With the Dow Jones Industrials trading at 101% of Morningstar.com's average estimated fair values for those 30 blue chip stocks, none of them look real cheap, but six still look like they might be good one- to two-year trades if you can handle some dips along the way.
Eleven other DJI stocks are trading just below their Morningstar estimated fair values, and they might look promising to nimble day and swing traders.
And all 30 of the Dow stocks are trading at an average of about 75% of the prices that Morningstar says investors should "consider selling" if the stocks reach those lofty prices sometime in the next two to five years, if ever. By that measure, is the market, or at least the Dow, overvalued or cheap?
I screen stocks by looking at how Morningstar rates them, where they are compared with their 52-week highs and by what Point and Figure charts and other momentum indicators show. Most important, I don't like stocks that are trading over Morningstar's estimated fair values. But four of the six stocks listed below are over their fair value estimates.
They're on this list because they are breaking out on Point and Figure charts and have strong momentum as shown by their Stock Charts Ratings (SCTR) and their relative strength compared with the S&P 500. If I buy any of these stocks besides Microsoft (NASDAQ:MSFT), which I've owned for a few weeks, I'll put 2% or 3% stop losses on them because I'm nervous about this market even though it doesn't look that overpriced to me.
So the six stocks that speculators might consider, depending on their trading styles and tolerance for risk, are:
E.I. du Pont (NYSE:DD), Merck (NYSE:MRK), Microsoft, Nike (NYSE:NKE), United Technology (NYSE:UTX) and Visa (NYSE:V). For quick overviews, you can create a watch portfolio at SeekingAlpha.com. And you can create a "candle glance' view of the stocks charts for free at StockCharts.com, Yahoo.com and other financial and chart sites.
Using discounted cash flow models, Morningstar gives the stocks it follows estimated fair values, which it updates if necessary after the companies announce their quarterly earnings and guidance revisions.
DD is trading at 112% of its estimated FV; MRK 99%; MSFT 97%; NKE 124%; UTX 107% and V 101%.
In addition to offering an estimate of each stock's fair value, Morningstar offers a "consider buying" price and a consider selling price. The consider buying price is below where these six stocks are trading.
These six stocks are trading for significant discounts to their consider selling prices: DD closed Friday at $67.24, or 72% of its consider buying price; MRK, $57.47 (73%); MSFT $37.90 (72%); NKE $79.46 (92%); UTX $118.31 (79%); and V $225.56 (75%).
Point and Figure charts on StockCharts.com show bullish price objectives for these stocks based on their current momentum: They are: DD $87; MRK $82; MSFT $54; NKE $108; UTX $141 and V $258.
StockCharts.com's new Stock Charts Trend Rating summarizes several momentum indicators on a scale of 1 to 100 with 60 and over being bullish. All of these stocks have SCTR ratings of 59 or over.
And relative strength compared to the S&P 500 ratings of 50 and above are considered bullish. These six stocks have RSI ratings of 59 to 78. MRK, NKE and V have ratings of 70 or better, which means that they're overbought at the moment.
StockCharts.com's free Point and Figure CandleGlance charts are here.
Disclosure: I am long MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.