Should You Buy ‘Dogs of the Dow’ Into 2012?

The “Dogs of the Dow” were up an average of nearly 13 percent this year, but will all the stocks in the pack have their day?

“No,” said “Fast Money” pro Mike Murphy on Friday. “You can’t just say, take the 10 stocks and just invest in them. It won’t work that way. What you have to do is take a few out in this group here.”

The popular investment strategy known as “Dogs of the Dow” or “High Yield 10” involves buying the Dow stocks with the 10 highest dividend yields at the beginning of the year.

Murphy liked Apple, especially in anticipation of its upcoming Apple TV and new versions of its iPhone and iPad expected next year.

“The Apple TV is going to be a monster. You can’t bet against Apple here,” he said. “Apple is still getting double the price that all competitors are getting on their laptops, so they have the pricing there.”

Among the other dogs, Murphy said he had lost confidence in AT&T management and wouldn’t be a buyer; DuPont appeared to be on track for a recovery next year, and Verizon was still a good bet.

“You can’t just buy the entire basket because there are some names here that are broken,” he said.

Trader Pete Najarian also sounded bullish on Apple, predicting it would continue to grow in 2012 and calling it “way too cheap” at a valuation of 14 times earnings.

“Sooner or later, they will be bringing out a dividend. It’s just a matter of when,” he said. “It’s probably after the first quarter, after some of these launches, after they surpass $100 billion in cash.”

Elsewhere, Najarian liked pharmaceutical names Merck, Johnson & Johnson and Pfizer.

“They are safe companies,” he said, noting the companies’ diversification, expansion into Asian markets – “and don’t forget those yields. Those yields are big.”

Trader Jon Najarian said it wasn’t a concern that some of the blockbuster drugs that mean big profits were no longer around. He said he expected acquisitions of smaller companies in the final phase of drug trials, who needed big pharma experience bringing their product to market.

“They need that marketing muscle, they need that distribution network,” he said.

The Dogs of the Dow include the following companies with the highest yields:

  • AT&T: 5.88 percent
  • Verizon Communications: 5.03 percent
  • Merck & Co.: 4.49 percent
  • Pfizer: 4.09 percent
  • General Electric: 3.81 percent
  • E. I. du Pont de Nemours and Company: 3.61 percent
  • Johnson & Johnson: 3.48 percent
  • Intel Corporation: 3.47 percent
  • Procter & Gamble: 3.16 percent
  • Kraft Foods: 3.11 percent

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Trader disclosure: On Dec. 30, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Najarian is long AAPL; Najarian is long C; Najarian is long GOOG calls; Najarian is long HPQ; Najarian is long MRK; Najarian is long PFE; Najarian is long GE; Najarian is long INTC; Murphy is long AAPL; Murphy is long INTC; Murphy is long AKS; Murphy is long TEX; Murphy is long CHK; Murphy is short MHK

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