Below are the valuation targets for Columbia Sportswear Co. (COLM) for the next 10 years. Continue reading
- Japan
- Market Indicator
- Price Momentum Indicators
- Richard Russell
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- Speed Resistance Lines
- U.S. Dividend Watch List
Penultimate Profit Prospect
According to the book Beating the Dow by Michael O’Higgins, the Penultimate Profit Prospect:
“…is not, strictly speaking, a portfolio, but rather a single stock, the second lowest priced high-yielder [among the ten lowest yielding stocks in the Dow Jones Industrial Average] (O’Higgins, Michael. Beating the Dow. 2000. page 199.).”
The first step in determining the second lowest priced stock of the high-yielders is to rank all of the Dow Jones Industrial Average stocks by their dividend yield.
After ranking these stocks, you then re-rank the ten highest yielding stocks by price from lowest to highest. The second lowest priced stock was Pfizer (PFE) based on the year end 2018 price and dividend yield.
When ranked by yield, from highest to lowest, and then selecting the second lowest priced stock from among the top ten highest yielding stocks we arrive at a change in price that is pegged at –10.24% for Pfizer (PFE).
Again, our spectrum analysis attempts to find the opposite scenario to determine if it would result in an outcome that confirms the assessment or arrives at a different conclusion. To keep the process as simple as possible, we’ve elected to choose the second lowest yielding stock (Nike), regardless of price, to see if it would perform any better than O’Higgins Penultimate Profit Prospect stock.
When we contrast the performance of the Penultimate Profit Prospect with the second lowest yielding stock, we find that the returns are –10.24% versus +36.65%, respectively. This seems unusual to us but consistent with the data that we’ve run on the Dogs of the Dow in the period from 1996-2019. The low yielding stocks routine outperform the high yielding stocks.
So, in order to stretch the concept even further, we’ve ranked the 30 stocks of the Dow Jones Industrial Average from highest yielding to lowest yielding in the period from 1997 to 2019. Then, we compared the individual ranks for each year to determine the average rate of change for that specific ranking. Below is the graphing of the individual performance with the stock ranked number 1 being the highest yielding while the stock ranked 30 being the lowest yielding from 1997-2019.
Based on the ranking of the data, the true penultimate profit prospect would seem to be the stock with second lowest dividend yield. In this case, the 2nd lowest yielding stocks gained +13.68% in the period from 1997 to 2019.
NLO in Review: 2020-2
The following is the breakdown of the Dogs of the NLO based on our January 3, 2020 watch list, compared to other fundamental ratios. The purpose of this work is to confirm or deny the claims proposed of the Dogs of the Dow theory as outlined by Michael O’Higgins in his book Beating the Dow. Continue reading
DJIA in Review: 2020-2
The following is the breakdown of the Dogs of the Dow (found here) in week two, compared to other fundamental ratios. Continue reading
TSX 60 in Review: 2020-2
The following is the breakdown of the Dogs of the TSX 60 (found here) in week one, compared to other fundamental ratios. Continue reading
Transaction Alert
The NLO team executed the following transaction(s): Continue reading
The First 12 Years: Simons v. Buffett
We got our hands on the latest investment tome by Gregory Zuckerman titled The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution. The book is good but we can’t help but cut to the data to get a better sense of perspective.
Below is a comparison between Jim Simons and Warren Buffett in the first 12 years of published investment performance. Continue reading
Posted in Jim Simons, Warren Buffett
U.S. Dividend Watch List: January 3, 2020
We’ve started this decade by reviewing the watch list from the beginning of 2019. We are exploring the many different ways to utilize our watch list by collecting and analyzing data from various fundamental measures. Our study has revealed outcomes that may be surprising findings.
| January 4, 2019 (Top 5 Companies) | ||
| Strategy | High | Low |
| Yield | 6.9% | 20.0% |
| P/E | 47.0% | 23.8% |
| Payout Ratio | 26.7% | 9.5% |
| P/B | 41.8% | 24.2% |
| Closest to Low | 21.7% | |
| S&P 500 | 27.8% | |
The gains above are based on top 5 companies by various fundamental metrics from our January 4, 2019 watch list. The best performer was the top five high P/E ratio stocks while the worst performer was the high dividend yield (similar to the Dogs of the Dow strategy).
| High P/E | High Dividend Yield | |||||
| Symbol | P/E | % Change | Symbol | Yield | % Change | |
| SYK | 48.48 | 33% | FUN | 7.30% | 15% | |
| TNC | 42.52 | 51% | MMP | 6.29% | 6% | |
| SAFM | 37.33 | 74% | WRI | 6.26% | 21% | |
| VMI | 34.62 | 34% | HP | 5.71% | -6% | |
| BF-B | 30.36 | 43% | MO | 5.69% | -1% | |
| 38.66 | 47% | 6.25% | 7% | |||
Keep in mind that the time frame for this assessment is one year. One might think that this is a one-time occurrence but our data, as confirmed in the Dogs of the Dow from 1996-2019, shows that companies with high P/E ratios tend to outperform the widely followed Dow Jones Industrial Average and S&P 500 Index.
