Mr. Market And A Valuation Of The Dow Jones Industrial Average – September 2015 by Benjamin Clark, ModernGraham

Mr. Market's Mental State Dow Jones

Mr. Market’s Mental State

Legendary value investor Benjamin Graham is probably most famous for his Mr. Market parable.  In the story, an investor is greeted each day by Mr. Market, who offers to purchase the investor’s stocks.  Every offer is different, and sometimes the price is insanely high, sometimes it seems fair, and other times it is clearly too low.  But one thing remains the same – the intrinsic value of the investments does not change.  As a result, the investor is left to decide when to buy and sell based on the relationship between the intrinsic value and the price Mr. Market is offering.

All value investors today should keep the analogy in mind, and implement the overall concept.  To assist in that goal, ModernGraham has various tools available, and the infographic shown above is one of them, displaying a summary of the valuations of 561 companies reviewed by ModernGraham.

This month, out of the 561 companies reviewed by ModernGraham, the average PEmg ratio (price over normalized earnings) is 23.20 and the average company is trading at 82.45% of its intrinsic value.  Last month, the average PEmg ratio was 25.08 and the average company was trading at 86.79% of its intrinsic value.

The highest PEmg average we have seen while tracking this information was 26.17 in December 2014 while the lowest PEmg average was 23.20 in September 2015.  The highest average intrinsic value was 93.48% in January 2015 and the lowest average intrinsic value was 82.45% in September 2015.

Month Average PEmg Average % of value Defensive % Enterprising % Speculative % Undervalued % Fairly Valued % Overvalued %
August 2014 24.36 90.57% n/a n/a n/a n/a n/a n/a
September 2014 25.37 93.37% n/a n/a n/a n/a n/a n/a
October 2014 24.29 90.24% 12% 35% 53% 31% 21% 48%
November 2014 25.32 90.61% 12% 35% 53% 29% 21% 50%
December 2014 26.17 92.28% 11% 34% 55% 28% 23% 49%
January 2015 25.63 93.48% 10% 34% 55% 30% 20% 50%
February 2015 25.79 92.72% 10% 35% 55% 33% 19% 49%
March 2015 25.79 88.03% 10% 35% 55% 31% 19% 49%
April 2015 25.64 86.18% 9.9% 35.2% 54.9% 32.1% 19.4% 48.5%
May 2015 25.17 86.64% 9.1% 36.1% 54.8% 32.1% 20.4% 47.4%
June 2015 25.47 86.43% 8.7% 34.7% 56.5% 30.0% 21.2% 48.8%
July 2015 25.24 85.65% 9.6% 33.1% 57.3% 30.9% 19.3% 49.6%
August 2015 25.08 86.79% 9.8% 32.7% 57.5% 29.5% 21.0% 49.5%
September 2015 23.20 82.45% 9.4% 32.6% 57.9% 35.7% 18.9% 45.5%

Valuation of the Dow

Each month ModernGraham takes a look at the Dow Jones Industrial Average, listing out each individual component in an easy to read table, and calculates a value for the index that is based on the ModernGraham valuation model’s estimates for intrinsic values for each component.  Over time this figure can be useful for determining whether the market as a whole is undervalued or overvalued.

Readers may find it useful to review the history of this screen to see how the index has moved in relation to its intrinsic value.

Readers may also find a screen of some of the best components of the Dow by reviewing 5 Undervalued Dow Companies to Research.

