Here's how two beaten-down stocks could be big buys

Even LeBron James would be impressed with this comeback story: The two best-performing stocks in the Dow this year — Caterpillar and Wal-Mart — held the title of the two worst-performing stocks in 2015.

Now, “dogs of the Dow” investors are being handsomely rewarded for rolling the dice on these two downtrodden picks.

“Dogs of the Dow has been a great strategy over the years, and this really is a classic dogs of the Dow,” Eddy Elfenbein said on CNBC’s “Power Lunch” when discussing Wal-Mart and Caterpillar.

“Both stocks had terrible years last year, and both have done quite well this year,” he said Friday.

Caterpillar and Wal-Mart have soared 23 and 19 percent, respectively, this year.

Elfenbein, editor of the “Crossing Wall Street” blog, explained that “dogs of the Dow” calls for investing in 10 Dow stocks with the highest dividend yield at the end of the year and then holding onto those stocks for one year.

As it stands, the “dogs of the Dow” strategy has outperformed the market in recent years.

With Wal-Mart in mind, Elfenbein noted that the retailer raised guidance following a strong second quarter and, leading up, had been “investing in themselves.”

Additionally, Wal-Mart opted to give employees a wage increase, and Elfenbein said the company is “cleaning up their stores and going after Target’s audience. I think going forward, Wal-Mart is the better buy, and Caterpillar still has a lot of work to do.”

However, Piper Jaffray senior technical strategist Craig Johnson said investors should remove sentiment from the equation when evaluating which former “dog” is a better buy right now.

“We like both of the charts, but if I had to take a choice between one or the other, I would actually choose Caterpillar. I think you’ve got more upside here when you just unemotionally look at the charts,” said Johnson, referring the five-year performance of both companies.