Investing

2018 Bull/Bear Outlook: How All 30 DJIA Stocks Will Take the Market to 26,400 or Higher

Jon C. Ogg

Published: January 3, 2018 8:35 am

Last Updated: January 12, 2020 4:54 am

It is no secret as 2018 kicks into gear that stocks are in the midst of a raging bull market. In fact, this bull market will turn nine years old in March of 2018, and it has been the most powerful bull market most Americans have ever seen. The continued strong gains in 2017 of 25% on the Dow Jones Industrial Average (DJIA) and almost 19.5% on the S&P 500 acted as a cornerstone of this bull market’s strength and resilience. Investors also should not ignore that the major stock indexes outperformed every single large brokerage firm’s Wall Street strategist expectations by a wide margin in 2017.

Now investors have to decide how they will invest their funds in 2018. Even with the strength that was seen over the course of 2017, and considering even more strength heading into the passage of tax reform, most strategists are again calling for upside in the broad stock market indexes for the coming year.

24/7 Wall St. makes annual forecasts on the Dow Jones Industrial Average each year. Some years the forecast is quite close, but like most forecasting tools the outcome is different from what was originally expected. Our expected 8.4% gain in the Dow suggested 21,422 in 2017 — far short of the 25% gain to 24,719.22 at year’s end.

Be advised that the “target” is used more as a forecasting judgment about how the overall market trends are looking rather than an actual line in the sand. It is also important to understand that this forecasting barometer changes quite handily over time. Each earnings season and changes around key financial market events over the course of a year can greatly add or subtract to the forecast.

The end of 2016 into 2017 had already brought on a great post-election gain, and the market did end up surprising on the upside and then some against the late-2016 belief by the financial media and market forecasters that stocks would not continue to rally in a straight line all year.

Stocks have continued to impress all through the last year, and in October when the Dow went above 23,000 the forecasting tool pointed toward 25,000 a year out. And in January, the Dow is already flirting with 25,000. The reasons for the continued market gains are accelerated earnings for companies, accelerated higher gross domestic product (GDP) growth expectations for 2018, and also how corporations will be treated under tax reform.

The S&P 500, a broader and more fairly calculated index than the Dow, was valued at roughly 17 times forward earnings at the end of 2016. That was a higher valuation than most investors would have preferred at the time, but at the end of 2017 the forward valuation was 18.5 (Yardeni Research) to 19 (S&P) times expected earnings per share. While that is not at all a cheap valuation by historical standards, it is certainly not in the bubble territory that has been seen in the past 20 years either.

As 2018 started off, the average (mean) Dow dividend yield was 2.38% and the median dividend yield was 2.16%. At the start of 2017, that average Dow dividend yield was 2.65%, so even the dividend hikes have not been able to keep up with share prices and higher valuations. There were also seven Dow stocks with higher share prices than the consensus analyst price targets at the start of 2018 (not including dividends), versus eight Dow stocks under their analyst consensus price targets at the start of 2017. Also at the start of 2018, the average upside of almost 4.4% to consensus analyst upside would create an expected total return of roughly 6.75% for 2018.

If the Dow closed out 2017 at 24,719 and the expected upside is 6.75%, then the preliminary 2018 DJIA forecast would be 26,387 — or call it 26,400 for rounding purposes. The DJIA is known to be a unique index due to share price weightings rather than adjusted market capitalization weightings like the S&P 500 and most other indexes.

If we imply that same 6.75% approximate target for the S&P 500, then the 2,673.61 close at the end of 2017 would imply a 2018 target of 2,854.07 — or 2,855 for rounding purposes. Most Wall Street strategists have raised their S&P 500 targets to be closer to a range of 2,800 to 3,000 at the end of 2018.

One more issue that prevents this forecasting tool from being used as a hard line in the sand is that the calculations do not take dividend increases and stock buybacks into account. There were over $100 billion in new buybacks announced at the end of 2017 alone, and it is no secret that corporate tax reform will allow companies to boost their dividends even further and to buy back even more shares in the year (or years) ahead.

Before thinking that 2018 is a blue skies ahead year without any risks, that may not be the case. 24/7 Wall St. released its 10 things that could wreck the bull market in 2018, and we have outlined low volatility strategies for equity investors who want upside from the markets but who want some insulation against any major correction. That being said, the worst Dow stocks of 2017 could have upside in 2018 if they manage their fortunes properly.

