2018 Outlook: How Exxon, GE, IBM, Merck and Disney Could Be the Top Dow Stocks
Exxon Mobil: Could it finally give investors some gas?
Exxon Mobil Corp. (NYSE: XOM) has been a serious Dow laggard in 2017. Trading at $82.50, it has a consensus analyst target price of just $84.68. Exxon’s 3.7% dividend would imply a total return for the coming year of about 6% after factoring in dividends.
What if there is more to the story here, with Exxon’s value being $350 billion. What has been a serious non-contributor to Exxon shares for several years is its old $31 billion acquisition of XTO Energy. This gave Exxon a deep footing into natural gas, and natural gas development has been coming back after years of stagnation.
Natural gas production is now forecast to continue growing in the United States in 2018, led by strong export demand and utilities. This XTO’s non-event valuation in the old acquisition price versus the current market cap is now almost 10% of its total value, and this piece of the business could become a contributor to higher analyst valuations ahead.
Also worth noting is that Exxon is set to merge its refining and marketing companies into ExxonMobil Fuels & Lubricants Company, a move planned for the first quarter of 2018. Barclays recently kept its price target on Exxon north of $90, and the street-high analyst target is $100.
Exxon Mobil shares have a 52-week trading range of $76.05 to $93.22, and the company has a market cap of $349.2 billion.
Dear John: Is it General Electric or General Eclectic?
General Electric Co. (NYSE: GE) has been battered and bruised, and the departure of CEO Jeff Immelt and the replacement with John Flannery has so far been a “show me” story. The stock is down 40% so far in 2017, but with shares at $17.70, the consensus analyst price target of $22.64 implies upside of about 28%. This is the smallest Dow component due to its tiny price, so a recovering GE would not alone be enough to swing the Dow up without it indirectly pushing up other industrials.
Investors need to understand that GE analysts are likely to lower their price targets even further toward and after the start of 2018. Cutting the dividend was painful enough, but GE has become incredibly hard to run in its current state. What would change the bias on GE is if Flannery and his new chiefs actually deliver on the proposed changes. Unrelated or lagging business sales would be viewed positively.
GE could signal in 2018 that it would like to eventually exit its position in Baker Hughes as a subsidiary. And the company could continue trimming non-revenue employee segments. What if GE’s new leaner structure is able to be communicated more cleanly to the investing community? It’s no shoo-in that GE will do well in 2017, not at all, but even the hint of a recovery for later in 2018 or in early 2019 would probably create excitement. And what if GE announces a review for a breakup?
GE has a 52-week range of $17.46 to $32.38, and it has a market cap of $153.0 billion.
IBM: Please, let new leadership and growth initiatives take charge!
International Business Machines Corp. (NYSE: IBM) has become a serial disappointment, and the share price drop of 6% in 2017 is just another continued disappointment. At $154.50 a share, IBM has a consensus price target of $163.74, and the 3.9% dividend yield implies a total return scenario of about 9.5%.
IBM has underperformed for so long that sentiment remains incredibly negative, and analysts expect total revenues to remain flat from 2016 out to 2019. IBM’s growth initiatives are just finally starting to catch up to the declining IT-services operation. What if efforts behind Watson, artificial intelligence, blockchain and the cloud all see stronger growth and begin to impress investors and analysts more than they do today?
Merrill Lynch went way out on a limb with a $200 price target at the end of October. What if someone is finally right this time on being bullish about IBM? One more issue is that CEO Ginni Rometty has to be very close to being forced out of her job, and based on other CEO departures, we would expect IBM shares to pop higher if she were ousted. IBM was a $200 a share stock back in 2012, and it is valued at only 11 times expected 2018 earnings.
IBM has traded between $139.13 and $182.79 a share in the past year. It has a market cap of $143.2 billion.