As I start to type this story, it's 2:59 and the DJIA chart I just saw read 11999.97, the tiniest tick shy of yesterday's 12,000 milestone, and 11.76 points off the record close. [By the time I published the market had closed two points above the 12,000 mark.] I know, yawn! Everyone's doing the same story. Dow 12,000, milestones in history. Right?Right, and wrong. Let's do something else here, in this time that seems fraught with cliche and over-valuation. So many Wall Street pundits are saying, watch out! There's a slowdown ahead. And surely, many of these valuations seem high. Too high. But in my opinion, there are just as many stocks that have room to grow.
I'm looking at the numbers and I've found five Dow stocks to stay away from, and five that may still have some legs.
Five with room to zoom:
- 3M Company (NYSE:MMM), $79.20 up 3.66% today; 52-week high $88.35; 52-week low $67.05. P/E 17.47. Latest quarter results show it is up 6% on LCD growth. I think that P/E is nice and low for a company which, despite its industrial roots, is really an innovative company that actually makes things that people want. A good 10% below the 52-week high sounds like lots of room to me.
- American International Group, Inc. (NYSE:AIG), $66.38 down a bit today; 52-week high $71.09; 52-week low $57.52. P/E 20.42. AIG hasn't released results yet, but last quarter it had a major decline in earnings that nonethless topped estimates. Motley Fool thinks the stock is cheap and I'm inclined to agree. This is a AA+-rated stock and it's trading a a $5 discount to its 52-week high; I'd certainly imagine it was worth that extra $5, and maybe more. Best of all: a scandal-free company, and no prospects for additional problems. That's the sort of thing that has my blood zooming these days.
- Citigroup Inc. (NYSE:C), $49.90 barely up today; 52-week high $51.33; 52-week low $44.17. P/E 10.75. Third quarter profits were up for the company but investment banking revenue was down a bit from the year-earlier quarter. Why do I like to see that? Investment bankers are given bonuses based on fiscal year results. A bad third quarter means nose to the grindstone for the rest of the year. I can't wait to see how those rainmakers dance this next few months; I'm willing to bet something good will come of it. And the P/E is very low compared to competitors, and so cheap, that it's worth betting on. I think Citigroup might have $5 or $10 of room between now and this time next year.
- General Electric Company (NYSE:GE), $35.47 up a half-percent today; 52-week high $36.48; 52-week low 32.06. P/E ratio 21.37. GE is such a hard company to pin down with so many disparate divisions and so-called "moving parts." And the NBC unit isn't burning any barns with its recent primetime yawns. Will it zoom? Maybe not. But it's not overly rich and it's a company which will always have its fans among investors. The company's energy units are interesting and are, I think, positioned to benefit from the global push to greener sources of power. GE may bring good things to life in your portfolio this coming year. And if it doesn't? I know as well as you do that you're not going to sell. This is a stock with staying power.
- McDonald's Corporation (NYSE:MCD), $41.39 up 1.52% today; 52-week high $42.46; 52-week low $31.48. P/E 17.92. Third-quarter results were up on good premium coffee sales, more 24-hour restaurants and good growth in Europe. I like the nice low P/E ratio and the raft of good prospects with the company recently. Best of all, breakfast all day gives me high hopes for future growth. Maybe it will be modest but I'd like to be in on it. I think McDonald's has at least a little room for growth.
Five who've run out of space:
- The Altria Group (NYSE:MO) aka Philip Morris, $79.90 down a bit today; 52-week high $85.00; 52-week low $68.36. P/E 14.80. Despite a really low P/E ratio and good things expected for the third quarter results, due soon, the company is about to spin off its Kraft Food subsidiary; leaving a lot of bad blood behind. Cigarettes are the last thing I'm interested in holding for the long run. I don't see a lot of upside here and I'd mark MO as a stock with no room left, to speak of.
- The Coca-Cola Company (NYSE:KO), $47.03 up 4.72% today; 52-week high $47.10; 52-week low $39.36. P/E 21.00. Investors seem to be going crazy for Coke thanks to rumors of new leadership at the top and a relatively good third quarter. I'm still leery of the stock; the P/E after today's runup is awfully high and then there's the whole Fried Coke thing. Yesterday I might have said differently, but today? KO is out of room.
- The Walt Disney Company (NYSE:DIS), $31.40 down a bit today; 52-week high $31.79; 52-week low $22.90. P/E 21.07. Last quarter's results were good and, generally, no one is raising Cain about the company's fourth quarter, due out soon. The company is trying to give its brand a makeover by insisting on only pushing healthy food. But I think the brand is already a bit tarnished, and the price -- so close to its all-time high -- seems extremely rich to me for a company whose management team and PR image has been rocky these past several years. It's one I pick as having run out of rope.
- Johnson & Johnson (NYSE:JNJ), $68.59 up a little less than a percent today; 52-week high $69.14; 52-week low $56.65. P/E 18.49. The third-quarter profit for the company was up 9% and Cramer likes it! But I think the profit-taking has already happened here. While Cramer could be right it's a little too close for my comfort, especially as the company's P/E ratio is high compared to competitors like Pfizer. I'm calling this one out of room.
