Fool.com: Pigs of the Dow [Special] August 19, 2004

This commentary was first published on Feb. 19, 2004. It has been updated.

"Bulls make money, bears make money, but pigs get slaughtered" is an oft-quoted Wall Street saying. That may be, but here are some Pigs with a capital P that truly brought home the bacon, returning 51% in 2003.

The Pigs originated when I decided to track the five worst-performing Dow companies of 2002. My selection criterion was percent of stock price decline. The idea was to hold these -- Pigs of the Dow -- for a year, sell them, and reinvest the proceeds in the five worst-performing Dow companies of 2003.

Sounds like the Dogs of the Dow, you say? Yet these Pigs are no Dogs. In 2003, the Dogs returned 23.6%, which at first glance seems like a good year. Yet these mangy curs failed to beat the Dow index, whilst my porcine beauties doubled the Dow by returning 51%!

The Pigs of the Dow differ from the Dogs of the Dow and the Foolish Four strategies, both of which select companies based on those with the highest dividend yield at the end of the previous year. It is my premise that there are not enough Dow companies paying a significant dividend and that a strategy based on previous year's stock price decline would yield better returns.

For example, in 2002, Intel's(Nasdaq: INTC) stock price was cut in half, the second-worst decline of all Dow companies. Last year, it more than doubled, making it 2003's best-performing Dow company. However, Intel pays such a minuscule dividend that it could not qualify for the Dogs of the Dow. The lowest of the top five dividend yields in the Dow is 3.7%. There's a wide disparity with the highest yield of the bottom five of just 0.79%, and none of these companies is ever likely to qualify for the Dogs of the Dow.

The 2002 Pigs were Home Depot(NYSE: HD), Intel, McDonald's(NYSE: MCD), General Electric(NYSE: GE), and IBM(NYSE: IBM). They collectively declined in value by 43.6% during 2002. Below is a table of their individual performance compared with the Dow 30 and the Dogs of the Dow. All figures exclude dividends.