have in common? They are book-ends on the Dow Jones Industrial
Average's ranking of best and worst-performing stocks thus far in
Boeing -- up +30.4% -- is seeing rising demand for airplanes, while
Alcoa -- off -27.0% -- awaits a rebound in demand for aluminum.
It's been a mixed bag of results for this leading
, with 19 stocks rising and the other 11 losing ground since the
start of the year.
Total Return YTD
|Du Pont (
|American Express (
|Kraft Foods (
|General Electric (
|Walt Disney (
|United Tech (
|Intel (Nasdaq: INTC)
|Proctor & Gamble (
|Traveler's Ins (
|Home Depot (
|JP Morgan Chase (
|Cisco Systems (Nasdaq: CSCO)
|Merck & Co. (
|Bank of America (
|Johnson & Johnson (
|Exxon Mobile (
So which stock is poised to lead the pack for the remainder of
the year? Let's look at three candidates. The projected winner will
be revealed at the end.
A bullish outlook
Judging strictly by body language,
Intel (Nasdaq: INTC)
is arguably the most optimistic name among these blue chips.
Earlier this month, the company said that chip demand is hot and
getting hotter. Based on current trends, analysts have boosted
outlooks by about $0.20 for both of 2010 and 2011 -- the highest
upward revision to forecasts on an absolute and percentage basis of
any stock in the Dow.
But shares of Intel faded throughout last week, as investors
seemingly doubt any bullish statements being made by Intel and its
peers. They doubt any upturn Intel is seeing will last: consensus
forecasts call for Intel to boost profits next year by just +3%,
even though many technology forecasters expect enterprises to
embark on a long-awaited upgrade cycle for PCs and servers.
Exxon Mobil (
king of the Dow, routinely generating $30 billion in
free cash flow
almost every year. This has helped the oil giant throw off $39
billion in dividends during the past five years and buy back
roughly $135 billion worth of stock during that time frame. But
that doesn't seem to be good enough to retain investor interest.
Since early 2008, shares have been drifting steadily lower from
more than $90 to a recent $60. The company's 2.9%
has been of scant solace in light of that -30% loss in value.
But every dog has its day, and Exxon Mobil's may finally be at
hand. That's because the stock's free cash flow yield of 10.7% ($30
billion in free cash flow divided by the company's $280 market
capitalization) has rarely been this appealing. The cash flow yield
is more than twice the
offered by corporate debt. The fact that shares also trade for nine
times next year's profits also suggest the shares are getting short
shrift. And Exxon Mobil's 2010 earnings forecast, which implies
more than +15% profit growth, doesn't depend on higher oil prices.
Any spike in oil prices from here would just bolster the earnings
and free cash flow assumptions.
By the book
There's little reason to find cheer with bank stocks right now. The
economy is moribund, Washington has just imposed new regulations,
and fresh bombshells seem to pop up from time to time. But not for
JP Morgan (
, which seems to have trudged through the financial crisis and
subsequent rebound with nary a scratch. Yet the sector-wide pall
has shares trading right at tangible
. Historically, banks have traded for 1.5 times book value, and in
boom years, they trade up to 2.5 times book value.
What could get shares going? Well, an outlook that the U.S. economy
might finally escape this low-growth, high-unemployment morass
would kick up the animal spirits in the banking system, which these
days is more known for being very stingy with credit. More robust
lending activity would inspire analysts to start speaking of more
robust growth in banking in the years to come.
Action to Take -->
And the winner is . . . Intel!
Investor cynicism runs quite deep toward tech stocks these days,
and Intel is no different. Shares are valued at about 12.5 times
earnings, about -30% less than the 16.4
it's garnered the past two years. Yet as the company has noted,
demand just keeps rising and rising. Expect a higher multiple to be
awarded to the shares if Intel's rosy outlook proves true. When
tech stocks move back into vogue, Intel will lead the charge.
-- David Sterman
David Sterman has worked as an investment analyst for nearly two
decades. He started his career in equity research at Smith Barney,
culminating in a position as Senior Analyst covering European
banks. David has also served as Director of Research at Individual
Investor and has made numerous media appearances over the years,
primarily on CNBC and Bloomberg TV. David has a master's degree in
management from Georgia Tech. Read More...
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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