Category Archives: Penultimate Profit Prospect

2020 Penultimate Profit Prospect and our Alternative

On January 12, 2020, we published the Penultimate Profit Prospect (PPP) based on the work of Micheal O’Higgins book Beating The Dow.  For 2020, Pfizer (PFE) was the stock that was supposed to fit the guidelines of the stock that should have been selected.  Additionally, we provided the alternative to the PPP which was Nike Inc. (NKE).

For the year of 2020, we have charted the price change in the Dow Jones Industrial Average, Pfizer, and Nike.

As it can be seen, Nike Inc. ended the year with a gain of over +39% while Pfizer, working on the COVID vaccine but kicked out of the Dow Jones Industrial Average, falling near -1% for the entire year.

2021 Penultimate Profit Prospect and our Alternative Continue reading →

According to the book Beating the Dow by Michael O’Higgins, the Penultimate Profit Prospect:

“…is not, strictly speaking, a portfolio, but rather a single stock, the second lowest priced high-yielder [among the ten lowest yielding stocks in the Dow Jones Industrial Average] (O’Higgins, Michael. Beating the Dow. 2000. page 199.).”

The first step in determining the second lowest priced stock of the  high-yielders is to rank all of the Dow Jones Industrial Average stocks by their dividend yield. 

After ranking these stocks, you then re-rank the ten highest yielding stocks by price from lowest to highest.  The second lowest priced stock was Pfizer (PFE) based on the year end 2018 price and dividend yield.

When ranked by yield, from highest to lowest, and then selecting the second lowest priced stock from among the top ten highest yielding stocks we arrive at a change in price that is pegged at –10.24% for Pfizer (PFE).

Again, our spectrum analysis attempts to find the opposite scenario to determine if it would result in an outcome that confirms the assessment or arrives at a different conclusion.  To keep the process as simple as possible, we’ve elected to choose the second lowest yielding stock (Nike), regardless of price, to see if it would perform any better than O’Higgins Penultimate Profit Prospect stock.

When we contrast the performance of the Penultimate Profit Prospect with the second lowest yielding stock, we find that the returns are –10.24% versus +36.65%, respectively.  This seems unusual to us but consistent with the data that we’ve run on the Dogs of the Dow in the period from 1996-2019. The low yielding stocks routine outperform the high yielding stocks. 

So, in order to stretch the concept even further, we’ve ranked the 30 stocks of the Dow Jones Industrial Average from highest yielding to lowest yielding in the period from 1997 to 2019.  Then, we compared the individual ranks for each year to determine the average rate of change for that specific ranking.  Below is the graphing of the individual performance with the stock ranked number 1 being the highest yielding while the stock ranked 30 being the lowest yielding  from 1997-2019.

Based on the ranking of the data, the true penultimate profit prospect would seem to be the stock with second lowest dividend yield.  In this case, the 2nd lowest yielding stocks gained +13.68% in the period from 1997 to 2019.