Many will be looking for some secondary trading in Exxon Mobil Corporation (NYSE: XOM) as the true Big Oil here, but Chevron actually has a heavier weighting in the Dow Jones Industrial Average or DJIA (NYSE: DIA).  Chevron is the third highest weighting of all DJIA components and Exxon Mobil is sixth.  The two alone count for about 11.5% of the entire DJIA.

The company noted that sales and operating revenues in the quarter 2011 were $58 billion, up from $52 billion in the year-ago period. This was mainly due to higher prices for crude oil and refined products.  Unfortunately, higher prices have not translated to higher profits and margin pressure in refining may be partly to blame and currency could have been a factor as well.

Chevron noted that worldwide oil-equivalent production was a net 2.64 million barrels per day and for the year it added approximately 1.67 billion barrels of net oil-equivalent reserves.

Wall Street is not very impressed so far and we will wait for the conference call to find out more details only skimmed over in the press release.  Shares are down 1.4% at $105.05 in early trading.

JON C. OGG

Of the DJIA components, the five with the most implied upside were Alcoa, Inc. (NYSE: AA), Bank of America Corporation (NYSE: BAC), Caterpillar Inc. (NYSE: CAT), J.P. Morgan Chase & Co. (NYSE: JPM), and United Technologies Corporation (NYSE: UTX). If the model is right on the near-12% gains, then the peak on the SPDR Dow Jones Industrial Average (NYSE: DIA) would be roughly $136.47 assuming that the ETF tracks the index tick by tick. Remember, that “cheapest” does not always mean that these stocks will go much just higher just because an analyst thinks so.  There is a saying that “cheap stocks usually get cheaper.”

Alcoa, Inc. (NYSE: AA) closed out 2011 at $8.65, leaving an implied price target gain of 44.2% to the $12.48 consensus price target.  Alcoa’s game is simple and that is that it has to still maintain that the aluminum market can double by the year 2020.  Shares were brutalized last year as the 52-week range was $8.45 to $18.47.  It is hard to imagine that this was a $30 stock and higher before the recession.

Bank of America Corporation (NYSE: BAC) is of course the “most upside” stock because it was the worst performing DJIA stock of 2011.  It lost more than half of its value.  At $5.56, it has an implied upside of what is truly unbelievable at 72.3% to the $9.58 target.  This frankly sounds too good to be true even if Warren Buffett tried to prop it up.  The problems are almost too great to bother naming here at BofA.

Caterpillar Inc. (NYSE: CAT) is heavily dependent on emerging markets for mining and infrastructure, so it is of course highly cyclical.  The 2011 close-out price of $90.60 compared to a 52-week range of $67.54 to $116.55.  The consensus Thomson Reuters price targets of $114.50 implies an upside of 26.3% and the dividend is about 2%.  As go the emerging economies, as goes Cat!

Read Also: Is Apple Still Great for 2012?

J.P. Morgan Chase & Co. (NYSE: JPM) is hard to argue against for a management team, but it is in the battered banking sector.  This now trades well under book value and the sector is its anchor.  If the sector improves, investors will probably seek safety behind Jamie Dimon.  At $33.25, there is an implied upside of 39.3% to the $46.33 price target from Thomson Reuters.  Keep in mind that the 52-week trading range is $27.85 to $48.36 so even the leader is down by a third of its value.

United Technologies Corporation (NYSE: UTX) was a bit surprising to see on the list as the conglomerate was shown to have 21.5% upside from the current $73.09 price to a target of $88.79.  That would still not even be a year high, as the range of the last year was $66.87 to $91.83.

These were meant to just be some of the caveats and expectations for the 5 DJIA components with the most implied upside of the 30 components making up the index.  As we noted with out implied 13,678 peak value in the DJIA for 2012, it almost sounds too good to be true.

There is something to consider, and it may be serious.  What happens when you question your own numbers that a model generates?

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JON C. OGG

In 2010, the methodology called for a target of 11,455 and the DJIA closed out at 11,577.51 for the year. In 2011, the methodology called for a blended peak consensus of 13,042.06. While the DJIA closed 2011 up 5.5% at 12,217.56 for the year, the peak 2011 DJIA price was 12,928.50. Using stock market projections often feels like a game of horseshoes, or a bit like throwing hand grenades, because being close enough is generally all that matters. The blended DJIA price target peak for 2012, using the 24/7 Wall St. methodology is 13,678, or a gain of 11.96%.

