WASHINGTON, January 2, 2014 – In our Market Maven column, we launched our discussion of the annual Dogs of the Dow investment strategy by listing 2014’s Dow Dogs in inverse order of yield, offering our top picks from the list.
Other Dow Dogs could be rewarding, too. But we haven’t put them on our candidate list either because their 2014 business prospects don’t turn us on or because political considerations make them potentially risky bets.
We’ll examine the three most problematic Dow Dogs here. We leave it up to you as to whether to bother with them or not. All three could make money, too, in 2014. But either political shenanigans, headline risk, or sheer boredom with bottom line numbers are putting them in the Prudent Man’s Dow Dog Dog House, at least for now.
First in our Gang of Three, GE is actually likely to benefit further this year as it lessens its “financial” image by paring down that part of its business. But, personally, we’ll likely pass this one up due to GE’s pernicious toadying up to the current administration and the political risk that goes along with it.
CEO Jeff Immelt has piggybacked part of his company’s prospects on money losing but government subsidized wind-power efforts. That’s crony capitalism at its worst. It’s something we detest and something that is costing the consumer billions at least indirectly.
In addition, as head of the President’s moribund employment commission, Immelt and his fellow members have done precisely zero to ameliorate the country’s dire unemployment pressure, the severity and perniciousness of which remains masked by false/unreported statistics. We simply can’t reward this kind of anti-American approach to business by underwriting it with our own actually hard-earned money.
Further, if Republicans take the Senate this fall, GE’s political advantages, if not quite at an end, will start running into political roadblocks, the effects of which will be highly unpredictable.
Similarly, though we’ve made money on Merck (MRK) in the past, its little-reported but substantial withdrawal of contributions to the Boy Scouts of America last year to “protest” its non-admission of gay scoutmasters—now ended—contributed to this Administration’s continuing violation of the right of all Americans to free association.
Given that MRK is also part of the cabal that supported Obamacare in order to profit by the socialization of medicine, we find it hard to invest our own money here. With Obamacare likely to remain under assault in 2014 due to the sheer ineptitude of this Administration and its approach, MRK, and other crony capitalists who championed this legislation as their own perpetual profit machine might find themselves in trouble. The could be facing a rollback in what they may have viewed as guaranteed profits as portions of Obamacare, if not the plan itself, are delayed or terminated outright.
Our third Dow Dog that might be good but that might also generate considerable heartburn is McDonald’s (MCD). For a variety of reasons, the company had a bad 2013. It should bounce back nicely in 2014, except…
Here’s the thing. Unlike GE and Merck, which continue to profit by toadying up to this Administration, McDonald’s is in some danger of being victimized by politics, being caught in the crosshairs of a nakedly Democrat- and union-inspired minimum wage conspiracy aimed toward pushing low-information voters to the polls en masse later this fall.
As poster child for this “Fair Wage” movement, Mickey D stores in many states and jurisdictions may be forced to pay wages well in excess of the current minimum. Since they can only raise their prices so much lest they lose business, they’d have to eat the rest of the consequences, which could badly erode profitability in 2014 and beyond.
A likely “unintended consequence” here might also be further automation, enabling the company to avoid making expensive new hires in this environment, further destroying any possibility that unskilled workers might have of entering the workforce in this decade.
This whole potential scenario is what’s known in the trade as “headline risk.” While we like MCD for 2014 on the face of it, who knows what anti-Big Mac tactics increasingly desperate Democrats might use to better their chances at the polls this November? If you are a skittish 2014 investor as is the Maven, you might want to forego investing in this otherwise good-looking Dow Dog in 2014.
Headline risk is not a good thing. And we’ll see more of it for many stocks as Election 2014 ramps up. It’s a disgusting spectacle, really. But it’s apparently what Americans wanted when they went to the polls in 2012. 2014 will tell us whether they liked what they got.
Our final fairly unappetizing Dow Dog, Cisco (CSCO) has nothing to do with politics. That we know. Cisco has simply been a serial underperformer for the last several years, and this once dominating networking company never seems to have the answer to turning things around. To be sure, Cisco still dominates the networking arena. But it just hasn’t been able to get its act in gear, profit-wise, even in our current century where networking is the be-all, end-all of everything.
Perhaps Cisco has gone the way of Microsoft, stuck in a rut caused by the commoditization of the kinds of products it sells. But until this company can get off the chocks, we see nothing to currently recommend it aside from its dividend, even though CNBC’s controversial Jim Cramer is touting it as one of his Dow Dog picks for 2014. We’ll take a pass.
One way or another, some stock investments will pay a heavy price as we slouch toward that fateful Tuesday in November. We hope to avoid them, and we’ll start on that path by steering clear of these four Dow Dogs.
At least for now.
In the market, nothing is forever.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Positions mentioned above may describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
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Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.
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