CNBC aired an interesting segment focusing on some of the “Dogs of the Dow” this afternoon. The segment featured Abigale Doolittle and Hugh Johnson, and each gave their opinions on where the three stocks they discussed were heading.
I understand that some people consider this type of bottom picking to be a legitimate strategy, but from my perspective it just doesn’t make a whole lot of sense.
Newmont Mining (NEM)
The first stock that Abby and Hugh looked at was NEM, which is down a whopping 49.53% on the year. Aside from a slight recover attempt in the middle of 2012, this stock has been trending downward for over two full years.
Hugh suggests that this is one to stay clear of by calling it a “falling knife” and recommends looking for some “positive relative action.” Can’t say I disagree with that….just look at the trend!
Abby, on the other hand, says that she is neutral for this year. However, she looks for the stock to be “probably positive next year.” She bases this on the potential for gold prices to bounce back.
Cliffs Natural Resources (CLF)
The next stock is CLF, which has also been in a multi-year downtrend. It is currently down over 35% for 2013.
Abby sees a lot of potential here. She explains that the stock has a “nice shot at going to 36.” I’m not sure what she based this target on, but she did mention that she would sell if it dropped below 20. At least she addressed the downside.
Hugh referred to this one as a “falling knife” as well.
The last stock that these two looked at was IBM. Despite being down about 7% for the year, IBM had been on a nice little run prior to that. It is certainly the best looking chart of the three, but isn’t going to be triggering any trend following systems for a long time.
Abby was very down on this stock. She thinks that “it’s going to 150.” Again, not sure where she pulled this number from, but the host did mention something about technical analysis, so there must be a good reason for it!
Hugh is more bullish on this stock than the previous two. He actually suggests that “you can buy IBM and cross your fingers.” That method has always worked well for me as well.