Serious Money: Whittling away at the Dow -- DIS, DD, XOM, & GE: Part 3

Posted May 31st 2007 1:57PM by Sheldon Liber
Filed under: General Electric (GE), Exxon Mobil (XOM), Columns, Walt Disney (DIS), duPont(E.I.)deNemours (DD), Dow Chemical (DOW), ETF Investing, Bargain Stocks, Serious Money, Oil, DJIA

Onward with my review of the Dow Jones Industrials. Ten stocks have been reviewed so far with three worth further consideration as potential value plays: Alcoa Aluminum (NYSE: AA), American International Group (NYSE: AIG) and Caterpillar Inc. (NYSE: CAT). You can link to Part 1 of this series or Part 2 if you want to catch up. Comments are always welcome.

Disney (Walt) Company (NYSE: DIS) on first glance looks like it may have some value hidden away. The raw numbers do not scream out at me but they cannot be ignored either. At a minimum this stock seems to be slightly under valued, given its strong brand and depth of content in a business where content is king, it has locked up many franchises. This includes the Pirates of the Caribbean: At the World's End now in theaters. It has an average P/E, a below average debt ratio, a modest dividend yield to go along with very low P/S 2.18 and P/B 2.36 ratios. Disney is worth consideration as a value stock.

DuPont EI De Nemours (NYSE: DD) is another mixed bag, although mostly favorable from a value standpoint. You have to like the below average P/E of 14.92, P/S of 1.77 and the generous dividend yield of 2.84%. On the other hand, it has a P/B of almost 5, which is higher than I would usually consider for a value play and the same is true for the P/CF of almost 12.29, which is a little bit pricey to me. It does report strong profit margins of 11.48% and a great ROE of 34.41. In comparing it to one of my stock picks Dow Chemical (NYSE: DOW) for 2007, which has a P/S and P/B of half of DuPont and a higher yield of 3.67% I think I will pass this one up.

Exxon Mobil (NYSE: XOM) stands out as the most stingy when it comes to paying out a healthy dividend. For a company with such strong financials that it has almost no long-term debt and its ROE and ROIC are triple its P/E of 12.12, it could afford a much better pay-out than the current yield of 1.69%. This puts it in the bottom half of Dow stocks given the 2.3% average yield for the group. All the griping aside, this company is as solid as they come and besides the other positive metrics it has a P/S of 1.48 and must be considered as a value stock, despite its huge size.

General Electric (NYSE: GE) does pay an above-average dividend yield of 3% and looks like a safe haven with some upside potential, but it also looks fairly valued. Its P/S of 2.39 is below average and so is its P/B of 3.33, but just about everything else looks unspectacular. I envision GE moving in step with the rest of the market, unless it were to take the drastic step of breaking into several companies. Some of my colleagues would favor this, but I do not. There are elements in GE's situation that resemble a value stock, but I think that would be wishful thinking and that an index fund would do equally well.

Conclusion: Among these five stocks, I favor Disney the most but will include Exxon Mobile, setting aside my preference for small companies. In the case of XOM, it is the largest of them all. General Electric and DuPont have potential but do not seem compelling enough for me. The data I used was from the close on May 25, 2007.

Those of you who are new to BloggingStocks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record, as well.

Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out his other posts for BloggingStocks here.

Tags: DJIA, Dow Chemical (DOW), DowChemical(dow), duPont(E.I.)deNemours (DD), Dupont(e.i.)denemours(dd), Eastman Kodak (EK), EastmanKodak(ek), Exxon Mobil (XOM), ExxonMobil(xom), General Electric (GE), GeneralElectric(ge), Serious Money, SeriousMoney, Sheldon Liber, SheldonLiber, Top Picks 2007, TopPicks2007, Walt Disney (DIS), WaltDisney(dis)

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Reader Comments (Page 1 of 1)

5-31-2007 @ 3:23PM

Bruce E Warnock said...

We are retired folks and hold both GE and XOM and your comments are right on target for both these companies.

XOM is so stingy that they kept the dividend the same for 5 straight quarters before passing along an increase recently, in spite of record profits. They can well afford a much healthier dividend as well as a stock split.

GE is another story. Down from $60 in 2000 when Jack Welch retired, Jeff Immelt has failed to impress the Street since then. While earnings have been good, the PE has continued to fall and it is time for the Board to look closely at his performance. While I see you disagree, I think it is time to look at some spin offs. Finally, GE should split the job of CEO and Chairman of the Board into two people. But then XOM yesterday refused to do so on a shareholder proposal, that got a large YES vote.

5-31-2007 @ 5:11PM

Sheldon L said...

Bruce,
Thank you for taking the time to comment. I am not against GE spinning off NBC/Universal, and a few other smaller units, so I agree with you. I am just against cutting it into two or three parcels.

If XOM is not doing the right thing by you, then bail out and put your money elsewhere. If you want to stay with oil companies COP is paying over 2% and PTR is paying over 5%. Utilities like SO and DUK are also paying good divdends. Depending on the size of you portfolio you could diversify into more than one.

I hope you enjoy your retirement.