U.S. Dividend Watch List: January 3, 2020
We are excited to start the new year with new ways to look at the market. The last decade was a great one for the bullish investor. We started the New Low Observer in July 2009 based on the belief that a bull market was due.
In the last decade, the S&P 500 went from 1,133 to 3,230, 185% gain or +12% annually. We have been working hard to explore ways to improve our performance and we will be bringing some of our best ideas forward through the weekly watch list. Continue reading
TSX 60 in Review: 2020-1
The following is the breakdown of the Dogs of the TSX 60 (found here) in week one, compared to other fundamental ratios. Continue reading
DJIA in Review: 2020-1
The following is the breakdown of the Dogs of the Dow (found here) in week one, compared to other fundamental ratios. Continue reading
2020 Dogs of the TSX 60
Below is the Dogs of the TSX 60 for 2020 with the breakdown of the other categories that we track.
Posted in Dogs of the TSX
2020 Dogs of the Dow
Below is the Dogs of the Dow for 2020 with the breakdown of the other categories that we track.
2019 Dogs of the TSX 60
Below is a chart of the performance of the Dogs of the TSX 60 from December 31, 2018 to December 31, 2019.
On average, as with the Dogs of the Dow, low yield stocks continues to dominate the high yield (Dogs of the TSX 60). It isn’t supposed to be this way according to the popular literature on this topic.
Our commentary from the January 2019 Dogs of the TSX 60 watch list had the following to say:
“Unlike the Dogs of the Dow, The Dogs of the TSX 60 have the best performers in the ‘high yield’, ‘low p/b’, and ‘low p/e’. Our preference is for stocks within the low yield grouping.”
Our painful adherence to conservatism and safety has seen our pick of low yield stocks doing “alright” compared to the Toronto Stock Exchange. We introduced the 1,2,3 and 2,3,4 as an alternative to the conventional top ten stocks, as we believe better performance within the low yield stocks would come from the top 2nd, 3rd, and 4th stocks.
While we have observed that low p/e, low p/b, and high yield Canadian stocks performed better in the past, only the low p/b stocks crushed it, especially the top 1,2,3 stock in that grouping with a dumbfounding gain of +79.37%.
2019 Dogs of the Dow
Below is a chart of the performance of the Dogs of the Dow from December 31, 2018 to December 31, 2019.
In 2019, the Dogs of the Dow (high yield) failed to exceed the performance of the Dow Jones Industrial Average. In addition, the Dogs of the Dow (high yield) severely underperformed the low yield stocks by a margin of +15%.
Our commentary from the January 2019 Dogs of the Dow watch list had the following to say:
“Our preference is for stocks in the highest p/e or lowest yield stocks.”
While the top 3 stocks in the high p/e category underperformed the Dow Jones Industrial Average with a gain of +13.54%, the low yield group crushed the index with gains of +36.71% and +32.36%.
1996-2019 Long-Term Performance
Below is our long-term performance of the Dogs of the Dow from 1996 to 2019 for both the top ten and top 3 stocks for the respective categories.
As is the case, the Dogs of the Dow (high yield) underperform the DJIA and the low yield category. High P/E stocks seem to win the day with above average gains on a long term basis. This is counter to the belief that investors should buy low p/e stocks.
see also:
Posted in Dogs of the Dow, Low Yield
U.S. Dividend Watch List: Top 5 by Ratios
Below is the performance of the top 5 stocks by fundamental ratios that we posted from our watch list dated January 4, 2019 to December 27, 2019:
When looking at the data, we prefer to compare the performance of companies on a spectrum of relative values. For this reason, we have compared the High P/E stocks against the Low P/E stocks, High P/B to Low P/B etc.
Long held views on fundamental value investing suggest that investors choose the stocks in the “low” categories over the “high” categories, except in the case of yield. Our attention to the spectrum of data that is available to us points to the fact, so far, that the “high” categories require significant attention as they offer significant potential reward.
The category to beat from our January 4, 2019 watch list was the High P/E group as opposed to the Low P/E group where the gain was +47.06% as compared to +24.02%, respectively.
The second best category in 2019 was the High P/B group with a 2019 gain of +40.35% as contrasted with the Low P/B group which gained +23.88%.
The third group, in terms of performance, was the Low Yield stocks with a gain of +16.25% (failing to beat the index), which stood at nearly 3 times the gains of the High Yield (similar to the Dogs of Dow) stocks with gains of +6.53%.
Last but not least, the High Payout (dividend payout relative to earnings) stocks gained +27.17% as compared to the Low Payout stocks gain of +10.42%.
In the last year, the Dow Jones Industrial Average gained approximately +22.34%.