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Here is a consensus forecast of each of the 30 DJIA stocks, noting the 2017 closing price, the Thomson Reuters forward 12-month consensus analyst price target, a dividend yield and an expected 2018 total return on each.

3M: Did 3M Rally Into Overvalued Stance?

3M Co. (NYSE: MMM) was expected to generate a total return of almost 6% in 2017 but returned more than 31%. The conglomerate closed out 2017 at $235.37, but the $223.08 target implies a simple price change of −5.22%. With a 2.00% dividend yield that would imply a total return of −3.22% in 2018. Is 3M really overvalued, or will analysts play catch-up on their price targets into and after earnings season?

American Express: What Credit Card Risk?

American Express Co. (NYSE: AXP) was supposed to be virtually flat in 2017 after the loss of key customers, but it generated a surprising 34% gain. The credit card issuer closed out the year at $99.31 a share, and the consensus target price of $99.24 would imply a return of −0.07%. With the 1.41% dividend yield, Amex is expected to offer a mere 1.34% total return in 2018.

Apple: The First $1 Trillion Company?

Apple Inc. (NASDAQ: AAPL) is the darling of the market due to being the closest company to having a $1 trillion market value. It was already expected to generate a return of almost 16% in 2017, but Apple generated a 46% return for the year. Apple closed out 2017 at $169.23 a share, and the consensus target price of $187.58 would imply a simple gain of 10.84%, if the pool of analysts is correct. Investors would see a post-dividend (1.49% yield) return of 12.33% in 2018 if the expectations come true.

Boeing: No Longer the Boom-Bust Cycle

Boeing Co. (NYSE: BA) was the best-performing Dow stock of 2017, with a 89% gain, far north of the 4% expected by analysts a year earlier. At $294.91 per share at the start of 2018, the stock has a consensus analyst target of $291.52 that would imply an expected return of −1.15%. Including the dividend yield of 2.32%, that would imply a gain of just 1.17% for all of 2018.

The Mighty Cat: Still Driving Internationally

Caterpillar Inc. (NYSE: CAT) also handily outperformed expectations in 2017, with a total return of almost 70% versus an expected −1.9% total return at the start of 2017. At $92.74 a share, and with a consensus target price of $87.89, it has an expected total return after the 3.30% yield that would still be that same −1.9% that they were calling for a year ago.

Chevron:  Looking Safe in Capex Allocation

Chevron Corp. (NYSE: CVX) managed to outperform its 2017 expected return of 5.3% with a gain of 6.4%. At $125.19 a share, the stock has a consensus target price of $128.55, and with the 3.45% dividend yield would imply an expected total return of 6.13% in 2018.

Cisco Systems: Still Short of All-Time High by Far

Cisco Systems Inc. (NASDAQ: CSCO) was expected to return about 13% in 2017, but the stock closed out the year at $38.30, for a total return of about 26.7%. The new consensus target of $38.92 and the 3.03% dividend yield would generate a total return of 4.65%, if the analysts are proven right.

Coca-Cola: Not Just Coke Here

Coca-Cola Co. (NYSE: KO) performed almost in line with expectations for 2017, with a return of 10.7% compared with an expected performance of 13%. Coca-Cola’s year-end share price of $45.88 would imply a total return of just over 10.1% if you look at the $49.06 consensus analyst target and the 3.23% current dividend yield.

DowDuPont: More Breaking Up to Do in 2018

DowDuPont Inc. (NYSE: DWDP) is the newly amalgamated combination of Dow and DuPont, so its performance over the course of 2017 is being excluded. The chemicals giant is also expected to break itself up into three companies going forward. Shares traded at $71.22 at the end of 2017, so the consensus target price of $81.52 and the current 2.13% dividend yield would imply an expected return of 16.6% for 2018. Just keep in mind that this does not account for any coming spin-offs.

Exxon: Gas May Finally Pay Off

Exxon Mobil Corp. (NYSE: XOM) was called to end 2017 at $88.05 a share, for a return of just 0.9% in the past year, but the oil and gas giant posted a return of −7.3% for the year. Exxon’s 2018 starting price of $83.64 a share comes with a consensus target price of $86.50 and a dividend yield of 3.68%. If analysts are correct, Exxon’s return in 2018 would be about 7.10%.

