Halfway through the baseball season, the major leagues take a breather to celebrate their best players. So we thought we would take a moment to assess the best stocks of the first half of 2012. In our article, All-Star Stocks, we listed the top performers of the Russell 3000 Index, each of which more than doubled through the first half of the year. Large-cap investors or those keying on stocks in the Dow Jones Industrial Average for various strategic purposes would have a more focused interest in stock performance, and so we've broken out the best-performing stocks of the "Dow" for you here.
The Dow Jones Industrial Average gained 5.4% through the first half of 2012, while the SPDR Dow Jones Industrial Average (DIA) rose 6.7% after adjustments for dividends and splits. The best individual performers might surprise you, as Dow component performance tends to favor value. This is evidenced by the popularity of reversion-to-mean strategies like the "Dogs of the Dow" theory.
The All-Star Team
In baseball, nine players are elected to start at each position on the field, and so we are ranking the top 9 performers for your Dow All-Star Stock Team. Performance has been adjusted for dividends.
Dow Component & Ticker
First Half Performance
Bank of America (BAC)
Walt Disney (DIS)
Home Depot (HD)
American Express (AXP)
General Electric (GE)
Bank of America was beaten down by the financial crisis, but continued to turn things around this year. The company has built up its capital reserves, addressing the concerns of Moody's. However, we recently isolated a key risk the company must still resolve in order to restore its valuation to a more normal level. The stock recently came under a bit of pressure after reporting results and noting mounting claims from MBS investors and insurers against mortgages written by Countrywide Financial, a company BofA acquired in crisis. Bank of America pointed to changes in Fannie Mae's (FNMA.OB) mortgage review process and said a majority of the claims had no basis of argument. Still, its outlook moving forward remains burdened by issues with the economy and the resulting limitations of real estate. One major recession signal just flashed red.
Surveying the list here for companies that might continue gaining ground through 2012, Wal-Mart catches the eye. The discount retailer remains a favorite shopping destination for frugal shoppers in a troubled economic environment. We recently included Wal-Mart among a short list of such salesmen in our article 5 Stocks to Own if Consumers Check Out.
Home Depot has certainly benefited from the improved economic environment through Q1, and probably also from the growth of multi-family unit construction. I expect landlords operating near full occupancy are kept busy with repairs as well. However, Home Depot might also find new pressure through the remainder of the year as the economy slows. Indeed, we are not as confident about the cyclical construction industry as homebuilders were recently reported to be.
Even Disney might not find the same favor in the second half of 2012. Tourists and American vacationers might shy away from its entertainment centers and its films too, as the Colorado shooting impacts the movie business.
General Electric got some lift recently from its EPS result, but we've noted manufacturing sector data points souring en masse lately. Given restraints upon demand in Europe and even in China recently, we would recommend investors take profits out of this cyclical name.
Based on my economic view, investors in the short list of Dow components might do better in the near-term to consider going negative, and investing in the ProShares Short Dow30 (DOG) or the ProShares UltraShort Dow (DXD). If you are hell bent on playing to win, you might consider consumer staple names like Johnson & Johnson (JNJ) and Procter & Gamble (PG), and other defensive Dow components like Merck (MRK), which made the list above.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.