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Last night on Fast Money, Guy Adami mentioned that "the PE is very compelling" for Hewlett Packard [HPQ
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]. 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
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], Boeing [BA
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], Pfizer [PFE
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], Microsoft [MSFT
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], and United Technologies [UTX
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] appear poised for the most significant gains
- 3 of 4 Tech companies (Microsoft, IBM [IBM
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], 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.
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Data is a real-time snapshot *Data is delayed at least 15 minutes