- The Procter & Gamble Company (NYSE:PG), $62.63, up a bit today; 52-week high $63.74; 52-week low $52.75. P/E 23.72. Last quarter's results were good, and this quarter's won't be out for a bit. I want to like P&G. It has such a legacy of product development and keen marketing. But it's terrifically close to its all-time high, and its P/E ratio is a bit high for me. (I'd like to note, though, that when you look at competitors like Colgate Palmolive, at 25.5, and Estee Lauder, at 35.7, P&G's seems very low.)
- Alcoa Inc. (NYSE:AA), $27.47 down a bit today; 52-week high $36.96; 52-week low $23.24. P/E 11.4. Latest quarter results showed revenue up 19% over previous quarter, 2nd-highest in history. That's a lot of room and a cheap P/E. I don't know enough about this industry to talk about Alcoa's prospects, but the numbers look good.
John McCain, losing ground, goes for broke tonight
If nothing else, gasoline prices are falling!
Closing Bell: Dow slump puts bulls on suicide watch; BAC, MS, F, FSLR all down, AMD up
Reader Comments (Page 1 of 1)
10-20-2006 @ 5:18PM
Al Diaz said...
GE is a great company but since Welsh retured, the stock has been a dog. Going on six years now. They keep buying companies that are not making a contribution to the bottomline. the best thing they have going is the new process for the liqifaction of goal into electricity which will keep them going but otherwise, YAWN, YAWN.
10-21-2006 @ 2:09PM
Eduardo J. Diaz-Blanco said...
Watch out on putting too much wait on the 52 week spread (up or down). The dismal performance of the market during this "short" period may be deceiving. Perhaps we should be looking at the spread on a window of 104 weeks or even 130.
10-21-2006 @ 6:45PM
allan hart said...
Johnson and Johnson is expensive, at the same time it's a wonderfully managed company with great franchises. If I owned it at lower prices, I'd hold. Buying near the high for the year, seems to me to be reaching. I'd look to buy it if it gets cheaper in the contex of a general market correction.
10-22-2006 @ 12:44PM
Michael Schneider said...
The slowing economy would seem to make the stocks you want to sell better bets than those you would buy here in general though I do think McDonalds is a winner. Most of these are up however.
10-22-2006 @ 3:33PM
Chris Scanlon said...
I just don't think you are making sense on Altria. Historically it is about the best stock in existence. For years people have been saying "sell" and for years it has been going up. I don't like tobacco and what it does to people any more than the next guy, but people still choose to use tobacco products and Altria still makes lots of money. I'm not selling my shares any time soon.
CS
10-22-2006 @ 8:12PM
sal settecase said...
I like the big companies like GE... I own GE and look for some upward movement in the near future. In additioin to big stocks I also own smaler explosive stocks like GNOLF and ISRG. I think you need to own both large and small in order spread out risk. In any caser look for leaders and inovative cutting edge companies.
10-23-2006 @ 2:23AM
KAY WILLIAMS said...
YOU RECOMMEND AIG BUT WHAT ABOUT AON AND MARSH MC LENNAN INC.
10-23-2006 @ 10:47AM
wayne gros said...
one thing i have noticed, if every one traded as indicated on your sites the only person making any money would be the brokers. i have had altria for long time and have some good profits from it, and intend to stay w/it
10-23-2006 @ 3:15PM
V. Ortolani said...
GE is such a large company and into so many businesses, it is hard to get your arms around it! CNBC seems afraid to give it any positive publicity, because they are owned by GE. As a result, the stock price goes nowhere! Jack Welch moved the stock by buying other companies. Maybe it's time for a change in top management.
11-22-2006 @ 12:41PM
Jan Paul Koch said...
The Kraft shares (Symbol-KFT) are about 30% of the value of MO. I am not sure how many shares of Kraft a person will get, for each share of MO that they own, but I think it could be .4 share of KFT for each share of MO. Based upon the Kraft shares outstanding that would equal $14.00 a share in free money. Cash dividends, for the 2 stocks, over the next 5 years will exceed $22.00 a share. Both MO and KFT are great holdings for a retirement account. Just based upon the aforesaid figures, the return on MO would be 43% in 5 years. But there will be more gains than just that. MO's 28.7% of Miller Beer (SAB Miller) is worth 3.4 billion. Since MO is going to generate 51 billion dollars in free cash flow over the next 5 yeard (there are 2.1 billion shares of MO outstanding) that comes to $5.00 per share per year over the next 5 years ($25.00 a share over the next 5 years). That would boost the return to 50% over 5 years. Since they have so much cash, it is assumed that they will also spin-off Phillip Morris International over the next few years. This company spits off money, and it should give a dividend twice what MO pays (MO pays 4.05% presently). The precise timing of the spin-off the Kraft shares is going to be announced Jan. 31, 2007. The CEO has already indicated that it is anticipated that the spin-off will occur within 120 days of 1-31-07.