by Mark Skousen, editor Forecasts & Strategies
In the August edition of my newsletter each year since 1994, I highlight the "Flying Five Strategy."
compile this annual portfolio, I recommend purchase of the five Dow
Industrial average stocks with the lowest price from a list of the
ten-highest yielding Dow stocks.
This mechanical technique, created by Michael O'Higgins and John Downs
in their 1991 book, "Beating the Dow," aims to best the stock index by
finding bargains in the Dow.
Since we've followed this technical
method of finding bargains, it has worked roughly 70% of the time. It
didn't keep up with the high-tech boom of the late 1990s, and failed
miserably in 2008, when three of our Flying Five stocks stopped paying
But most of the time, we've beaten the market. And this year was no
exception. While the Dow was up only 5% from August 2011 to August 2012,
our Flying Five stocks averaged an 18% gain, including dividends.
All five of our Flying Five stocks were up in the past 12 months, and all five beat the Dow average:
AT&T (T), yields 4.9% and rose 27.2%
- Pfizer (PFE) yields 3.7% and rose 23.4%
- Intel Corp. (INTC) yields and rose 20%
- Kraft Foods (KFT) yields 2.9% and rose 10.4%
- General Electric (GE) yields 3.4% and rose 7.7%
is the fourth straight year we have beaten the market handily following
the 2008 crisis. The August 2010–2011 return was 28%.
Here's how to select this year's Flying Five. Go to www.dogsofthedow.com
and buy the five "small" dogs under "current dogs."
These are the five stocks with the highest dividend yield and lowest price, known as the Flying Five.
to the close on Friday, July 20, when we reset this portfolio, we have
three returning stocks in the Flying Five: AT&T, Pfizer and General
We are replacing Intel and Kraft Foods on last year's list. The new members of the Flying Five portfolio are:
- Merck (MRK), which currently yields 3.9%
- JP Morgan Chase (JPM), which yields 3.3%
We'd note that JP Morgan lost $6 billion in the most recent quarter. Talk about a contrarian play!