Investing

How Just 7 Stocks Can Take the Dow Up to 20,000 and Beyond

The three-way price target for Apple would be $144.29. That would be some 33.6% higher than the $108.00 current share price. This may sound high, but this is just where analysts expected it to go when 2016 started out.

Any innovative changes to the iPhone might make this happen. Or any new product launches, like a car or in-home entertainment system. Apple has a massive stock buyback plan, and it is valued at only 12 times expected 2017 earnings estimates. What if Apple managed to command a market multiple? Apple shares already have started recovering from their lows, but the mighty Apple is up barely 4% so far in 2016. Upside of 33% for any Dow stock seems excessive, but we are talking about the world’s largest and favorite company. If Apple lives up to its expectations or rises further, it could be the third, fourth or fifth highest Dow weighting.

3M

With 6.6% of the entire Dow’s point value, 3M Co. (NYSE: MMM) is now the highest weighting of the 30 Dow stocks, due to its $178.80 share price. That makes 3M the current most important Dow stock in the quest for DJIA 20,000. Its consensus price target is $179.50 and its 52-week high is $182.27. Jefferies currently has the highest price target, after reiterating a Buy rating and raising its above-consensus target of $190 at the time to $210. The prior street-high analyst target was $200.

3M’s three-way bull market target would be $190.59, which would imply a 6.6% gain if that is seen. 3M shares are already up 20% so far in 2016. That means perhaps a back-and-fill might be needed before expecting a run toward $190, and $200 might be needed.

The reality is that 3M has so many moving parts that it is hard to predict where its upside in 2017 might come from. It has navigated international issues better than peers in some quarters. It also has room to support dividend hikes and buybacks ahead. This company has surprised over and over, and it has been a while since a big acquisition has been made. Its yield is 2.5%, and its market cap at $108 billion is not so large that it cannot rise.

Goldman Sachs

Due to its heavily regulated too big to fail bank holding company status, Goldman Sachs Group Inc. (NYSE: GS) remains a laggard. It still has a weight in the Dow of 6.01%, with its $162.19 share price. That makes it barely the second highest Dow stock by weighting, and therefore the second most important Dow stock in the quest for DJIA 20,000. Goldman Sachs has a consensus price target of $181.00 and a street-high target from Oppenheimer that is still up at $222. Oppenheimer is actually not the only firm calling for a valuation of over $200.

This three-way value would be $194.59, up almost 20% from the current price. Now consider that Goldman Sachs has been very slow to create an at-market dividend yield.

Goldman Sachs might not be regulated quite as harshly as banks in the years ahead, but that remains to be seen. Much still is unknown about future regulations and how the financials are treated by the future administrations. And to make matters more interesting, Goldman Sachs shares are down 9% so far in 2016, despite the market being up. Its $65 billion market cap could go higher without much buying pressure needed, and it screens out as being valued at less than one times book value and less than 10 times expected 2017 earnings.

IBM

After being hard to like for so long, International Business Machines Corp. (NYSE: IBM) could accidentally end up being a contrarian investor’s dream. Despite being so depressed from past highs, at $162.08 IBM’s weighting is right at 6.00% of the Dow, making it the third most important stock in the DJIA 20,000 quest. Its 52-week high is $163.60, with a consensus target price that is lower at $153.90. IBM’s highest price target is $186 at Drexel Hamilton.

The three-way price would generate an IBM target of $167.83, which would imply upside of 3.5%. What investors need to imagine is if IBM’s turnaround actually begins to show more rewards in 2017. This cannot occur overnight, and IBM has lagged for years. It used to be a $200 stock and was once called to rise as high as $250.

It was just in July that Drexel Hamilton was pleased with IBM’s earnings and saw it continuing to turn the corner. IBM is called dirt cheap by value investors at less than 10 times expected earnings, but many investors and analysts believe the core IBM is facing a long slow death. IBM doesn’t even report its services backlog any longer. What if the bull market changed sentiment here and IBM went north of $200 again?

Boeing

Boeing Co. (NYSE: BA) has come down handily from the post-Dreamliner highs. Trading at $132.28, its Dow weighting is about 4.9%. Boeing’s consensus price target is $149.00, and its 52-week high is $150.59. The highest analyst price target is from Bernstein, up at $188.

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