How to Identify Dog Stocks

April 1, 2023No Comments


Today we’ve got a bit of a treat because I have a co-writer with me and we are going to talk about dog stocks. Now you’ve heard of the theory, the Dogs of the Dow, where you pick the worst performing, highest yielding stocks on the Dow Jones Industrial Average every year and they tend to outperform, but there are some stocks that are just outright dogs. They’re not performing and they probably won’t continue to perform. So I’m bringing in a special co-writer that will help us find the best dog stocks to avoid. May I introduce to you our very own co-writer of the Smart Money Down blog, Obi Richards.

He definitely is an authority on dogs. So I asked Obi to give me a few names of stocks that he thinks are outright dogs and he came up with a list. Here is Obi’s list of stocks to avoid. Now I’m going start with natural gas and just like any portfolio manager, we all make mistakes and this is one of my mistakes not too long ago. We, at ValueTrend, were attempting to do a bit of an oversold move. Sometimes you get stocks that are massively oversold.

If you look at RSI, stochastics, all those kind of things, they’ll wash out to a point and you look for a trade. Examples of that, even on this chart, you can see that nat gas sold off quite a bit and had a nice rebound. Sometimes they’re just short rebounds. You’ll see a big wash out, got a rebound, fell again. So we were looking at this moment in time and we ended up buying natural gas through both natural gas stock and we bought an ETF that represents nat gas. We were buying here and then, of course, it fell right out of bed, rebounded a bit and has failed since so we’ve been out. We were not overly exposed. We only bought 1% of the portfolio in it. It was an aggressive trade. It really didn’t work out that well, but didn’t cost the portfolio much given that we had a pretty small position.

What do I think of natural gas right now? Is it in a position where it could actually end up profitable? Yes, it looks kind of like it’s basing, but my problem right now is, and the reason I sold it is because it blew through this level of support and it’s really struggling with that level as a lid somewhere around $2.50 to $3. So my thoughts are that it might head a little bit lower into the $1.50 range before we actually see support. I just didn’t want to stick around. Maybe I’ll be proven wrong, but I wanted to start off with this as an example. If you’re looking at nat gas as an oversold opportunity, it may not be such an opportunity unless it washes out some more and proves a base. Alright, so let’s get onto the next dog stock and we’re going to talk about Disney.

Some of you might remember that I did a blog not too long ago that was examining EFT stocks and stocks that are companies that have taken kind of a woke agenda and Disney definitely is in the woke agenda category. Nike was another one. What I’ve been looking at is that Disney has not just problems with their sort of audience, as in failure to identify who their actual audience is, but also their content and whatnot. They’ve had great hopes of their streaming services, but they’ve had problems in other areas of their business and they’ve just been struggling and you can see that on the chart. True enough, they’re finding some level of support near their old 2020 levels, but there’s no signs of breaking out. You can see the recent highs have been getting lower. The lows seem to be getting lower.

Perhaps that’s a higher low yet to be seen, but I personally don’t think I’m interested in entering in this stock. So this is another stock that, until it proves otherwise, should be considered a dog and most certainly Obi think so. Alright, this is Pfizer. Now Pfizer made a lot of money during Covid and you can see that. The governments were encouraging everybody to get these shots and in fact, buying the Covid shots off of Pfizer. The problem is that Covid shots, the vaccine, it’s not really a vaccine, but the shots are not being utilized as much as they were. Many people have come to the realization, in fact Pfizer itself admitted, that the shots do not in fact stop the spread and they don’t even actually stop you from getting Covid and they may or may not help people who are most definitely vulnerable, but the general population is becoming less convinced that they want to get the boosters and all that Pfizer was hoping to really add to their profitability.

So the stock has fallen out of bed recently and you can see that their profitability’s been falling and because it’s broken support at this level, my suggestion is that this is not a stock you want to be looking at. They really were kind of banking on government support of pushing the boosters and all that stuff and maybe some governments are pushing them, but it doesn’t seem to be working with the populists that might actually buy them or at least get the shots to the same degree that it was in 2020 – 2021. So Pfizer, not so good anymore unless they come up with some interesting new drugs down the pipe. So XLF, this is the banking sector in the US. Everybody’s talking about some of the banks that are failing. I quoted on a blog recently, I think it might have been Goldman Sachs, and the head analyst was saying that when the Fed puts on the brakes, some companies heads go through the windshield and that’s basically what’s happened to this sector.

Now, those companies that are larger and more capitalized and have better balance sheets are not seeing the effects of this, but some of the small banks that were quite over leveraged, et cetera, are seeing the effects and that has caused this index to be a little iffy. So the problem was that the index itself actually looked like it was trying to break out. You can see this neckline here, kind of a double bottom, and it looked like it broke out and then it failed miserably. So my thoughts are it will go back down possibly into that $30 range. It’s pretty much there anyways. Right now it’s 31 and it may struggle again and be trapped in a base of some sort.

I’m not a buyer of the banks just yet. Another dog courtesy of Obi. So here’s a really smackingly bad looking chart in so many ways. This chart looks worse than the S&P 500. The S&P 500, if you looked at my most recent blogs, I’ve noted that it is forming some sort of a base. It’s actually not looking too bad from a peak and trough perspective. It’s not looking bullish, but it’s not looking overly bearish at this point. Whereas the real estate sector is still most definitely in a downtrend. Look at this. Lower highs, lower lows, below the moving average. Sometimes it tries to spike above like here and here, but it just doesn’t last. So the real estate sector is most definitely in pain and so long as the rates out there are maintaining their levels, there’s thought that the most recent rate rise by the Fed might be the last or one of the last rate hikes. Doesn’t matter if they keep the rates where they are, it still hurts real estate and that is reflected on this chart. So my thoughts are, why would you buy any stock or any sector in a downtrend? Wait for a base, wait for a breakout. It is most certainly a doggish looking chart. All right, we’ll finish up by saying, be careful of buying dogs because you might step in something you don’t want to be stepping in. We’ll see you next time.

 

Never miss another video!

Get Smart Money Dumb Money videos delivered directly to your inbox.

Recent Posts

Keith's on Demand Technical Analysis course is now available

Scroll to Top