The 3 Worst Dow Stocks for 2012

Austin Smith, The Motley Fool
Updated

While it's still early enough in 2012 for us all to feel like fortune-tellers, it's time to read the tea leaves and make bold bets about how certain components on the Dow Jones Industrials Average (INDEX: ^DJI) will perform for 2012. After a rigorous reading of the stars coupled with a strenuous gut check, I've awarded the following three companies the unenviable title of "3 Worst Dow Stocks for 2012."

  • Travelers (NYS: TRV) , otherwise known as "the most forgotten Dow stock," was recently nailed by catastrophes that hindered the company's repurchase plans. Unfortunately these unmodeled events can really nail less diversified insurance companies, like Travelers. Because by their very nature they're unforeseen, I'm playing it safe and looking elsewhere.

  • Merck (NYS: MRK) . Despite a high-flying dividend, Merck has me worried about its patent cliff. Coupled with the analyst projections for five years of market underperformance, and a payout ratio greater than 100%, there are better companies in this space.

  • Microsoft (NAS: MSFT) is a company I've hemmed and hawed about for months. It's cheap, it has a mountain of cash, and it has a cash-cow product. However, it's been stagnating for a while now, lacks IP protection abroad, and has been a poor deployer of cash. The recent partnership with Nokia (NYS: NOK) does little to calm my nerves, either, as neither company has done well in the mobile space recently.

One more stock for 2012
If these companies aren't going anywhere, investors are probably left wondering where the growth is. The good news is there is one emerging-market play that I'm crazy bullish on for 2012. I'm not the only one, either: Our chief investment officer has dubbed this winner "The Motley Fool's Top Stock for 2012." I invite you to get free access to this top pick today by clicking here.

At the time thisarticle was published Austin Smith owns no shares of the companies mentioned here. The Motley Fool owns shares of Johnson & Johnson and Microsoft.Motley Fool newsletter serviceshave recommended buying shares of Microsoft, Nokia, and Johnson & Johnson, creating a bull call spread position in Microsoft, and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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