Will These 3 Dogs of the Dow Leave the Doghouse in 2022?
Year-to-date, Boeing once again finds itself near the bottom of the Dow return rankings. Walt Disney and Verizon Communications round out the bottom three vying for the dubious distinction of...
As the year winds down, new diets, gym memberships, and other good habits swirl in our minds. For investors, it’s a time to consider altering stock picking strategies to slim down on losses and bulk up on gains.
A simplistic but sometimes effective approach is to buy the so-called Dogs of the Dow. The idea stems from the belief that while these stocks have had years to forget, their status as stalwart Dow-30 members makes them intriguing turnaround plays.
In the case of Boeing, the worst performing Dow stock in 2020, buying in 2021 would’ve resulted in more turbulence. Not so with Walgreens Boots Alliance and Chevron which went from Dow dogs to Dow outperformers this year.
Year-to-date, Boeing once again finds itself near the bottom of the Dow return rankings. Walt Disney and Verizon Communications round out the bottom three vying for the dubious distinction of 2021 Dow Dog. Will they scratch their way back in 2022?
Will Walt Disney Stock Outperform in 2022?
Walt Disney (NYSE:DIS) stock is on pace to have its worst year since 2008 when all but three Dow-30 components finished in the red. It is the index’s worst performer (down 17%) but some slack is warranted here given Disney’s returns the previous two years—32% and 25%.
Fortunately for Disney shareholders, the magic is far from over. Ongoing pandemic headwinds that have limited theme park traffic will eventually improve. The other major concern, elevated spending levels, should bear fruit in the years ahead. Investments in new projects like the Stars Wars: Galaxy’s Edge attraction, Avengers Campus, and expansions at Epcot and cruise lines stand to generate Disney-like return on investments (ROIs).
The streaming TV wars will be a key battleground to watch in 2022 with Amazon, Apple, and others pushing further into the space. But its hard not to see Disney+ emerging as a winner given its iconic brands and vast media resources.
Disney’s financials are likely to get better as 2022 progresses. Last quarter a return to profitability was overshadowed by soft Disney+ subscriber numbers. However, analysts are predicting 37% EPS growth in fiscal 2022 which makes the 27x forward P/E ratio a good deal. As Disney continues to recover from the pandemic, look for the stock to go from laggard to leader in 2022.
Why is Verizon Stock Down?
Down 14% year-to-date, Verizon Communications (NYSE:VZ) is challenging Disney for dog of the Dow honors. The wireless telecom provider has strung together some decent quarterly results but failed to wow investors. Margin pressures have been a concern for Verizon. The ultra-competitive 5G space has forced the company to spend mightily on promotions to combat the likes of AT&T and T-Mobile.
Unfortunately, competitive pressures may get worse before they get better. The cord cutting revolution has cable operators entering the wireless market putting more heat on telco giants like Verizon who is already struggling with shrinking Fios Video subscribers. This means Verizon will have to continue to offer discounts to attract and retain customers who have a lot more choices these days when it comes to wireless carriers.
The good news is that the 5G opportunity is a massive one and even a modest market share should still support growth at Verizon. The bad news is the bottom growth will likely be minimal next year as the company continues to operate at elevated expense levels. At best, Verizon is looking like a stable dividend play given the 5% forward yield, but that may be the biggest part of the stock’s return in 2022.
Is it a Good Time to Buy Boeing Stock?
Boeing (NYSE:BA) stock has slipped another 9% this year on the heels of a 34% decline in 2020. Fortunately, the worst is probably over for the embattled aircraft manufacturer.
The fallout from the 737 MAX disasters continues and will leave a scar on the company for years to come. On the bright side, though, progress on the coronavirus vaccine front should work in Boeing’s favor and lead to normalized order patterns as airliners bolster their fleets to meet pent-up travel demand. Pending pandemic developments, this should put the wind at Boeing’s back provided it can work through the recent 787 Dreamliner delays.
It is still far from a dream scenario for Boeing investors, but the stock appears to have limited downside and significant upside. Despite its damaged reputation, Boeing is still relied on heavily in the commercial aerospace industry. It has a large order backlog that includes 370 737 MAX planes that management expects will be delivered by the end of 2023. This along with a pickup in production should drive a gradual return to profitability.
Analysts aren’t expecting Boeing to deliver profits until at least 2023 which should keep interest in the stock grounded next year. But if signs of progress show through positive delivery and production numbers, the stock should start to make its initial ascent. Boeing is still a long-term turnaround play, but with a new CEO in the cockpit and a depressed valuation, it may be a good time to board.