We have a breakdown on each of the 30 DJIA stocks in the chart below. We compiled the 2011 closing price, the implied price target using Thomson Reuters mean target objectives, what the implied upside would be for each target, a 52-week trading range in 2011 for each and the dividend yield of each.
|Ticker||Price||Target||% Gain||52-Wk Range||Dividend|
|AA||$8.65||$12.48||44.2||8.45 – 18.47||1.40%|
|AXP||$47.17||$55.55||17.7||41.30 – 53.80||1.50%|
|BA||$73.35||$81.92||11.6||56.01 – 80.65||2.40%|
|BAC||$5.56||$9.58||72.3||4.92 – 15.31||0.70%|
|CAT||$90.60||$114.50||26.3||67.54 – 116.55||2.00%|
|CVX||$106.40||$122.75||15.3||86.68 – 110.01||3.00%|
|CSCO||$18.08||$21.15||16.9||13.30 – 22.34||1.30%|
|DD||$45.78||$53.89||17.7||37.10 – 57.00||3.50%|
|DIS||$37.50||$42.16||12.4||28.19 – 44.34||1.60%|
|GE||$17.91||$20.98||17.1||14.02 – 21.65||3.80%|
|HD||$42.04||$42.55||1.2||28.13 – 42.47||2.70%|
|HPQ||$25.76||$31.13||20.8||21.50 – 49.39||1.90%|
|IBM||$183.88||$196.00||6.6||145.96 – 194.90||1.60%|
|INTC||$24.25||$26.44||9||19.16 – 25.78||3.40%|
|JNJ||$65.58||$72.64||10.7||57.50 – 68.05||3.50%|
|JPM||$33.25||$46.33||39.3||27.85 – 48.36||3.00%|
|KFT||$37.36||$39.41||5.5||30.21 – 37.93||3.10%|
|KO||$69.97||$74.92||7.1||61.29 – 71.77||2.70%|
|MCD||$100.33||$103.48||3.1||72.14 – 101.00||2.80%|
|MMM||$81.73||$91.71||12.2||68.63 – 98.19||2.70%|
|MRK||$37.70||$39.68||5.2||29.47 – 37.90||4.50%|
|MSFT||$25.96||$30.93||19.1||23.65 – 29.46||3.10%|
|PFE||$21.64||$23.48||8.5||16.63 – 21.90||4.00%|
|PG||$66.71||$72.17||8.2||57.56 – 67.72||3.10%|
|T||$30.24||$31.74||4.9||27.20 – 31.94||5.90%|
|TRV||$59.17||$61.37||3.7||45.97 – 64.17||2.80%|
|UTX||$73.09||$88.79||21.5||66.87 – 91.83||2.60%|
|VZ||$40.12||$39.14||-2.5||32.28 – 40.25||5.00%|
|WMT||$59.76||$61.70||3.2||48.31 – 60.00||2.40%|
|XOM||$84.76||$91.32||7.7||67.03 – 88.23||2.20%|
The projections of a 12% gain in 2012 feel too optimistic on the surface. Many sectors still face headwinds, and it seems like many stocks have recovered in the fourth quarter of 2011 to the point that they are already reflecting great news ahead. The Home Depot, Inc. (NYSE: HD) rose by more than 20% in 2011 and it is up almost 50% from its 52-week low. The DJIA is a share price-weighted index and that can throw off all of the targets, so the DJIA performance is highly dependent on the performance of International Business Machines Corporation (NYSE: IBM), Chevron Corporation (NYSE: CVX), and McDonald’s Corporation (NYSE: MCD) in 2012. To show how dependent the DJIA is on these three, it turns out that one-tenth of the DJIA’s 30 stocks comprise about 24.2% of the entire DJIA. At the other end of the spectrum, the 10 lowest priced components only account for about 13.1% of the entire DJIA weighting. The 15 lowest weighted components only make up about 25.1% of the entire weighting.
The price-weighting almost implies on paper that components like Bank of America Corporation (NYSE: BAC) and Alcoa, Inc. (NYSE: AA) are immaterial to the index. Even the great General Electric Co. (NYSE: GE), with its $189 billion market value, seems immaterial to the DJIA with a mere 1.11% weighting in the DJIA. Those are of course assuming that the performance of each stock would solely be in a vacuum or uncorrelated to the broad market. The reality is that if things suddenly became gangbusters for those three smallest components, then it means the economy is probably booming.
Again, 24/7 Wall St. tallies each DJIA component with an equal-weighting to come to a price target for the index rather than the price-weighted methodology of the DJIA. The reason is simple enough: there is no way that every target will remain static ahead nor that each stock will perform exactly as expected. Stock splits or large dividend payments from the highest weighted stocks could greatly change the price-weighted outcome as well. Many events could arise in an individual stock and there are just too many moving parts to worry about each component individually by our take.
Another issue to consider is that many analysts likely will update their price targets in the first few weeks of January, and it would be a guessing game to predict what the price targets will move to after earnings season gets into full swing late in January and in February. We are likely to update this outlook at the end of January or beginning of February to see if the targets have changed much.
There is another caveat to consider, and that is that analysts are often fickle and wishy-washy when it comes to price targets. The price targets tend to rise after the market moves higher and they tend to be lowered after the market moves lower. That is just part of the game. If you look back at the price target objectives on each component from a year ago, many price targets were very different.
Again, we want to note that the implied DJIA target of 13,678 for 2012 is more or less of a peak value for the year ahead. Frankly, it almost seems to good to be true after how volatile the markets have been.
JON C. OGG
Sources: Consensus price targets are the mean target offered by Thomson Reuters; performance of DJIA stocks is from Finviz.com; individual DJIA weightings from Indexarb.com.