The Real Dogs of the Dow: Alcoa and General Motors

These stocks earned the moniker of "dogs" because their higher-yields have tended to mean that these stocks were underperforming their peers in the Dow 30.

We at TradingMarkets are not necessarily fans of the Dogs of the Dow approach to investing. But with our PowerRatings (for Investors) we think we can spot a true "dog" stock when we see one. And two of the Dow 30's most established members: Alcoa and General Motors, appear not only to be "dogs" based on their low PowerRatings (for Investors) ratings, but perhaps even "dogs with fleas."

Alcoa (NYSE: - ) has a PowerRatings (for Investors) rating of 5. Hailing from a weak industry -- Aluminum, with a PowerRatings (for Industries) rating of 3 -- Alcoa's PowerRatings (for Investors) rating suggests a company that at best will keep pace with the market and, at worst, will underperform over the next year. 5-rated PowerRatings (for Investors) stocks have gone up only 56.2% of the time a year later, based on our research.

Compare Alcoa to another company in the Aluminum industry -- Alcan. Alcan (NYSE: - ) has a PowerRatings (for Investors) rating that is literally double that of Alcoa. As a 10-rated PowerRatings (for Investors) stock, Alcan is a much better investment choice. Stocks with 10 PowerRatings (for Investors) ratings not only have gone up 81% of the time a year later, but also these stocks have earned, on average, more than 20% in a year's time.

Compare this to the average, 5-rated PowerRatings (for Investors) stock, which is expected to gain less than 13% a year later.

We can make a similar comparison with the other 5-rated PowerRatings (for Investors) Dow component: General Motors (NYSE: - ). There has been a great deal of talk in the financial media about which company, General Motors or Ford, is more along the road to recovery. But with Ford (NYSE: - ) sporting a PowerRatings (for Investors) rating of 4 -- compared to General Motors' PowerRatings (for Investors) rating of 5 -- I wonder just how worthwhile this General Motors versus Ford debate is for the average investor.

Why? Because while the financial pundits are debating which auto manufacturer is the "best of the rest", investors using PowerRatings (for Investors) can readily determine that auto manufacturers like Honda Motor Company (NYSE: - ) and Toyota (NYSE: - ) are far better options for investors looking to diversify their portfolio with an auto manufacturer.

Both Honda and Toyota have earned PowerRatings (for Investors) ratings of 8. Compare this to General Motors's PowerRating (for Investors) rating of 5 and Ford's PowerRatings (for Investors) rating of 4.

With PowerRatings (for Investors) ratings of 5 and 4, respectively, General Motors and Ford can be expected to do as well as the average stock over the next year. And that's the optimistic outlook. On the other hand, with PowerRatings (for Investors) ratings of 8, both Honda and Toyota can be expected to gain in excess of 17% in a year's time based on our research. 8-rated PowerRatings (for Investors) stocks, on average, have been higher more than 74% of the time one year later. With stocks like General Motors and Ford, the odds of being higher one year later move much closer to 50%.

The Real Dogs of the Dow Recap:

Alcoa (AA). PowerRatings (for Investors) rating: 5

General Motors (GM). PowerRatings (for Investors) rating: 5

Ford (F). PowerRatings (for Investors) rating: 4

Alcan (AL). PowerRatings (for Investors) rating: 10

Honda Motors (HMC). PowerRatings (for Investors) rating: 8

Toyota (TM): PowerRatings (for Investors) rating: 8

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