Revisiting 3 "Pigs of the Dow"

The Pigs of the Dow investing strategy "aims to do what the original intent was for the Dogs: identifying the worst-performing stocks of the DJIA from the year before." On Dec. 31, I reviewed and recommended three such stocks that looked attractive heading into 2013. As the first quarter comes to a close, it's a great time to revisit these names, see how they have done thus far, and re-evaluate whether they still belong in your portfolio.

The distinction between the Pigs and the Dogs of the Dow is that the Dogs focus on the components of the Dow Jones Industrial Average with the highest dividend yields at the end of the year, while the Pigs consider only stock performance. This is a more pure form of mean-reversion -- the idea that the stocks in the average will trend toward that average performance. So according to the Pigs theory, those stocks that underperformed last year are likely to outperform this year. While Fools are not statistical or technical traders in general, we consider this type of strategy a great place to look for investing ideas.

Below are the three stocks that I first discussed and that I will follow with you for the rest of the year.

Intel
Intel is in the midst of a period of transition that, given the major paradigm shift it represents, makes the company's progress thus far admirable. According to Gartner Research, the fourth quarter saw PC sales falls by 5% from the previous year as the market continued to contract. Against this backdrop, Intel is working to develop new products and push into new markets. One such innovation is called "perceptual computing." In the most general sense, it allows laptops to interact with users across input devices such as keyboards, voice commands, touch screens, and more. As the newest video game consoles allow users to "become the joystick," perceptual computing is introducing this idea to the productive world of laptops.

While Intel is essentially flat for the year, it continues to drive its business forward, looking to become a player in wireless. The company has joined Samsung, Huawei, and others to develop a new mobile operating system called Tizen that is set to debut this year. If the OS can gain some traction -- particularly overseas, where Intel's mobile chips do better in the non-4G LTE world -- Intel will have built itself the makings of a new empire. Given Intel's dividend yield of more than 4%, you can afford to wait as Tizen makes its way to market.

McDonald's
So far this year, McDonald's is up 9%. In one of the more bizarre stories of the week, the restaurant chain has introduced a new meat-filled oddity in China, one of its most important markets: the Sausage Double Beef burger, which includes two beef patties and two sausages plus condiments. As you might imagine, speculation has abounded, but the story on McDonald's remains, in my opinion, a two-issue subject. First, as the restaurant continues to see results from its premium coffee business, it should enjoy good margins and continued growth potential. Second is the fact that there is simply no other fast-food option that is even in the same class as McDonald's. The company's market capitalization of roughly $100 billion is more than three times that of its closest competitor. To an increasing extent, the company's locations feel modern and mainstream, particularly by comparison to others. The health issue is a real one, but there will always be a place for fast food, and right now McDonald's is hard to beat. In terms of acting on the stock, as taxpayers prepare to see refunds pour in, restaurants are hopeful that this will spark an uptick in dining out.

Hewlett-Packard
HP was one of the most maligned stocks of 2012, seeing share value fall by nearly 50% for the year. Thus far in 2013 the stock has come roaring back, up 50% on the year (anyone at home doing the math should note that the net means the stock has recovered roughly half of last year's losses). The company blew past earnings in late February, but analysts remained unconvinced that the company was sufficiently out of the woods to warrant an upgrade. Still, price targets went up, and the stock has helped propel the Dow to record levels this year. The multiyear turnaround that CEO Meg Whitman is attempting is showing signs of potential, but the company has a long way to go, especially given the challenges faced by the PC market. My general view of HP at current levels is that I would not be rushing in here, and if I had owned shares all year, I would take profits and play with the house's money.

More on McDonald's
After making investors rich in 2011, McDonald's has been one of the worst-performing blue-chip stocks of 2012. Our top analyst on the company will tell you whether you should be worried by this trend, and he'll shed light on whether McDonald's is a buy at today's prices. Click here now to read our premium research report on the company.

The article Revisiting 3 "Pigs of the Dow" originally appeared on Fool.com.

Fool contributor Doug Ehrman has no position in any stocks mentioned. The Motley Fool recommends Intel and McDonald's. The Motley Fool owns shares of Intel and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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