Info-Graphs, Value Investing

Mr. Market And A Valuation Of The Dow Jones Industrial Average

Mr. Market And A Valuation Of The Dow Jones Industrial Average by Benjamin Clack, Modern Graham

Mr. Market And A Valuation Of The Dow Jones Industrial Average

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 551 companies reviewed by ModernGraham.

This month, out of the 551 companies reviewed by ModernGraham, the average PEmg ratio (price over normalized earnings) is 22.25 and the average company is trading at 79.54% of its intrinsic value.  Last month, the average PEmg ratio was 22.87 and the average company was trading at 82.61% 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 22.25 in February 2016.  The highest average intrinsic value was 93.48% in January 2015 and the lowest average intrinsic value was 79.54% in February 2016.

MonthAverage PEmgAverage % of valueDefensive %Enterprising %Speculative %Undervalued %Fairly Valued %Overvalued %
August 201424.3690.57%n/an/an/an/an/an/a
September 201425.3793.37%n/an/an/an/an/an/a
October 201424.2990.24%12%35%53%31%21%48%
November 201425.3290.61%12%35%53%29%21%50%
December 201426.1792.28%11%34%55%28%23%49%
January 201525.6393.48%10%34%55%30%20%50%
February 201525.7992.72%10%35%55%33%19%49%
March 201525.7988.03%10%35%55%31%19%49%
April 201525.6486.18%9.9%35.2%54.9%32.1%19.4%48.5%
May 201525.1786.64%9.1%36.1%54.8%32.1%20.4%47.4%
June 201525.4786.43%8.7%34.7%56.5%30.0%21.2%48.8%
July 201525.2485.65%9.6%33.1%57.3%30.9%19.3%49.6%
August 201525.0886.79%9.8%32.7%57.5%29.5%21.0%49.5%
September 201523.282.45%9.4%32.6%57.9%35.7%18.9%45.5%
October 201522.9581.80%10.5%31.7%57.8%35.5%18.7%45.8%
November 201523.9784.84%10.1%32.2%57.7%32.0%19.2%48.7%
December 201523.2784.55%10.6%31.5%57.8%33.0%17.8%49.2%
January 201622.8782.61%10.9%30.8%58.3%35.9%16.8%47.3%
February 201622.2579.54%10.9%30.7%58.4%36.7%16.3%47.0%

Valuation of the Dow Jones Industrial Average

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.

Mr. Market And A Valuation Of The Dow Jones Industrial Average

^DJI data by YCharts

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.

At the time of writing, the Dow Jones Industrial Average (DJIA) was at 16,336.66. The ModernGraham Valuation of the DJIA was 20,375.43. As a result, the DJIA was trading at 80.18% of its estimated value. This figure is within the ModernGraham margin of error, and therefore it appears the Dow Jones Industrial Average is presently fairly valued.

To see the individual valuation articles, please click on the company name in the table below.  For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

TickerName with LinkInvestor TypeLatest Valuation DateMG ValueRecent PricePrice as a percent of ValuePEmg RatioDividend Yield
AXPAmerican Express CompanyE10/29/2015$103.25$54.1052.40%11.842.14%
AAPLApple Inc.S9/8/2015$268.10$96.3535.94%13.842.16%
BABoeing CoE11/24/2015$188.84$121.8364.51%17.813.58%
CATCaterpillar Inc.S7/21/2015$82.62$63.2376.53%10.744.87%
CSCOCisco Systems, Inc.D11/4/2015$37.94$23.1060.89%12.623.64%
CVXChevron CorporationS6/2/2015$33.69$84.61251.14%9.805.06%
DDE I Du Pont De Nemours And CoE11/11/2015$50.38$58.76116.63%16.512.59%
DISWalt Disney CoS12/10/2015$157.29$95.1160.47%20.541.49%
GEGeneral Electric CompanyS3/2/2015$9.65$28.67297.10%21.563.21%
GSGoldman Sachs Group IncE11/10/2015$243.19$152.5362.72%10.311.70%
HDHome Depot IncS11/10/2015$166.55$123.8174.34%28.591.91%
IBMInternational Business Machines Corp.S11/10/2015$200.54$124.6162.14%9.264.17%
INTCIntel CorporationD11/18/2015$37.07$29.3479.15%13.523.54%
JNJJohnson & JohnsonD1/8/2016$79.55$104.15130.92%20.262.88%
JPMJPMorgan Chase & Co.D1/25/2016$101.46$57.4256.59%10.483.07%
KOThe Coca-Cola CoS3/3/2015$19.68$42.72217.07%23.093.09%
MCDMcDonald’s CorporationE11/10/2015$61.89$121.49196.30%24.302.93%
MMM3M CoE2/3/2016$132.97$152.49114.68%20.302.69%
MRKMerck & Co., Inc.E11/11/2015$27.04$50.04185.06%20.183.68%
MSFTMicrosoft CorporationE11/5/2015$21.54$52.16242.15%23.392.76%
NKENike IncE11/12/2015$97.92$62.4863.81%18.011.02%
PFEPfizer Inc.E9/11/2015$54.29$29.6854.67%15.304.04%
PGProcter & Gamble CoS2/16/2015$31.58$81.09256.78%20.853.27%
TRVTravelers Companies IncD11/16/2015$296.43$106.8936.06%11.462.28%
UNHUnitedHealth Group IncS11/16/2015$130.87$112.7786.17%19.721.77%
UTXUnited Technologies CorporationD11/16/2015$106.91$85.9680.40%13.752.98%
VVisa IncE11/27/2015$90.18$74.3682.46%31.780.75%
VZVerizon Communications Inc.S3/4/2015$37.76$50.62134.06%23.994.46%
WMTWal-Mart Stores, Inc.D11/18/2015$63.07$66.27105.07%13.952.96%
XOMExxon Mobil CorporationS6/4/2015$42.51$78.47184.59%12.153.72%

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The author held a long position in Home Depot (HD) and Walt Disney Co. (DIS) 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.

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