The Dogs of the Dow is a stock-picking strategy that tries to make money by identifying brand-name companies in the Dow Jones Industrial Average (.DJI) trading at a discount. Yet there is another group of iconic stocks that are (1) beaten up, and (2) on fire so far in 2019. The question for investors is, can they keep it up their recent outperformance?
These other iconic stocks are seven “Dinosaurs of the Dow,” including U.S. Steel (X), Alcoa (AA), General Electric (GE), General Motors (GM), American International Group (AIG), AT&T (T), and IBM (IBM). And they all have four things in common just now. The seven are, or were, components of the Dow Jones Industrial Average, all of the stocks are down substantially from their record stock-market highs, and all had a rough 2018. Also, importantly, all seven stocks are up—a lot—this year.
Is the 2019 jump a short-term move, or can this septet recapture their former glory?
Some of the stories behind each company’s fall from grace are more apparent than other stories. We all remember that AIG, for instance, tried to insure all of the confusing financial products that nearly brought down the entire U.S. financial system during the credit crisis, which turned out badly for AIG shareholders. The company was bailed out by the government, which massively diluted its shareholder base. AIG shares outstanding went from around 700 million to nearly 1.9 billion, which meant that each share was suddenly worth far less than it had been.
Then there is GE. General Electric’s prior management missed the transition away from large scale power generation projects, which has caused big problems for its power generation unit. Also, GE Capital has its own set of issues that management has been dealing with for years now. GE Capital assets peaked at nearly $640 billion in 2008 and have fallen to about $120 billion at the end of 2018. GE has a new CEO with a great track record from his days at Danaher (DHR).
The commodity business isn’t what it used to be. Just ask U.S. Steel and Alcoa. Steel and aluminum consumption still grows around the world each (non-recessionary) year, but the metals industry isn’t the economic bellwether it once was. Long gone are the days when U.S. Steel was the largest steelmaker in the world. Now over half of global steel capacity is in China. U.S. Steel could benefit in the long run from a new trade deal with China that limits the ability of Chinese steel mills to dump product into America.
In the car business, General Motors was forced to seek bankruptcy protection after sales plummeted during the financial crisis. And GM’s CEO Mary Barra, who has been in the post for three years, is trying to steer the auto maker though a host of technological changes that will bring the public self-driving electric cars in the near future.
And in the technology business, IBM has gone through several shifts, navigating from mainframe computers to personal computers and from IT consulting to the cloud. IBM is trying to capture the cloud with its acquisition of Red Hat (RHT).
It appears that AT&T has managed to shed much of its dino-DNA. It’s still one of the largest companies in America. However, Ma Bell has had to navigate big changes too, moving from wireline to wireless businesses and today AT&T’s industry is morphing again. Now the lines between content creation and content delivery are blurring. This data delivery transition is costing AT&T billions and billions of dollars.
Each of these stocks face issues, but each is up in 2019—and some of the stocks are moving because of significant events that could mean the future is brighter than it has been. Still, whether they’ll be able to navigate a path from the glorious past to the uncertain present and into the futures remains to be seen.
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