Dow Jones Value Stocks
1.36%April 23 | MyPlanIQ portfolio symbol P_35568
Value Versus Growth
He points out that the Dow Jones Industrial Average (INDEX: ^DJI) is made up of the stocks of just 30 companies. Yet these 30 stocks make up more than a quarter of the total market value of the entire U.S. stock market. These are blue chip organizations that are household names.Today, these companies are inexpensive to buy, despite their size and stability. With a decade of close to zero returns, these equities are not highly prized. The result is that the 30 stocks in the Dow are now cheaper than the rest of the stock market.
To assess cheapness, he used a five-year P/E ratio. In other words, today's price divided by the five-year average of earnings. Looking at five years balances the need to include good years and bad with the need to include timely data.
With, a regular one-year P/E ratio under 15 is pretty attractive for a large blue chip. Seeing nearly half the Dow stocks with five-year P/E ratios under 15 is mouthwatering.
|
Company Name |
5-Year P/E Ratio |
|---|---|
|
Hewlett-Packard (NYSE: HPQ) |
6.6 |
|
The Travelers Companies (NYSE: TRV) |
7.3 |
|
JPMorgan Chase (NYSE: JPM) |
9.2 |
|
ExxonMobil (NYSE: XOM) |
10.6 |
|
Chevron (NYSE: CVX) |
10.9 |
|
General Electric (NYSE: GE) |
11.0 |
|
Bank of America (NYSE: BAC) |
11.9 |
|
Microsoft (Nasdaq: MSFT) |
12.2 |
|
AT&T (NYSE: T) |
12.5 |
|
Cisco Systems (Nasdaq: CSCO) |
13.5 |
|
Wal-Mart (NYSE: WMT) |
14.0 |
|
Procter & Gamble (NYSE: PG) |
14.3 |
|
3M (NYSE: MMM) |
14.4 |
|
Johnson & Johnson (NYSE: JNJ) |
14.5 |
|
Pfizer (NYSE: PFE) |
15.0 |
|
Intel (NYSE: INTC) |
15.4 |
|
Walt Disney (NYSE: DIS) |
15.4 |
|
United Technologies (NYSE: UTX) |
16.3 |
|
Boeing (NYSE: XNYS) |
16.3 |
|
DuPont (NYSE: DD) |
16.4 |
|
Home Depot (NYSE: HD) |
16.5 |
|
IBM (NYSE: IBM) |
16.9 |
|
American Express (NYSE: AXP) |
16.9 |
|
Merck (NYSE: MRK) |
17.4 |
|
Kraft (NYSE: KFT) |
19.5 |
|
Coca-Cola (NYSE: KO) |
20.2 |
|
Caterpillar (NYSE: CAT) |
20.7 |
|
Alcoa (NYSE: AA) |
21.1 |
|
Verizon (NYSE: VZ) |
21.2 |
|
McDonald's (NYSE: MCD) |
22.2 |
|
Average |
15.0 |
Source: S&P Capital IQ.
I thought about what this meant and how we could use this
I am looking for a blind filter. I don't want to
examine the current operation of the company and decide whether
management has it together or whether the company is on a winning streak
because I want a long term investment that will stand the test of time.
There are pundits who do that and recommend a company because of its
short term prospects.
We know that all of these companies are large
corporations and are not likely to go out of business. What we can
deduce is that those with the higher P/E's are growth stocks -- whereas
the lower P/E's are value stocks -- all within the boundary of them
being large cap, safe equities.
So, I decided to create two portfolios around the average of 15 and compare the returns to see what that gave us.