Breaking Down the Dow

The Dow needs about another 1,000 points to hit Cramer’s yearend target of 14,548, and he says that upside is going to come from its strongest components. Wouldn’t you like to own these before they take off? That’s why all week he’s breaking down each stock, one by one, to show how it could push this index much higher.

Today, Cramer covered IBM, Johnson & Johnson, JPMorgan Chase, McDonald’s, Merck and Microsoft. He admits he underestimated IBM, even though his $110 target price on the stock drew mockery from the Street. But this company’s smart dividend and buyback moves and the accelerated growth rate could push it as high as $114.

Investors can probably ignore Johnson & Johnson, though. Even Warren Buffett buying this stock hasn’t helped stem the loss in business as JNJ’s best drugs go generic and its medical device business struggles to get off the ground. Cramer doesn’t see the share price moving from its present level of $63.

JPMorgan Chase broke through Cramer’s $50 target this week on the strength of CEO Jamie Dimon’s management. But the former Citigroup executive still hasn’t brought out the full value of the company’s investment banking franchises, and Fed Chairman Ben Bernanke’s inflation worries have been hard to deal with as well. Cramer thinks there will be another three points of upside by the end of the year.

McDonald’s is four points off Cramer’s target. A strong quarter from an international company that enjoys some great currency valuations should push the stock higher – but not past $55.

Merck, though, has already broken through Cramer’s beginning-of-the-year target of $50 to $53. But even though the momentum is there, he doesn’t see it stretching too much further past its twice-the-growth-rate multiple. It’s most likely done for the year.

Bottom Line: Cramer sees the Dow going a thousand points higher, but it’s the pieces that count.

Questions? Comments?