The Dogs of the Dow aren’t necessarily the worst performers of the prior year, but they pay the highest the dividend yields.  We wanted to review the 10 Dogs of the Dow to see what the outlook and what the expectations could look like for 2008 after their performances in 2007 or longer.  Some of the old Unit Investment Trusts that trade the Dogs were the top 5 yielding DJIA components, although most go for the 10 Dogs with the highest dividends.

Keep in mind that these could change if any of the DJIA components rally sharply or fall off a cliff in the last week.  So how this is broken down is pretty simple.  We broke these down with closing prices and dividend yields based upon last Friday’s (DEC. 21) close.  We then put in the average analyst price targets we found and rounded that out, and then in parenthesis we put in what would be the raw expected share price appreciation if the stock hit the target without taking the dividend into consideration.  Then we added in our own commentary with suppositions and some conjecture for what could make or break their stock performance in 2008.  With some of these pullbacks and some of the targets here, there are many that could have stellar 2008 returns.

Below we have outlined each DJIA component in the Dogs of the Dow, the closing price on Friday, December 21, 2007, the dividend yield, an average analyst price target from Wall Street, and what the approximate percentage gain would be if that target is reached.  Here are the likely 2008 DOGS OF THE DOW:

Citigroup (C) $30.24    7.2%        ANALYST AVG.: $38? (+26%)
We believe that the pole position in the Dogs of the Dow is going toultimately cut its dividend in 2008, regardless of what it says todayand regardless of other pundits defending the dividend.  We think WallStreet is actually discounting that already.  Vikram Pandit has a lotof work ahead of him.  Look for serious layoffs and 2008 to be yetanother restructuring year, and we think at least one unit gets shed bymid-2008.

Pfizer (PFE) $23.24    5.5%        ANALYST AVG.: $27.80 (+19%)
Pfizer is the big pharma bet that has been such a sleeper we labeled itas one of the turnarounds that just never turned around.  Maybe 2008will be the year it pulls a feather out of its cap, but it is going tohave to look to buy one or two companies in early 2008 with blockbusterdrugs (or potential blockbusters).  Down almost 40% excluding dividendsfrom early 2004.  At the lower-part of multi-year range, this could seestellar returns on the hint of things not being as tame ahead.

AT&T (T) $41.48        4.0%        ANALYST AVG.: $46.50+ (+12%)
What can you say about it?  2006 was a great stock year and 2007 was agood one.  Stock is starting to look range-bound but who knows.  We’llsee if its uVerse offering battles cable and we’ll find out if thatdarned satellite TV with you know may come to fruition.

Verizon (VZ) $44.32    3.9%        ANALYST AVG.: $47.50+ (+7%)
It had roughly 20% years in 2006 and 2007 after a dead money status for3-years.  Its chart may have stalled but looks less staled than itsother telco comparable.  2008 will be the year that FiOS really grows.

Altria (MO) $77.43    3.9%        ANALYST AVG.: $83 (+8%)
We still call it Phillip Morris regardless, particularly since theinternational unit is being spun-off.  This is still a specialsituation stock although the share price has already reflected this andnow the upside is not at the 2:1 upside:downside ratio that we demand.Watch for this to lose much of its current DJIA weighting after thespin-off, as the DJIA is a price-weighted index.

General Motors (GM) $26.64    3.8%    ANALYST AVG.: $33-$36 (+23%-34%)
GM is always hard to get excited about since it is a US car maker goinginto a softening consumer in 2008, but the good news is that it is nearthe bottom of its year trading range.  It still has overseas helping.This may be a call option on the economy with most of the share dropalready pricing in bad news, so if we don’t tip into anything more thana flat economy or very mild recession then it might be a great returnstock in 2008 like we saw in 2006.  Thesis hangs around many "IF’s" and"But’s"…..

Dupont (DD) $45.35    3.7%        ANALYST AVG.: $52+ (+15%)
High energy costs and materials costs are keeping this old DJIAcomponent on the cheap, and 2007 was a negative year (so far anyway).Over 5-years it has mostly been range-bound with a slightly under $40to almost $55 trading band.  If energy prices come down and itsinternational joint venture kick in this could be a big performer evenif it doesn’t ever break out of that trading band.

JPMorgan Chase (JPM) $44.11    3.5%    ANALYST AVG.: $54 (+22%)
Jamie Dimon & CO. won out of the big money center banks as far asholding up during the financial stock meltdown.  His win is just muchless loss than others and the credit quality is better here with farless credit exposure.  It won’t be surprising if they decide to flexmore muscle while others are still recovering.  Of the big banks, Dimon& Co probably has the best books.

General Electric (GE) $37.14    3.4%    ANALYST AVG.: $43 (+16%)
Slowing consumer is a risk, but international strength andinfrastructure will help.  Airline engine contracts will start being ona "delivery status" rather than backlog and in the pipe.  Quietlybecoming an oil play, and the "Ecomagination" is a corporate wideeffort we think that can be a key driver for 2008 and beyond.  NBCstatus is a "keeper" so far but we may know more in late 2008 afterOlympics and more.  The mega-cap hasn’t been able to grow its stock tothe point that management may consider more aggressive alternativesthan before.

Home Depot (HD) $26.66    3.4%        ANALYST AVG.: $34+ (+30%)
Housing isn’t expected to help in 2008, a soft spending environment,high materials costs, and on and on.  You won’t find many lovers ofit.  But that means that any upside or even "less bad news" will createa big trading reaction.  It has also missed two straight summers of anyreal natural disaster business from hurricanes in the U.S.  Bad newslooks ‘mostly’ factored in and this $26+ stock used to trade in a $33to $44 trading band before the "fit hit the shan" in 2007.  Bad timesat companies feel like they will last forever just like in the economy,but history dictates that they always recover.  After Q1 or Q2 thiscould end up being one of the surprise sleepers of 2008. 

Jon C. Ogg
December 26, 2007

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