This is the final installment of the five-part series where I examined the past operating histories and valuations of the 30 Dow Jones Industrial Average stocks. With this 5 Part series I attempted to cover the 30 Dow stocks in order of highest valuations to lowest. For the most part, I suggested that the Dow stocks were generally overvalued but only a few dangerously so. With this final group, I take a fundamental look at the 5 least expensive stocks in the Dow Jones based on operating earnings P/E ratios.
However, as I have stated in each article in this series, valuations based on calculations such as the P/E ratio only tell part of the story. For starters, traditional metrics such as the P/E ratio are predominantly historical. This partially explains why P/E ratios reported on various financial sites often differ. In some cases they report P/E ratios based on trailing 12 months (ttm) or pure historical data. Other sites will report a P/E ratio based on forward earnings estimates. And some sites such as FAST Graphs reports P/E ratios with a blended approach (considering past, current and the closest forecast). Nevertheless, the point is that future earnings achievements are a major valuation consideration.
Below is our 13F roundup for some high profile hedge funds for the three months to the end of March 2021 (Q1). Q1 2021 hedge fund letters, conferences and more The statements only include equity positions as 13Fs do not include cash and debt holdings. They also only include US equity holdings. Funds may hold Read More
Portfolio Review: Five Fairly Valued Stocks in the Dow Jones Industrial Average
The following portfolio review lists 5 stocks in the Dow Jones Industrial Average that appear undervalued based on their current low blended P/E ratios. The 6th Dow constituent, DowDuPont Inc. will not be reviewed because of the lack of historical data due to the recent merger.
However, as previously stated, there are many ways to value a stock in addition to the P/E ratio. Consequently, I suggest the reader also notices the price to cash flow of each of these 5 Dow constituents. For those investors most interested in dividend income, price to cash flow might be more relevant for higher yielding dividend paying stocks. Furthermore, when ascertaining valuation, other factors such as expected growth need to be considered as well. I will elaborate more fully in the video below.
The following portfolio review is presented in order of lowest blended P/E ratio to highest. As an additional valuation check, note that the earnings yield (EPS Yld) of each of these 5 Dow constituents is above 7%. Consequently, this particular group of 5 Dow stocks appears more attractively valued than what we’ve seen in previous parts of this 5-part series. However, low valuations don’t necessarily make these the 5 best investments in the Dow Jones currently. Investors must also consider the future potential growth of both earnings and dividends.
Furthermore, low current valuations might be the only commonality among this diverse group. In other words, this is a really diverse group of Dow constituents each with their own unique identities, attributes and histories. Therefore, individual investors should also factor in whether or not any of these Dow constituents meet their specific objectives and risk tolerances. Finally, as it relates to this series of articles, these are simply the remaining Dow constituents. The primary objective of this series was to provide the reader a clearer perspective regarding the Dow Jones Industrial Average as a proxy for the market.
FAST Graphs Analyze Out Loud Valuation Analysis
This video will present a quick overview of each of these Dow constituents based primarily on price relative to earnings and cash flow. However, for certain constituents, I will also evaluate other metrics. For any reader concerned with the current valuation of the stock market, this video, and the videos in Part 1, Part 2, Part 3 and Part 4 are must watches. Furthermore, although I will be only providing a cursory, or a pre-more comprehensive due diligence analysis, I believe you will find the video enlightening and hopefully entertaining.
Summary and Conclusions
This article completes the 5-part series examining each of the individual 30 stocks that comprise the Dow Jones Industrial Average. A primary objective of this series was to provide the reader a more informed and enlightened view of what the so-called “stock market” really is. Hopefully, after reviewing each of the 5 videos in this series, investors will recognize the significant difference between, for example, investing in Visa versus investing in Verizon. Although both are stocks, and both are included in the index commonly referred to as the market, they are vastly different animals from an investment perspective. In many ways, the same can be said for every other Dow constituent.
Furthermore, I am hopeful this series helps investors realize that it truly is a market of stocks and not a stock market. Even though the index continues hovering at all-time highs, not every company in the index is trading at all-time highs. And let’s not overlook the significant variation of earnings and dividend growth. Over the past 15 years, the annual earnings growth rate of 1 Dow stock has been a -8.7% (-8.7% per annum). In contrast, the highest 15 year annual earnings growth rate has been 33%. That difference between the growth rate of the lowest growing Dow stock versus the fastest-growing Dow stock is incomparable.
In summary, there are many more differences than there are similarities between each of the 30 Dow Jones stocks. This undeniable reality is why I always recommend that investors judge their portfolios based on the merits of the individual holdings that they own. Moreover, I suggest that portfolios should be built and managed one company at a time. Unless you are a passive index investor, the level of the overall market should not concern you nearly as much as the level of each of your individual holdings. As I once said, mind your “owned” businesses.
For the reader’s convenience, here is a link to Part 1-The 6 Most Expensive Stocks, Part 2-6 More Expensive Stocks, Part 3-Are These The 6 Best Stocks? and Part 4-Whay Are These 6 Dow Stocks Fairly Valued?
Disclosure: Long IBM, VZ, INTC, CSCO at the time of writing.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.
Article by F.A.S.T. Graphs