Earlier in the year we came up with an implied DJIA price target using the same methodology of the prior two years (each came within about 1% of the target), and our target for the DJIA was an implied peak of 13,678. Admittedly, it seemed too rosy at the time with Europe teetering on the brink of collapse and with so many still worried that America was headed back into recession. But with the DJIA now back at 13,252 that target of 13,678 is barely 400 points away.
So, what are the catalysts now? Growth and technology have replaced dividends and utilities as the top sectors. Many stocks are hitting new multi-year or all-time highs. Even the financials are back and no longer the whipping boy of the market. We have glanced over many sectors here, and thrown in the risks and caveats.
When we did the 13,678 DJIA target, that was assuming no participation from the banks because they were so miserable at the time. We noted on January 3, 2012, “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%.” And now we have Andy Schnorack as a manager under Covestor calling for perhaps a multi-year period for financials to return to growth. The banks are starting to return to the dividend trends again too.
International Business Machines Corporation (NYSE: IBM) may be headed to $230.00 as was recently noted. It is the largest DJIA component of them all, so its price-weighting could help drive the DJIA even if the other DJIA stocks just manage to perform mildly.
With oil remaining so high, the analysts still see upside in shares of Exxon Mobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX). The implied upside there on average is about 10% and each of these have a heavy weighting in the DJIA. Even Caterpillar, Inc. (NYSE: CAT) is trying to hit new highs again while the growth rates in Brazil and China have been slowing. By our take it has rallied too much just on a price basis, but in fairness it trades at just under 12-times expected 2012 earnings.
And what about elsewhere technology? Apple Inc. (NASDAQ: AAPL) is getting all the media attention for the i-everything daily, but there are also Microsoft Corporation (NASDAQ: MSFT) and Intel Corporation (NASDAQ: INTC) hitting multi-year highs as well in ‘old-tech.’ In conglomerates we even have General Electric Co. (NYSE: GE) back above $20.00 since it has raised and raised its dividends, and analysts see the stock going up almost another 10% from here.
There are of course some caveats and risks. Earnings season is already one month out. That means the earnings warnings should start hitting in the next week or two. Europe is not out of the soup yet and China and Brazil are slowing down. Gold is losing its luster, for now at least. And that pesky Volatility Index, or the VIX, is so darned low now that any bad news could allow short sellers to come swooping back in to knock down the bull. There is also the risks around who wins the elections later this year.
If you think DJIA 13,678 or 14,000 sounds too rosy, what about a recent take from Laszlo Birinyi? His call, S&P 500 goes to 1,700. Will the market correct before the bulls take it up there? Maybe, very possibly. If you have missed the run up entirely so far, remember that history has shown over and over that major runs higher often run into big waves of profit taking.
JON C. OGG
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