The big question is whether or not the economy can hold up enough to support gains of that magnitude. China and India are both still soft, Europe is in crisis, corporate profits are slowing, and many are still very uncertain in the economy. The good side of the equation is that many corporations are still managing to grow their profits, companies are buying back stock, and they are still raising their dividends. After our peak forecast of 13,678 for the DJIA at some point in 2012, we just published the five DJIA stocks with the most implied upside but now we want to know which five of the thirty DJIA stocks may have the least appreciation opportunity for investors in 2012.
The least attractive stocks in the DJIA are The Home Depot, Inc. (NYSE: HD), McDonald’s Corporation (NYSE: MCD), The Travelers Companies, Inc. (NYSE: TRV), Verizon Communications Inc. (NYSE: VZ), and Wal-Mart Stores Inc. (NYSE: WMT). We took a look at the share prices with the expected move to the Thomson Reuters consensus data on each and added color and other data on each.
The Home Depot, Inc. (NYSE: HD) might seem like a no-brainer for limited upside when you consider the poor state of the housing market. Amazingly, this one was a major performing stock at the end of 2011 and the stock was up a massive 50% from its 52-week low. It is as if the market is trying to signal a major resurgence of home improvements ahead. At $42.04, the implied upside is only 1.2% if the consensus price target from analysts of $42.55 is all that the stock can rise to. Imagine if the company starts giving really good news again.
McDonald’s Corporation (NYSE: MCD) was the top DJIA performing stock in 2011, so it should be no shock at all that there is little implied upside to the consensus analyst price target. At $100.33, the consensus upside is only about 3.1% to the target of $103.48. Its shares also just at the end of 2011 hit new all-time highs and media and market pundits expect strong performance ahead to remain. if so, then analysts will have to raise their price targets. It already yields close to 3% in dividends and its payout was recently raised.
The Travelers Companies, Inc. (NYSE: TRV) has been an anomaly for investors. While banks and many financial stocks have been in the gutter for 2011, it ended 2011 within just a few percent of a multi-year high. At $59.17, the Thomson Reuters consensus price target of $61.37 leaves only 3.7% implied upside and the 52-week trading range is $45.97 to $64.17. It does have a 2.8% yield. This is often considered the least visible of the thirty DJIA stocks, so maybe there is more to this story than what the analysts think.
Verizon Communications Inc. (NYSE: VZ) was the only one of the thirty DJIA stocks which ended up above its consensus price target objective. Shares closed at $40.12, about 2.5% above the Thomson Reuters target of $39.14. Still, the telecom giant has a massive 5% dividend yield and its shares just hit a 52-week at the end of last week.
Wal-Mart Stores Inc. (NYSE: WMT) is almost odd to see here because it was so unattractive for years. This time is has the least implied upside to its consensus price target from Thomson Reuters of $61.70 because its stock has been trying to make new multi-year highs. At $59.76, that leaves only about 3.2% implied upside, but it has a 2.4% dividend that should be raised very soon and its 52-week trading range is $$48.31 to $60.00. While it has a low dividend, this is actually a really high yield compared to most retail stocks. It will not be surprising if analysts start to see more upside by raising their price targets.
Before you run out thinking that all of the analysts will be right, consider how the game is played on Wall Street. As share prices rise, analysts tend to get more positive and tend to raise their price targets further. Conversely, they tend to lower expectations and price targets if share prices fall. It is just part of the game.
If the DJIA does somehow manage to hit that 12% gain to 13,678, it would seem very unlikely that these five get left in the dust.
JON C. OGG
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