Dow Industrials
Donald Johnson presents
data from Morningstar that suggests the Dow Industrials are collectively a
“five star stock” given the relative undervaluation of the index. Specifically,
he notes the following individual stocks that get the top ranking: 3M (MMM),
which closed at 78% of fair value; American Express (AXP), 65%;
American International Group (AIG), 49%; Bank of America (BAC), 61%;
Citigroup (C), 62%; General Electric (GE), 72%;
Home Depot (HD), 64%; Johnson & Johnson (JNJ),
81%; Merck (MRK), 77%; Pfizer (PFE), 63%; and Disney (DIS), 83%.
While I’ve only discussed a handful of those stocks directly, I tend to agree
with most of them. Trying to pin a value on AIG at this point seems like an
exercise in black magic, and the same holds true with Citigroup. GE has
continued to disappoint, touching a new low today after investors struggle to
find enthusiasm for the conglomerate after its financial-related struggles.
Beyond those and the pharmaceuticals, which I generally try to steer clear of
– the exception being JNJ, which I’m pretty positive on – I continue to like
Home Depot, think Disney at 2x book is a pretty good deal, and am
enthusiastic about American Express, where CEO Ken Chenault upped earnings
guidance today even in the face of higher credit charges.
It’s been argued
before that mega-cap companies on the domestic side are inexpensive, and I think
this does a pretty good job demonstrating that, even with the dubious valuations
done on the financials.
Crude Oil
Crude prices have quickly dropped about $10
bucks since I suggested that maybe things were a little too hot there, at least
temporarily. While the supply side of things is always opaque, a combination of
hard data and some anecdotal observations are showing that people are actually
cutting back on their driving. This is a good thing; even if it doesn’t
noticeably lower gas prices, at least the roads I drive should be slightly less
congested.
Bespoke has a great pair of graphs showing current
energy inventories against trailing averages (), as well as crude
futures pricing against consensus analyst estimates.
Housing
As I mentioned in “Golf
Clap for the Homebuilders”, a number of those companies are finally getting
things right after years of profiting from bubble conditions.
