On October 21, 2016, we posted analyst estimates for the expected gains for our watch list stocks dated October 14, 2016. Below is the performance review of the stocks that were part of that assessment.
At the time, we grouped the stocks into three separate categories (“high risk, high return,” “average risk, average return,” and “high expectation, low return”) as seen in the chart below:
As separate categories, the returns were as follows:
We have to be mindful of the fact that the high, average, and low returns are based on long term expectations for similar stocks. When contrasted against the Dow Jones Industrial Average, which gained +27.91% over the same time, the gains of each category are hardly “high” or “average.”
Below is the list of Canadian dividend stocks that currently, or in the past, had a history of consecutive dividend increases that are at compelling prices or values. We include analyst estimates for the coming year.
The following is the performance of the Insurance Watch List stocks that we published in October 2016.
The Hanover Insurance Group, Inc.
Hallmark Financial Services Inc.
CNO Financial Group, Inc.
Old Republic International Corp.
The average return for the four stocks was +24.29% as compared to the iShares Dow Jones US Insurance Index ETF (IAK) gain of +20.27%. The analysts called the performance of the stocks fairly well as indicated in the chart below.
Of the four stocks, only Hallmark Financial Services (HALL) was not able to exceed expectations (assuming the low estimate and the price of the stock maintained the same p/e ratio).
In our “Sell the Principal” section we outlined the stocks that we thought investors should consider selling the principal as the price of the stocks had exceeded all reasonable one year gains. Below is the performance of the list of stocks in the order as presented at the time.
Syncora Holdings Ltd.
Genworth Financial, Inc.
Crawford & Company
Hilltop Holdings Inc.
Lincoln National Corporation
Endurance Specialty Holdings Ltd.
Principal Financial Group Inc.
Kingsway Financial Services Inc.
National Interstate Corporation
Stewart Information Services Corporation
The entire list gained an average of +13.76% as compared to the iShares Dow Jones US Insurance Index ETF (IAK) gain of +20.27%. Only four stocks exceeded the performance of IAK (UNM, LNC, PFG, and SYCRF). Meanwhile, the remaining list of stocks performed well below the +20.27%. More than half the list showed below average or negative returns. This month’s “Sell the Principal” list has refined how the data is interpreted with the stated goal of highlighting those stocks expected to register negative returns after a review in October 2018.
In our posting of October 22, 2016, we highlighted the Analyst Estimates for the Dow Jones Industrial Average. We took the analyst low estimated earnings and with a price to earnings ratio of 15 projected one year out. Below are the estimated returns and the actual returns as of September 29, 2017.
In our assessment of October 22, 2016, we had proposed the following outcomes to watch for:
“We believe that the average category provides the best return overall with the high risk group offering exceptional gains for aggressive investors who have a longer time horizon (3-7 years).”
In the category indicated as “high risk” the estimate by analysts suggested that the group would decline by more than –24.02%. However, instead of falling, the high risk group has gained as much as +21.32%. The “average return” group nearly doubled the expected return as determined by analysts. Finally, the group indicated as “high expectations” gained half as much as the analysts had indicated based on the projected earnings with a price multiple of 15 times.
Our “NLO dogs” of the Dow would “…produce surprising numbers as compared to the way the conventional ‘dogs’ would perform .”
As outlined in the graph above, the projected return of the “NLO dogs” increased by +17.29% instead of declining –13.30%. However, that exceptional reversal of fortune was not enough to meet our goal of the “NLO dogs” beating the traditional “Dogs of the Dow” investment strategy.
While there are three weeks remaining for the final 1-year numbers to come in, we’ve had some mixed results with our forecasts on expected returns. Overall, the selection of companies in the most widely followed index should have similar outcome as outlined in 2016.
Those stocks that are expected to perform the worst will exceed the prescribed returns while those expected to outperform will generally underperform analyst expectations. We hope to follow up on the overall performance of the “high risk” group to see if the 3-7 year performance manages to hold up to our expectations.
Regarding the “Dogs” investment strategy, while it is nice for the stocks that we selected to exceed the performance of the analysts, the original theory seems to remain consistent, at least in the period from 2016 to 2017.