According to a Zacks Investment blog post, the average long term P/E for the Dow (NYSEARCA:DIA) has been between 14 and 15 for the last 100 years. Current market conditions fall nicely within that range. The Wall Street Journal estimates the forward P/E for the Dow at 14.51 as of August 8th. Using numbers obtained from Morningstar I found the forward P/E to be about 14.2. This puts the market firmly within the historical average range.
I wanted to take a closer look at the individual components and see which stocks were at the lower end of the average. I used stock information from Google Finance for the YTD returns and Morningstar to determine each stock's forward P/E. I also wanted to get a sense of which Dow stocks may be the most "unpopular". Instead of looking at trading volume, (which could easily fluctuate on news) I chose to use the number of followers each stock has here on Seeking Alpha to get a better sense of investor interest. This can be seen by the size of the bubbles in the chart below. I've included some thoughts below about my findings.
- As you can see, the range of interest in certain parts of the Dow varies widely. General Electric (NYSE:GE) has almost 100,000 followers on Seeking Alpha, which isn't even close to Apple's (NASDAQ:AAPL) roughly 300,000 followers, but it still has the largest following in the Dow. Conversely, The Travelers Companies (NYSE:TRV) is the most "unpopular" stock on Seeking Alpha with about 3,400 followers. The average amount of followers on Seeking Alpha for each stock in the Dow is about 36,000. This makes Proctor & Gamble Co (NYSE:PG) the average Dow stock with 35,668 followers as of Friday, August 8th.
- Intel (NASDAQ:INTC) has been on a tear this year (really only since May) and is up 25.6% YTD. This crushes the second best return of Microsoft (NASDAQ:MSFT) at 15.48% by over 10%! The stock still falls nicely in the average forward P/E ratio range (maybe even a little low) clocking in at 13.9, below the indexes average of 14.2. Intel also has a substantial following on Seeking Alpha ranking third behind General Electric and Microsoft with 71,660 followers. Purely using these numbers it would seem as though Intel may be a great idea as a growth stock for the year ahead.
- If you've been following the Dow throughout the year, you'd know that with the most recent market dip, the index is basically flat for the year with a YTD return of -0.14%. Therefore, it's not surprising that the average return YTD of all Dow components is 1.41%. Looking at each stock individually we can see that the majority of the stocks (16 of 30) have returned between 4.5% and -4.5% YTD. This can be seen above, as evidenced by the cluster of bubbles hovering around the midline.
- IBM (NYSE:IBM) and JP Morgan Chase (NYSE:JPM) according to the chart above, may be good value plays going forward. Both stocks fall in the bottom part of the Dow forward P/E ratios and have a forward P/E of only 9.5 and have nearly flat returns (IBM -0.5% and JPM -3.66%). Both have above average followings on Seeking Alpha as well, with IBM slightly above 58K and JPM at about 37.5K.
- Lastly, Disney (NYSE:DIS) may be approaching overvalued territory. Google Finance puts Disney's stock at a current P/E of 20.82 and Morningstar has a forward P/E of 19.1. This is still slightly better than Nike (NYSE:NKE) and Visa (NYSE:V) who have forward P/E's of 19.8 and 20.4, respectively. On the plus side, Disney has performed admirably YTD with a return of 13.68% as of August 8th. Nike has returned -2.01% and Visa has returned -5.49%.
Hover over each of the bubbles or stock names above for more information on individual stocks. (FYI Travelers is hidden behind IBM on the far left of the chart, hover over the blue name in the listing to see the bubble)
Disclosure: The author is long DIS. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.