Bull Market Risks & Opportunities From 2019 Into 2020: Apple, Microsoft, Amazon, Boeing, IBM, Exxon and More

So with a great economy and with all the focus elsewhere in technology, about the only good news for IBM investors is that analysts have an average target of $148.30 as its shares have been so unimpressive. That and the 4.9% dividend yield would imply a projected total return opportunity of 15.5% if the analyst estimates are correct. Analysts are expecting a mere 3% revenue gain in 2020, but that would be expected to translate to earnings growth of 4% to $13.31 in earnings per share.

IBM still screens as a cheap stock at 10-times expected 2020 earnings, but that “look at the value” logic has generated losses over the past eight years while the market and competitors have seen their prices rise endlessly.

The Dow Could See Continued Restructuring of Its 30 Components

While it would be easy to jump around, mergers and reorganizations are going to come with questions about Dow Inc. (NYSE: DOW) and United Technologies Corp. (NYSE: UTX). What if Walgreens does manage to get its go-private offer that had been rumored earlier in the fourth quarter? That is three Dow stocks that are witnessing structural (or would-be structural) changes.

As the Dow uses an antiquated price-weighting rather than market cap weighting, the top three stocks (Boeing, UnitedHealth, Apple) account for a whopping 21.75% of the entire 30 stocks. The bottom 10 stocks account for only about 15% of the entire Dow’s weighting. Any stock split announcements of the top Dow components would also skew how the index is weighted.

Energy Keeps Disappointing Investors, and ESG Is Only Growing

Energy is a sector that has been a great laggard. Many investors just don’t want to own oil and gas stocks. That’s the reason that it doesn’t matter if they are worth just 8 or 10 times earnings. If fewer and fewer investors are willing to buy the shares, and if a growing pool of investors will not invest in their shares at any price, there is no reason they cannot trade down to 5 times earnings without any fundamental changes in the market or the economy.

Chevron Corp. (NYSE: CVX) managed a 10% gain that exceeded the mere 2.3% gain from larger rival Exxon Mobil Corp. (NYSE: XOM). Both energy giants are Dow components, but Exxon’s year-end price of $69.78 comes with roughly a 5% dividend yield. The consensus analyst target price of $78.47 would imply a total return opportunity of about 17.5%, but Merrill Lynch sees close to 50% in implied upside in 2020 to its price objective. Chevron is also expected to see upside of about 17.3% in 2020 if the consensus analyst target price comes to pass.

Perhaps the good news here is that Exxon and Chevron, with their lower share prices, represent a mere 4.5% combined weighting of the Dow. That means that, even if they cannot rise as much as analysts are hoping for, the so-called energy drag might be minimal if the stocks with larger weighting perform well.

Can Financials Hold Up in 2020?

There is an old saying that for the stock market to rise you have to see participation from the financial sector. It makes sense if you consider that a strong market and a good economy would boost the overall perceived value of money and finance. JPMorgan Chase & Co. (NYSE: JPM) is the king of banks and financials with close to a $450 billion market cap and what is still believed to have the safest credit profile customer base of all major banks. After close to a 43% gain in 2019, it may seem unsurprising that analysts have a consensus target price that is nearly 8% lower (pre-dividend) than the year-end price of $139.40.

Stay tuned for our formal year-ahead projections for 2020.

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