Amazingly enough, this year’s projected figure may actually be understated because this removes the wild card performances of Bank of America Corporation (NYSE: BAC) and J.P. Morgan Chase & Co. (NYSE: JPM). Bank analysts have price targets that are still much higher than current prices and these have a low weighting in the actual share price weighting of the DJIA methodology. For that reason, the 13,678 is based upon 28 components. If we included the target using our methodology with just J.P. Morgan Chase & Co. (NYSE: JPM) shares, we would get an expected gain of 12.9% to 13,793; but if we also include the large upside targets to Bank of America Corporation (NYSE: BAC), then the DJIA target would be 14,035 for a gain of 14.88%.

There are caveats that have to be considered, particularly for a projected gain of almost 12% in 2012. The first is that analysts as a group are often too bullish, and the second is that this is intended to represent a peak level of 2012 rather than a year-end call. Only one of the 30 DJIA components, Verizon Communications Inc. (NYSE: VZ), is trading above its consensus price target from Thomson Reuters due to fresh highs in the stock. Many DJIA stocks closed well under their 52-week highs, but most consensus price targets on the 30 DJIA components would actually hit new 52-week highs in 2012 if the analysts are correct. A solid fourth quarter for U.S. stocks is part of why the analysts are still excited on individual stocks in 2012.

2011 was a very volatile year. The United States lost its prized Triple-A rating by S&P, emerging markets cooled off, the European Union went into meltdown mode, and all the while the big American companies managed to grow earnings, buy back stock at a feverish pace and even managed to grow their dividends. The last quarter for the DJIA was actually up about 12% versus 5.5% for the year. The broader market of the S&P 500 was up 11% in the fourth quarter but managed to close out the year literally 0.04 points lower than a year earlier.

The best of the 30 DJIA stocks was McDonald’s Corporation (NYSE: MCD) with a gain of about 31%. It rose so much that analysts now only see about 3% upside, based on year-end price target objectives. The three highest price components helped the DJIA gain as follows: International Business Machines Corporation (NYSE: IBM) rose about 27%, Chevron Corporation (NYSE: CVX) rose almost 20%, and McDonald’s Corporation (NYSE: MCD) rose over 30%. Warren Buffett even bought about $10 billion worth of IBM shares.

There were also many big losers out of the 30 DJIA components. A 58% drop in Bank of America Corporation (NYSE: BAC) shares made it the worst performer of the 30 DJIA stocks. Other big losers were Alcoa, Inc. (NYSE: AA) at -43%, Hewlett-Packard Co. (NYSE: HPQ) at -38%, and even J.P. Morgan Chase & Co. (NYSE: JPM) was dragged lower by almost 20% as the bank stocks slid. A couple of key components were barely changed. General Electric Co. (NYSE: GE) managed a small gain of almost 1.4% and Caterpillar Inc. (NYSE: CAT) closed down 1.5%.

The DJIA projection methodology has come within about 1% in each of the past two years. Does it seem too good to be true for 2012? With how sensitive the economy is today, it feels like it may be too good to be true. 2011 was so volatile and the DJIA performance of 5.5% compared to basically a total wash on the S&P 500 performance. Is it fair to question a methodology that worked for the past two years? If the DJIA hits 13,678 in 2012, that would compare to a high of 12,928.50 over the past year.

There are at least some things that could drive such a bullish projection. 2012 is an election year and that has often helped stocks. Will the gridlock of today interrupt 2012? The recession is now two and a half years in the rear-view mirror. The problems at the end of 2011 are likely to act as continued headwinds in 2012. Europe is still on the border of crisis. China is not posting the blazing growth needed to drive mature economies. Many segments of the manufacturing sector have excess capacity and moderate demand. Still, traditional valuations of stocks today are very low by historic standards. Companies are still raising dividends and still repurchasing stocks.

The Dogs of the Dow have a yield of roughly 4% for 2012. The 10-Year Treasury yield closed out 2011 at only 1.87% and the 30-Year Treasury Bond closed out 2011 with a yield of only 2.89%. After a rough glance, it looks like 24 of the 30 DJIA stocks have a higher yield than the 10-Year Treasury Note, and 13 of 30 even outyield the 30-Year Treasury Bond. This sets up a scenario where income-oriented and yield-hungry investors may use the DJIA and other established dividend players as competition for income rather than buying Treasuries.

Will Ben Bernanke’s promise to keep interest rates exceptionally low through mid-2013 hold true? Even if it does hold true, by the end of 2012 that promise will have only six months or so left to it. Are not markets supposed to be price exploration mechanisms for the months and year ahead?

