EDITOR

Giovanny Moreano
Quantitative Analyst at CNBC

CONTRIBUTORS

Gina Francolla
Senior Producer of Quantitative & Market Data Services at CNBC
Robert Hum
Markets Producer for CNBC
Yolaiki Gonzalez
Market Data Analyst at CNBC
Marc Briganti
Market Data Analyst at CNBC
Kristen Scholer
Markets Producer for CNBC

ABOUT BY THE NUMBERS

Our market specialists dig deep into Wall Street’s daily metrics, crunching the numbers to help you become smarter about the market so that you can make better investment decisions. By The Numbers details the daily drama, the winners and losers, how the day stacks up historically, and how the numbers can offer a glimpse of the future.

KEY MARKET DATA

» More

#GIOVANNYMOREANO ON TWITTER

» Help

CNBC EXPLAINS

Text Size

Mar.12

9:15 AM ET

Thursday, 12 Mar 2009

Dow 9900 By Year End?

Last night on Fast Money, Guy Adami mentioned that "the PE is very compelling" for Hewlett Packard [HPQ Loading... () ]. Many of the PE's for the Dow 30 are at historic lows and appear to be very compelling. As of yesterday's, close, the average PE for the 30 Dow components is under 10. Looking at other points over the decade, that average has been between 17 and 30 according to data from Thomson Reuters. When the markets begin to normalize, it is likely that stocks will move back toward their historical multiples, implying some significant gains.

Of course, the big question mark is the "E" part of PE. In January 2008, Thomson Reuters First Call estimates had much higher expectations for earnings. On average, the 30 Dow stocks finished 2008 with actual EPS numbers 65% below the early January estimates. If you assume the analysts will be no worse off in 2009 than they were in 2008, you can apply a similar discount to earnings estimates for Fiscal Year 2009.

Below is a table showing the implied price for each Dow component when using the lowest of a sample of historical PE's over the past 10 years and applied an adjustment for analyst accuracy.

Symbol	Company	Close on 3/11	fwd PE	Sample of fwd PE's ('99-'06)	'09 eps est	Implied Price (Using min PE)	vs. Current Price	'08 Act eps vs. jan '08 est (%)	Dis.for Certain Est	vs. Current Price
AA	ALCOA Inc	5.76	-11.75	15.6 - 30.8	-0.49	N/A	N/A	48%	N/A	N/A
AXP	American Express Co	11.93	11.93	12.9 - 27	1.07	13.85	16%	61%	8.43	-29%
BA	The Boeing Co	33.27	6.52	19 - 20.5	5.10	96.5	191%	73%	70.73	113%
BAC	Bank Of America Corp	4.93	8.20	20.3 - 28	0.60	12.21	148%	15%	1.80	-63%
C	Citigroup Inc	1.54	-2.20	12.6 - 15.4	-0.70	N/A	N/A	-124%	N/A	N/A
CAT	Caterpillar Inc	26.31	12.49	12.8 - 25	2.11	27.02	3%	94%	25.49	-3%
CVX	Chevron Corp	61.22	11.81	16.8 - 43.4	5.19	86.96	42%	124%	108.01	76%
DD	E I du Pont de Nemours	18.35	9.33	13.2 - 31.4	1.97	26.07	42%	78%	20.46	11%
DIS	The Walt Disney Co	16.59	9.60	18.8 - 48.2	1.73	32.42	95%	91%	29.43	77%
GE	General Electric Co	8.49	7.24	7.1 - 25.3	1.17	8.29	-2%	80%	6.62	-22%
GM	General Motors Corp	1.86	-0.06	13.3 - 71.3	-29.47	N/A	N/A	-1303%	N/A	N/A
HD	Home Depot Inc	19.68	15.09	18.4 - 30.4	1.30	23.97	22%	73%	17.62	-10%
HPQ	Hewlett-Packard Co	28.61	7.70	14.7 - 32.8	3.71	54.42	90%	106%	57.70	102%
IBM	Intl Business Machines	88.62	9.81	17.1 - 27.6	9.03	154.79	75%	112%	172.89	95%
INTC	Intel Corp	13.96	36.73	12.8 - 35.9	0.38	4.86	-65%	62%	2.99	-79%
JNJ	Johnson and Johnson	47.9	10.66	17.5 - 47.2	4.49	78.67	64%	103%	81.20	70%
JPM	JPMorgan Chase and Co	20.4	12.29	12.4 - 33.5	1.66	20.62	1%	19%	3.99	-80%
KFT	Kraft Foods Inc	21.32	11.34	19.8 - 38.1	1.88	37.29	75%	99%	36.78	73%
KO	The Coca Cola Co	39.57	12.72	5.4 - 20.7	3.11	16.74	-58%	105%	17.58	-56%
MCD	McDonald's Corporation	51.03	13.37	16.5 - 44.4	3.82	63.11	24%	116%	73.04	43%
MMM	3M Company	46.8	11.37	2.9 - 28.6	4.12	11.93	-75%	95%	11.32	-76%
MRK	Merck & Co Inc	21.94	6.74	10.2 - 24.3	3.26	33.22	51%	101%	33.68	54%
MSFT	Microsoft Corp	17.11	9.73	20.8 - 68.7	1.76	36.51	113%	98%	35.91	110%
PFE	Pfizer Inc.	12.79	6.23	12.8 - 27.4	2.05	26.25	105%	102%	26.89	110%
PG	Pfizer Inc Procter & Gamble Co	45.07	10.72	23.8 - 83.4	4.20	100.22	122%	118%	118.27	162%
T	AT&T Inc	23.35	11.66	17.5 - 19.5	2.00	35.12	50%	89%	31.24	34%
UTX	United Technologies Corp	41.06	8.92	17.8 - 20.4	4.60	81.95	100%	101%	82.94	102%
VZ	Verizon Communications	27.44	10.91	14.3 - 22	2.52	35.94	31%	93%	33.59	22%
WMT	Wal-Mart Stores Inc	47.46	13.48	15.3 - 56.5	3.52	53.91	14%	100%	53.93	14%
XOM	Exxon Mobil Corp	65.77	13.77	14 - 32.6	4.78	66.70	1%	110%	73.09	11%
		Average:	9.85	17.4 - 33.4				35%

Some observations:

19 of the 30 Dow components have implied values over 10% higher than current prices

Proctor & Gamble [PG Loading... ()

], Boeing [BA Loading... ()

], Pfizer [PFE Loading... ()

], Microsoft [MSFT Loading... ()

], and United Technologies [UTX Loading... ()

] appear poised for the most significant gains

3 of 4 Tech companies (Microsoft, IBM [IBM Loading... ()

], and HP) in the Dow have implied values of ~100% higher than current prices; only Intel seems overvalued.

Financials' EPS numbers are the most uncertain - proceed with caution for these data points
Even at today's discounted prices, some Dow components have implied prices that are below current levels
Taking the sum of the parts, the Dow has an implied value of ~9900.

Note: The analysis above is based on some key assumptions. As always, this should help trigger some ideas for more research and analysis before making any investment decisions.

Comments? Send them to

bythenumbers.cnbc.com

Print Email

Previous Post Back to Main Page