Mr. Market's Mental State Dow Jones

^DJI data by YCharts

At the time of writing, the Dow Jones Industrial Average (DJIA) was at 16,351.38. The ModernGraham Valuation of the DJIA was 19,064.06. As a result, the DJIA was trading at 85.77% of its estimated value. This figure is within the ModernGraham margin of error, and therefore it appears the DJIA is presently fairly valued.  To see the individual valuation articles, please click on the company name in the table below.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Dividend Yield
AXP American Express Company E 7/31/2015 $132.71 $74.94 56.47% 15.02 1.55%
AAPL Apple Inc. S 12/12/2014 $215.50 $112.34 52.13% 20.06 1.85%
BA Boeing Co E 8/17/2015 $180.23 $130.64 72.49% 19.44 2.79%
CAT Caterpillar Inc. S 7/21/2015 $82.62 $76.09 92.10% 12.92 1.01%
CSCO Cisco Systems, Inc. D 8/6/2015 $32.54 $25.65 78.83% 15.45 3.27%
CVX Chevron Corporation S 6/2/2015 $33.69 $78.05 231.67% 9.04 5.48%
DD E I Du Pont De Nemours And Co E 8/11/2015 $54.70 $50.65 92.60% 13.91 3.00%
DIS Walt Disney Co S 11/19/2014 $100.82 $101.93 101.10% 29.80 1.30%
GE General Electric Company S 3/2/2015 $9.65 $24.58 254.72% 18.48 3.74%
GS Goldman Sachs Group Inc S 11/10/2014 $71.04 $184.66 259.94% 13.19 1.41%
HD Home Depot Inc S 11/10/2014 $126.71 $116.38 91.85% 32.78 2.03%
IBM International Business Machines Corp. S 11/11/2014 $357.65 $145.02 40.55% 9.84 3.59%
INTC Intel Corporation D 8/18/2015 $33.09 $28.60 86.43% 13.62 3.36%
JNJ Johnson & Johnson D 6/1/2015 $85.77 $93.37 108.86% 17.75 0.80%
JPM JPMorgan Chase & Co. D 6/1/2015 $113.90 $62.55 54.92% 12.29 2.81%
KO The Coca-Cola Co S 3/3/2015 $19.68 $38.89 197.61% 21.02 3.39%
MCD McDonald’s Corporation S 11/11/2014 $99.75 $95.99 96.23% 18.50 3.54%
MMM 3M Co E 4/27/2015 $131.77 $141.24 107.19% 19.64 2.90%
MRK Merck & Co., Inc. S 11/12/2014 $8.19 $52.98 646.89% 23.76 0.85%
MSFT Microsoft Corporation E 8/6/2015 $19.31 $43.36 224.55% 20.07 0.71%
NKE Nike Inc E 8/12/2015 $95.34 $110.65 116.06% 32.26 1.01%
PFE Pfizer Inc. E 6/11/2015 $60.91 $31.97 52.49% 15.75 3.50%
PG Procter & Gamble Co S 2/16/2015 $31.58 $69.82 221.09% 17.95 3.80%
TRV Travelers Companies Inc D 8/15/2015 $259.72 $98.93 38.09% 11.14 2.47%
UNH UnitedHealth Group Inc S 11/15/2014 $136.02 $114.15 83.92% 21.58 1.75%
UTX United Technologies Corporation S 11/15/2014 $119.90 $91.25 76.11% 14.89 0.70%
V Visa Inc E 8/22/2015 $76.36 $69.60 91.15% 35.15 0.69%
VZ Verizon Communications Inc. S 3/4/2015 $37.76 $45.37 120.15% 21.50 1.21%
WMT Wal-Mart Stores, Inc. S 11/19/2014 $83.92 $64.45 76.80% 13.29 0.76%
XOM Exxon Mobil Corporation S 6/4/2015 $42.51 $73.23 172.27% 11.34 3.99%

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Disclaimer:

The author held a long position in Home Depot and Walt Disney but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to read our full disclaimer.

Related posts:

  1. Valuation of the Dow Jones Industrial Average – August 2015 Update
  2. Valuation of the Dow Jones Industrial Average – June 2015 Update
  3. Valuation of the Dow Jones Industrial Average – July 2015 Update
  4. Glance at the Dow and a Summary of Each Component’s Valuation – September 2014
  5. 5 Undervalued Dow Components to Research – September 2014