Of the other 30 DJIA stocks, there are some good things to look forward to and some headwinds at the same time. Cisco Systems, Inc. (NASDAQ: CSCO) is trying to turn itself around. Intel Corporation (NASDAQ: INTC) recently gave a big revenue warning, and that may hold back more interest in Microsoft Corporation (NASDAQ: MSFT). Pfizer Inc. (NYSE: PFE) and Merck & Co. (NYSE: MRK) both made good gains in 2011 despite a patent expiration cliff and less-than-exciting drug pipelines. And Wal-Mart Stores Inc. (NYSE: WMT) is entering 2012 after a near 14% gain and is acting like it wants to surge to new multiyear highs.

If the implied gains of almost 12% do somehow manage to come true in 2012, the implied peak target on the SPDR Dow Jones Industrial Average (NYSE: DIA) would be roughly $136.47, if the performance of the ETF matches the index performance tick for tick.

The full report had more detailed data on most of these DJIA components, but these are some of the DJIA stocks we expect to hear from with a dividend hike in the coming weeks or early in 2012: AT&T Inc. (NYSE: T), Cisco Systems Inc. (NASDAQ: CSCO), The Coca-Cola Company (NYSE: KO), Exxon Mobil Corporation (NYSE: XOM), International Business Machines Corporation (NYSE: IBM), Johnson & Johnson (NYSE: JNJ), J.P. Morgan Chase & Co. (NYSE: JPM), 3M Company (NYSE: MMM), Pfizer Inc. (NYSE: PFE) and Wal-Mart Stores Inc. (NYSE: WMT).

Some of these are also weighted in key dividend ETFs like the iShares Dow Jones Select Dividend Index (NYSE: DVY), Vanguard Dividend Appreciation ETF (NYSE: VIG), PowerShares Dividend Achievers (NYSE: PFM) and the iShares High Dividend Equity (NYSE: HDV) ETF products.

We have broken out some summaries of each in here, although more detailed data on each may be found in the larger stock-by-stock review.

AT&T Inc. (NYSE: T) has some problems now that it has the multibillion dollar huge break-up fee as a designated charge. This could interrupt its dividend hike history, but Verizon Communications Inc. (NYSE: VZ) has a higher dividend payout ratio and it recently continued its practice of raising the payouts.

Cisco Systems Inc. (NASDAQ: CSCO) has already hinted at higher payouts and we would look for a 21012 announcement of a higher payout after its recent restructuring is farther behind it. Look for Cisco to boost its payout in 2012 for its March or July payment after its layoffs and restructuring are further behind it. Even with its silly share buybacks, Cisco’s payout ratio is only about 14% of its expected 2012 earnings and the company has a mountain of cash.

If you add up the past 12 SPDR Dow Jones Industrial Average (NYSE: DIA) dividend payments, the DJIA yield has been almost 2.5% over the last year. The good news is that the yield is already higher if you include the hikes that are likely to be announced. The price of the DJIA today should offer what will be closer to a 3% dividend yield in 2012.

The list of the 30 DJIA components is very long, but we have reviewed each and all of the following: Alcoa (NYSE: AA), American Express (NYSE: AXP), AT&T (NYSE: T), Bank of America (NYSE: BAC), Boeing (NYSE: BA), Caterpillar (NYSE: CAT), Chevron (NYSE: CVX), Cisco Systems (NASDAQ: CSCO), Coca-Cola (NYSE: KO), DuPont (NYSE: DD), Exxon Mobil (NYSE: XOM), General Electric (NYSE: GE), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), International Business Machines (NYSE: IBM), Intel (NASDAQ: INTC), Johnson & Johnson (NYSE: JNJ), JPMorgan Chase (NYSE: JPM), Kraft Foods (NYSE: KFT), McDonald’s (NYSE: MCD), 3M (NYSE: MMM), Merck & Company (NYSE: MRK), Microsoft (NASDAQ: MSFT), Pfizer (NYSE: PFE), Procter & Gamble (NYSE: PG), Travelers Companies (NYSE: TRV), United Technologies (NYSE: UTX), Verizon Communications (NYSE: VZ), Walmart Stores (NYSE: WMT) and finally Walt Disney (NYSE: DIS).

We have broken out each DJIA component to review the history and expected dividend action individually. While this is a no short read, dividend and income investors better pay close attention here. Value investors should pay attention as well. It is these DJIA components that are often considered as the prize of the sector and many peers are facing the same trends today and tomorrow. Our review focuses on when the last hikes have been seen, when the next dividend hike will come, and what the price and implied upside to the Thomson Reuters consensus price target offers. We also even have shown an expected income payout ratio on each if applicable to further show which companies can boost their payouts ahead.

