Investing

2020 Bull/Bear Outlook Sees the Dow Rising to 30,650 Before Year-End

First and foremost, the absolute leadership and dominance of technology cannot and must not be ignored. Apple Inc. (NASDAQ: AAPL) led the Dow with a whopping 86% gain, but it ended 2019 above the consensus estimate, even if analysts have started catching up to raise their target prices at the start of 2020. That said, the most optimistic analyst right now was calling for 20% upside potential for Apple in 2020, based on the rise of services meeting that iPhone supercycle for the coming 5G phones. Microsoft Corp. (NASDAQ: MSFT) was the second-largest gainer in the Dow, higher by 55% in 2019. Many expect Microsoft to prevail over Amazon.com Inc. (NASDAQ: AMZN) in the $10 billion JEDI cloud contract, and the cloud remains an ever-growing source of revenue growth, along with Microsoft’s online Office suite and other offerings.

Apple and Microsoft ended 2019 with a combined market cap of close to $2.5 trillion, with Apple being about 8% large. Each alone accounted for 15% of the gains of the entire S&P 500 and accounted for roughly 1,300 points (some 25%) of the Dow’s 5,200-point gain.

Intel Corp. (NASDAQ: INTC) performed well in 2019, with a 27.5% return, but the respective gains of 10.7% for Cisco Systems Inc. (NASDAQ: CSCO) and gain of almost 18% for International Business Machines Corp. (NYSE: IBM) failed to enthuse most investors. Cisco may have China and a lack of growth opportunities in other emerging markets to blame for its underperformance, but IBM is in serious need of a new CEO to lead its strategic imperatives and to spur the growth after its major acquisition of Red Hat.

Boeing remains a total wild card for the Dow in 2020. It was a huge disappointment after the two deadly crashes grounded the entire 737 Max fleet and the problems are still not solved. Even after firing its CEO, Boeing somehow still managed a 1% gain in 2019. That said, it entered 2020 down about 27% from the 2019 peak of about $446. Until the 737 Max grounding has a path of resolution, recertification and rekindled interest, it’s hard to even bother debating the consensus price target of $366.40 and expected upside in this review. At Boeing’s peak earlier in 2019 and before the selling pressure, its shares had risen 270% from early 2016.

The Dow’s top losers of 2019 could provide some cushion and upside to the Dow’s projected 7.4% gain if they experience snapback upside recoveries in 2020. This would pertain to negative returns from the likes of Walgreens, Pfizer and 3M. Because the performance has suffered on top of already high dividends, all three of these Dow losers were confirmed in the Dogs of the Dow we previewed in December.

Walgreens Boots Alliance Inc. (NASDAQ: WBA) ended the year with a 13.7% loss, but a gain of 15% to 20% from its lows kept it from being far worse. After shares closed at nearly $59 at year-end, the consensus target price was actually still down at $57.11, so the analyst community may ratchet targets up, or the shares may just be trading at more than what Wall Street really sees as a fair value.

Pfizer Inc. (NYSE: PFE) closed out 2019 with a return of −10.2%, but at $39.18, its consensus target price of $41.91 from Refinitiv would imply a total return expectation of about 10.9% for 2020. More data has been offered below with the health care sector, but Pfizer’s implied upside in 2020 might have looked better if the shares had not gained more than 10.5% in the fourth quarter.

3M Co. (NYSE: MMM) may have seen fourth-quarter gains of over 11%, but its shares ended last year with a very disappointing −7.4% total return. Will trade tensions easing help 3M’s China sales, or will management be able to get to the bottom of its ongoing margin erosion issues? And can 3M get its investors away from the unusual environmental situation the company is in now.

McDonald’s Corp. (NYSE: MCD) managed to offer an 11.3% return for investors who held all through 2019, but its close at $197.61 was down 11% from its highs. Analysts are calling for a total return of 15.4% to $223.07, but after such a big drop it seems odd that this suddenly is expected to reach yet another new high above the prior $221.93. Can its new CEO work magic and keep returning capital as has been seen in recent years, or will wage pressures and the continued rise of populism put too much pressure on its costs above what it can pass on to consumers?

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