3 Beat-Up Dow Stocks - On Sale?

By Aryeh Katz | March 11, 2010 AAA

Momentum and value investors take radically different approaches to their stock purchases. Whereas a beat-up, long-forgotten, down-and-out company with an impressive yield, trading below book value will appeal to Ben Graham-type value seekers, the momentum crowd sees only wasted time and capital.

What to do, then, with the following companies? Do the worst performers on the Dow represent a great value opportunity? Or are they just laggards who won't amount to anything for the foreseeable future? Below we list the three worst Dow Industrial performers year-to-date, complete with key valuation metrics.

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Aluminum Foiled

Thus far, Alcoa, Inc. (NYSE:AA) wins the worst Dow stock of the year award for 2010. The shares are down 15% since the New Year after a strong 12 month showing of over 160%. Compared to the Dow itself, as represented by the SPDR Dow Jones Industrial ETF (NYSE:DIA), Alcoa is a laggard in the short term. The DIAmonds have put on 2% YTD and nearly 60% in the past twelve months.

Alcoa pays a very small 0.87% annual dividend and is still recording negative earnings. Latest quarter numbers disappointed Wall Street analysts who were expecting five cents a share and got only a penny. In the wake of those results, rating agency Fitch reaffirmed the company's BBB- rating and maintained a "Negative" outlook.

Hang Up The Phone

Telecom giant AT&T, Inc. (NYSE:T) has been wallowing in the price doldrums for some time now. Year to date the stock is down 9% and for the year the shares managed a mere 11% rise. That, of course, doesn't take into consideration the very healthy annual dividend the company pays, currently better than 6.5%. It also doesn't mention the fact that the price/earnings ratio for the shares is a rather competitive 12.

Versus the broad telecom sector, AT&T also doesn't compare favorably. The ishares Dow Jones U.S. Telecom ETF (NYSE:IYZ) put on 40% in the last four quarters and is down a slight 1.5% since New Year's.

Verizon Communications Inc. (NYSE:VZ) fills out the Dow's trailing trio for the year, with a YTD loss of more than 10% and a one year performance that netted a positive 8%. VZ stock pays 6.5% annually.

The Wrap

There's an unwritten rule on Wall Street that the last will eventually become the first. The question regarding these three issues is how long that "eventually" will turn out to be. Then again, for those happy with a 6%+ dividend, maybe it's worth the wait. (For more, see Dial Up Choice Telecom Stocks.)

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