Alcoa is still hanging its hat on the notion that the aluminum market will double by 2020, so we have to at some point expect the DJIA component to boost its dividends again in the years ahead. Still, the company is trying to accumulate more liquidity and the current climate is a choppy one for metals players. The dividend has been stuck at $0.03 since the first of 2009 and it was $0.17 per quarter before then. Any hikes might only be nominal until the business climate becomes a bit more steady and predictable. The 1.1% is very unimpressive for a DJIA component and we have no great dividend ambitions in the near-term for Alcoa, even if only 10% to 15% of expected 2012 income is slated for payouts. At $10.35, the consensus price target of about $13.25 is well under the 52-week high of $18.47.

American Express has had its dividend steady at $0.18 per quarter since its January 2008 payment and the current yield is only 1.4%. The company’s credit metrics keep improving and its payout is not quite 19% of expected earnings next year. Still, this is a financial stock and it is hard to a financial stock to boost dividends right now. It has no branch bank operations but the climate remains tenuous. At $49.70, the consensus price target is around $55.75 if you trust price targets on financial firms.

AT&T has had four quarters in a row of $0.43 and it has a history of raising its dividend each year. The question that hangs over it is the regulatory block over the T-Mobile buyout and the huge penalty that AT&T will ultimately have to pay out of it cannot clear regulatory hurdles. This is one of the dividend stars with a 5.8% yield but it also pays out more than 70% of its expected income. Another hike is possible, but our take is that the dividend yields are now so high that telecom giants will only ratchet them up slightly. At $29.20, the consensus price target is $31.90.

Europe and Asia led us lower, as did our credit debacle, and now it is the Europeans leading us higher.  This week is another turning point as well in that we have indications that China and India are not going to continue putting on the brakes to fight inflation.

What is interesting is that many are still skeptical that the European situation is resolved.  $1.4 trillion could buy Greece several times over, but what about Italy?  The new underlying talk is that Italian debt is going to be the next crunch that gets far worse than what we saw in recent weeks.  Spain, Portugal, and Ireland remain issues as well.  The DJIA winners so far are as follows:

Alcoa Inc. (NYSE: AA): $11.02, up $0.66 or 6.3%
 
Caterpillar, Inc. (NYSE: CAT): $95.58, up $4.01 or 4.38%

DuPont, or E.I. du Pont de Nemours and Company (NYSE: DD): $48.08, up $1.98 or 4.30%

General Electric Co. (NYSE: GE): $16.89, up $0.54 or 3.30%

Hewlett-Packard Company (NYSE: HPQ): $26.92, up $1.17 or 4.52%

J.P. Morgan Chase & Co. (NYSE: JPM) $36.12, up $1.94 or 5.68%

3M Co. (NYSE: MMM) $79.69, up $2.68 or 3.47%

Will DJIA 12,000 hold up?  For now, the trade remains: RISK ON!

JON C. OGG

Maybe you want to blame services, maybe you want to blame the currency adjustment creating only 3% growth from a year earlier. 

Our take: blame the backlog of future services ordered but not yet fulfilled, billed, and counted as revenues.  This is perhaps the greatest measure of future revenues over the next 12 to 36 months.  In June the figure for backlog was about $144 billion.  The September-end figure was down to $137 billion.

Keep in mind that IBM is the single largest weighting of the Dow Jones Industrial Average by a long shot.  That price-weighted index from IndexArb.com counts IBM as being more than 12.3% of the entire weighting of the 30 components, which is effectively the same as the next two largest components of Chevron Corporation (NYSE: CVX) and of McDonald’s Corporation (NYSE: MCD). 

Why this matters is that a 4% drop can count as close to a 0.5%% implied drop for the DJIA even if every other 29 of the 30 DJIA components were flat.  IBM shares closed down 2% at $186.59 today, and the stock is down almost 4% in the after-hours session and under $180.00 versus a 52-week range of $136.70 to $190.53.

JON C. OGG

The chart of DJIA has some very good news, predicated with the fact that it also has some very bad news associated with it (see below). The August 1 close was 12,132.49 and the crest of selling took the DJIA on August 10 to 10,662.04 as an intraday low and to 10,719.94 as a closing low.  Yesterday’s close was 11,124.84 and today’s intraday low was 10,597.14 and the closing low was 10,733.83.  So we broke a low but did not close under the prior low.

Where the news gets good is that the S&P 500 Index (NYSE: SPY) managed to hold above the low of 1,101.54 on August 9 and the low close of 1,119.46 on August 8.  Today’s low was 1,114.22 and the close was 1,129.56.  The true test has to come from the S&P 500 Index rather than 30 DJIA stocks with a price-weighted index but today’s big losers were generally the same ones that win if China and the international market growth wins.  We showed how many of the big drops today came from DJIA components hitting new 52-week lows:

Alcoa Inc. (NYSE: AA) closed down 6.7% at $10.11 at a new 52-week low as the prior range had been $10.84 to $18.47.

