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5 Dow Dogs That Could Stomp the Market in 2013


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Even if Verizon isn't truly the nation's biggest cellular phone stock, the firm's partly owned mobile unit is still the dominant brand in the market -- and the $138 billion telco's 4.25% dividend yield makes it the second Dow Dog on our list. Verizon's business is almost identical to AT&T's: It's a mobile phone provider, it owns a robust fixed-line business, and it competes in the "bundle" space, offering consumers services like internet and TV.

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One key difference comes in fixed lines, where Verizon has been spinning off its legacy infrastructure portfolio to bankroll its costly FiOS installations. FiOs isn't cheap (some estimates put CapEx costs at $4,000 per installed home), but it's the future of residential and commercial connectivity. By biting the bullet on infrastructure spending now, Verizon gains a dramatically better network than peers as well as a more salable, sticky product.

Verizon's wireless business is the big variable that the firm needs to figure out. Vodafone (VOD) owns close to half the business, and Verizon wants to buy it. That would be a good use of some of VZ's balance sheet liquidity in the near-term. In the meantime, an emphasis on shareholder yield has been another good use of the huge cash flows that VZ throws off. With a big defensive bent, investors could do worse than these two telco names in 2013, even if they're lacking in diversification.


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Hewlett-Packard (HPQ - Get Report), on the other hand, smells a bit like a value trap. The $42 billion tech firm has long been one of the leading PC manufacturers, but that business has become so commoditized in recent years that H-P was forced to find an alternative mainstay. Like most PC-makers, H-P chose the enterprise IT business as its new go-to.

Today, more than half of H-P's operating profits come from its enterprise customers, with the balance spread across a handful of other business units (like printers and services). That about-face from this firm's computer manufacturing past is impressive, but revenues are still getting weighed down by intense competition. That's sparked considerable speculation that HPQ could be due for a dividend cut in 2013.

Despite the headwinds in this stock, how much everyone else hates it may be the best reason to like it. Just look at relative strength. Shares are up more than 50% year to date, and HPQ is continually stomping the broad market as it bounces back from an oversold position. If you decide to follow the Dogs of the Dow playbook and buy HPQ, I'd at least recommend keeping a tight stop loss in place.
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INTC $31.11 -2.02%
HPQ $12.57 -1.49%
MRK $55.74 -1.01%
T $38.64 -0.21%
VZ $51.02 -1.30%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

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