General Electric or General Eclectic?

General Electric Co. (NYSE: GE) was a serious disappointment to the investing world in 2017. After losing about 45% for investors last year, it is extra embarrassing for analysts after they were calling for a 10% gain in 2017. Now it feels like the analysts are holding hopes on an oversold stock status in 2018. The year-end price of $17.45 and a consensus target price of $21.99 would imply an expected return of 28.77%, when they add in the 2.75% dividend yield.

Goldman Sachs: Will Golden Slacks Return?

Goldman Sachs Group Inc. (NYSE: GS) generated a return of 6.4% in 2017, far better than the 3% drop expected a year earlier. After closing at $254.76 in 2017, the consensus price target of $258.40 and the 1.18% dividend yield would imply an expected total return of 2.61% in 2018.

Home Depot: Riding Housing Higher Yet Again

Home Depot Inc. (NYSE: HD) was another great outperformer in 2017, generating a return of over 41%, compared with the 14% gain expected. Its year-end share price of $189.53 comes with a 1.88% yield, and the consensus target price of $190.87 would imply a total return of just 2.59% in 2018.

Intel: Changing Its Stripes for the Better

Intel Corp. (NASDAQ: INTC) finally surpassed analyst expectations in 2017, with an upside return of 27.3% versus an expected 13% gain. The processor and memory giant has been steadily diversifying away from chips just for PCs and servers. With shares at $46.16 as of the end of 2017, the $47.07 consensus analyst target and the 2.36% dividend yield still only imply an upcoming return of 4.33% for 2018, if the analysts are correct.

IBM: Big Blue, Continued Disappointment

International Business Machines Corp. (NYSE: IBM) has continued to disappoint as the decline in the core IT services business cannot be caught up and overcome by higher stock buybacks, increased dividends and the growth in its cloud, AI and high-growth segments. IBM was expected to show a return of −2.2% in 2017, but that return was −7.6% instead. At $153.42 a share at the end of 2017, the stock has a consensus target price of $163.74 and the dividend yield of 3.91% that would generate an expected total return of 10.64% in 2018.

Johnson & Johnson: Riding Dividends and Tax Reform

Johnson & Johnson (NYSE: JNJ) returned over 21% in 2017, versus an expected return of 11.4%. With shares at $139.72 apiece, the consensus target price of $146.82 and the 2.40% dividend yield would create an expected return of 7.48% in 2018, if the analysts are correct.

JPMorgan:  Tax Reform and Lower Regulation Booster

JPMorgan Chase & Co. (NYSE: JPM) blew out expectations in 2017 with shares returning almost 24%, when analysts were originally expecting a −1.1% return. The stock traded at $106.94 a share at the end of 2017, and analysts have a target price of $104.23. The 2.09% yield would imply a total return of −0.44% in 2018, if the pool of analysts is correct.

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McDonald’s: Can the Arches Leap Again?

McDonald’s Corp. (NYSE: MCD) had another above-expectations year in 2017, generating a return of over 41%, versus expectations for a mere 8.2% return. McDonald’s closed out 2017 at $172.12, and the consensus price target of $179.79 and dividend yield of 2.35% would generate an implied total return of 6.81%, if analysts are right this year.

Merck: Time to Rekindle

Merck & Co Inc. (NYSE: MRK) disappointed in 2017 as the return of −4.4% was more than 20 percentage points from the expected 17.5% return called for a year ago. Merck’s shares fell to $56.27 by the end of 2017, and the $65.23 consensus price target and the 3.41% yield would make for a return of 19.3% in 2018, if analysts are correct.

Microsoft: Floating Happily in the Cloud

Microsoft Corp. (NASDAQ: MSFT) was expected to generate a return of just 6.9% in 2017, but its 37.7% return blew out expectations and took shares to highs not seen in 17 years. Microsoft traded down in the past month or so of 2017, off of highs, to close out 2017 at $85.54. The software and cloud giant’s consensus target price of $92.75 and the dividend yield of 1.96% would imply an expected return of about 10.4% in 2018, if the analysts are correct.