Caterpillar, Inc. (NYSE: CAT) closed down 6.9% at $73.90 at a new 52-week low as the 52-week trading range was $75.00 to $116.55.

E.I. du Pont de Nemours (NYSE: DD), a.k.a. DuPont, closed down 6.6% at $41.65.  That is a new 52-week low as the prior range was $43.60 to $57.00.

United Technologies Corporation (NYSE: UTX) closed down 8.7% at $68.31 and its 52-week trading range is $67.12 to $91.83.

The Walt Disney Company (NYSE: DIS) was a surprise as much as it fell with a new 52-week low at $29.55 based upon a 5.5% drop and the prior 52-week trading range was $29.60 to $44.34.

Elsewhere Hewlett-Packard Co. (NYSE: HPQ) fell 4.9% to $22.80 and Bank of America Corporation (NYSE: BAC) fell 5% to $6.06 against a prior 52-week low of $6.01.  International Business Machines Corporation (NYSE: IBM) was a big drag on the DJIA because of the index being a price-weighted index: shares fell 2.5% to $168.62 against a 52-week trading range of $131.22 to $185.63.

Hoping for a better day Friday…

JON C. OGG

August was very painful, even if the markets recovered from the lows. The DJIA was down about 4.5% and the S&P 500 fell by almost 5.7%; the tech-heavy NASDAQ fell by 6.4%.  The Stock Trader’s Almanac shows that September is more often than not a jinxed month for stocks as traditionally the worst month on the calendar for stocks.

On average since 1950, there is a 0.9% drop in the DJIA.  The worst September was in the weak economy of 2002, when the DJIA fell almost 12.5%.  The U.S. was about to attack Iraq and was still recovering from the economic turmoil after the terror attacks of the prior year.  Oil had gone from under $20 a barrel to nearly $30 and gold had moved up from $280 per ounce to $320 per ounce.  The good news, if there is good news… Stock Trader’s Almanac shows that pre-election Septembers are down “only” 0.6%.

The best September for the DJIA is said to be back in 1954, but the September weakness barometer was way off last year in 2010 and it was also off in 2009.  Isn’t it October that investors worry about the big market crashes?

However, in pre-election years, such as this one, the Dow industrial average is down only 0.6 percent in the average September.  So, what is in store for 2011′s September?  The DJIA closed August out at 11,613.53 and the DJIA was under 11,250 on Friday morning after the dismal employment data was released.  Does that mean that the bad news is already priced in or does that mean that the pain is only just beginning?

So, what is store for DJIA stocks?  Here is a quick hit on some of the key pivots for the DJIA (NYSE: DIA) today looking into the rest of September.

Verizon Communications Inc. (NYSE: VZ) just boosted its dividend this week, a commitment that earnings should remain steady and high for years and years.  While the market has grown to expect dividend hikes, we were not as certain that a dividend hike would come.   This now puts pressure for AT&T Inc. (NYSE: T) to also hike its dividend later this year even if it does face a multi-billion break-up fee if that DOJ-blocked acquisition of T-Mobile stays a blocked deal.

At almost 2:30 PM EST we have the DJIA down -535 at 10,908 under the 11,000 mark.  The NASDAQ is down 164 points at 2,367 (jeez, is it the year 2,000?) and the S&P 500 (NYSE: SPY) is down 73 at 1,126 on the day.  That is worse than 5% selling in the DJIA and worse than 6% in the S&P500 and NASDAQ.  Bank of America Corporation (NYSE: BAC) is now the ultimate market drag… -18% at $6.67 on almost 500 million shares.

If you want to know just how bad the selling is, the VIX is now up 33% at above 42.00 and here are some of the most recent VIX cycle peaks over more than the last two years:

• Mar 16, 2011    31.28
• Aug 25, 2010    28.92
• Jun 29, 2010    35.39
• Jun 08, 2010    37.38
• May 21, 2010    48.20
• Nov 02, 2009    31.84
• Oct 02, 2009    29.56
• Mar 06, 2009    51.95

The selling picked up after President Obama spoke today regarding the U.S. downgrade.  His insistence that the United States remains “AAA” just because Warren Buffett says so does not lend a climate of rebuilding faith.

What you are seeing is some obvious forced liquidation or margin calls from hedge funds.  This is one of those climates where arbitrage and other traditional strategies are just not working.

Sorry to merely simplify this, but this is becoming disgusting all over again.  This is one of those situations where “value” and “bargains” just don’t matter.

JON C. OGG