg Markets Bond)|
- July 2011 5 Biggest Contrarian Plays -- Total of $10K invested equally in each stock
- Fools 5 Dividend Payers to Save your Portfolio -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
|Portfolio/Fund Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Fools 5 Dividend Payers to Save your Portfolio||18%||172%||14%||65%||14%||71%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||15%||155%||6%||33%||6%||27%|
|Retirement Income ETFs Tactical Asset Allocation Moderate||13%||146%||12%||94%||11%||80%|
|July 2011 5 Biggest Contrarian Plays||-18%||-101%||-14%||-39%||3%||5%|
Yikes, no kidding that this is a portfolio that has not done well even in a strong market over the past three years. This is not for the faint of heart.
Three Month Chart One Year Chart Three Year Chart Five Year Chart
We can see that this portfolio was spectacular in the 2007-2008, but slumped in 2009, recovered and slumped again in the second half of 2010, and is still under the cosh. It could be that this portfolio will turn the corner but, as mentioned above, it is going to be an individual with a real intestinal fortitude that is going to grab this portfolio.
For those with weaker constitutions (the author included), sticking with the diversified ETF portfolio is the better bet.
Disclosure: We do not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical. We have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.