Nike: Slow Reboot Higher

Nike Inc. (NYSE: NKE) was a disappointment for some time, but it generated a total return of 23.1% that somehow came incredibly close to the 23.4% expected return for 2017. After closing out 2017 at $62.55, its consensus target price of $64.65 and the 1.28% dividend yield would make an expected 4.64% return for shareholders in 2018. Does it matter if Nike shares reach almost $70 before splitting in 2015?

Pfizer: Big Pharma

Pfizer Inc. (NYSE: PFE) turned in a total return of 11.5% in 2017, rather than a return of 19.8% expected a year ago. The pharmaceutical giant may have outpaced Merck, but analysts feel like the outperfomance will be by a lower margin in 2018. Pfizer’s year-end price of $36.22 comes with a consensus price target of $38.29 and a yield of 3.75%, for an expected total return of about 9.5% in 2018, if they are right.

Procter & Gamble: Will Activist Pressure Matter?

Procter & Gamble Co. (NYSE: PG) may have wasted an entire year while it fought activist investor Nelson Peltz. P&G generated a return of 9.3% in 2017 rather than the 11.1% expected. With a year-end price of $91.88, the consensus target price of $93.53 and the 3.0% dividend yield would imply a coming return of about 4.8% in 2018.

Travelers: The Forgotten Dow Stock

Travelers Companies Inc. (NYSE: TRV) may be the stock everyone forgets is a Dow stock, but its gain of 10.8% in 2017 was far better than the expected of −2.2% return. The insurance and financial giant closed out 2017 at $135.64, and the $135.31 consensus price target and 2.12% dividend yield would imply a return of almost 1.9% in 2018.

United Tech: Can M&A Make More Change?

United Technologies Corp. (NYSE: UTX) posted a return of 16.4% in 2017, better than the expected return of 7.5%. The conglomerate closed out 2017 at $127.57, and the consensus target price of $128.07 and dividend yield of 2.19% would imply an expected total return of just 2.58% in 2017. With it wanting to do M&A and with it willing to pare off assets if needed, is it possible that Wall Street in general is greatly underestimating this well-run company?

United Health: What Health Insurance Problems?

UnitedHealth Group Inc. (NYSE: UNH) managed to generate a total return of 37.8% in 2017, blowing away the start of the year’s forecast of just 13.5%. This came at a time that UnitedHealth has been under the same fire as other health insurers over higher premiums charged, but the company continues to look for domestic M&A opportunities outside of the insurance field and for international bolt-on deals within the health insurance space. Shares were at $220.46, and the consensus target price of $243.76 and the 1.36% dividend yield combine for an expected total return of 11.9% in 2018, if the analysts are right.

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Verizon: Top Dividend of the Dow

Verizon Communications Inc. (NYSE: VZ) generated a slight drop, with a return of −0.8% in 2017 rather than its expected return of 2.8%. After closing at $52.93 in 2017, the consensus price target of $51.83 and the whopping 4.46% dividend yield would imply an expected return of about 2.4% in 2018. Verizon would have been far worse in 2017 had it not risen 18% in the second half of the year. Is it possible that Verizon is being underestimated again?

Visa: Riding Credit Card Transaction Game

Visa Inc. (NYSE: V) was already expected to generate a return of 21.6% in 2017, but it came in with a high return of 46% instead. With shares at $114.02 at year’s end, the consensus target price of $124.38 and 0.68% dividend yield would imply that investors should expect a return of almost 9.8% in 2018.

Walmart: The Anti-Amazon Threat

Wal-Mart Stores Inc. (NYSE: WMT) was already expected to get back on the growth wagon with a 10.9% return in 2017, but the world’s largest retailer (and one of the few likely Amazon-proof retailers) managed to generate a return of 42.9% instead. After closing out 2017 at $98.75 and having a $101.33 consensus analyst target, the 2.07% yield would imply a much more muted total return of just 4.7%, if analysts are correct at the start of 2018.

Walt Disney: Big M&A Changes on Top of Star Wars

Walt Disney Co. (NYSE: DIS) was expected to generate a return of just 5.6% in 2017, and it disappointed with a return of just 3.2%. Now the company is making even larger media moves with a huge acquisition and with the entrance into its own streaming service ahead. After closing out 2017 at $107.51, its consensus target price of $112.11 and the 1.56% dividend yield would imply a total return of just over 5.8% in 2018, if the analysts are correct.