I am recommending you sell or significantly reduce your exposure to the SPDR Gold Shares (NYSEARCA:GLD) and the iShares Silver Trust (NYSEARCA:SLV) and buy a basket of these six extremely oversold DOW stocks with great stories and positive catalysts. Additionally, these six stocks are trading at substantial discounts to consensus estimates.
Gold has been on a tear over the last few years. I believe the Gold is a crowded trade and is overbought. Furthermore, Thursday was an outside trading day (higher high/lower low and a poor close). This is bearish even without the whispers of a possible margin increase overheard on the street. Gold closed down nearly $10/ounce but the real story is that it's $35 off its highs. It is only a matter of time before the big run up in the GLD unwinds. It seems the SLV has already begun to unwind. Silver dropped considerably, trading down nearly 8% below the 20-day MA for the first time in one month. On top of all this, the Dollar stands to make a comeback on the heels of Europe’s continuing contagion catastrophe. Sell the GLD and SLV and buy a basket of the following Blue Chip DOW stocks that are vastly oversold.
These six DOW stocks have great stories and positive catalysts for future growth and are extremely oversold, more than two standard deviations below their 50-day moving averages. Actually, 23 out of 30 Dow stocks are trading in oversold terrain. Johnson & Johnson (NYSE:JNJ), Merck (NYSE:MRK), Pfizer (NYSE:PFE), Alcoa (NYSE:AA), Boeing (NYSE:BA), and General Electric (NYSE:GE) are the six most oversold of the DOW 30 stocks. There may be more downside in front of us even with the 10% drop in the DOW to date, but this may be a good point to start a position in these buying opportunities. I would scale in to any position a quarter at a time.
Below is a brief description of each company or ETF, a summary of current analysts' estimates and up/downgrade activity followed by a chart of the company's key statistics. Please use this as a starting point for your own due diligence.
SPDR Gold Shares (GLD) - The investment seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation.
iShares Silver Trust (SLV) - The objective of the investment is to reflect the price of silver owned by the trust less the trust's expenses and liabilities. The fund is intended to constitute a simple and cost-effective means of making an investment similar to an investment in silver. Although the fund is not the exact equivalent of an investment in silver, it provides investors with an alternative that allows a level of participation in the silver market through the securities market.
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Alcoa, Inc. (AA) - Engages in the production and management of aluminum, fabricated aluminum, and alumina. The company operates in four segments: Alumina, Primary Metals, Flat-Rolled Products, and Engineered Products and Solutions. The company is trading below analysts' estimates. Alcoa has a median price target of $20 by 11 brokers and a high target of $28.10. The last up/downgrade activity was on Apr 12, 2011, when BMO Capital Markets downgraded the company from Market Perform to Underperform.
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Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the healthcare field worldwide. The company is trading below analysts' estimates. Johnson & Johnson has a median price target of $72.50 by 14 brokers and a high target of $80. The last up/downgrade activity was on Jun 17, 2011, when Morgan Keegan initiated coverage on the company with a Market Perform rating.
Merck & Co., Inc. (MRK) provides various health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products. The company’s Pharmaceutical segment provides human health pharmaceutical products, such as therapeutic and preventive agents for the treatment of human disorders in the areas of bone, respiratory, immunology, dermatology, cardiovascular, diabetes and obesity, infectious diseases, neurosciences and ophthalmology, oncology, vaccines, and women's health and endocrine. The company is trading below analysts' estimates. Merck has a median price target of $41 by 17 brokers and a high target of $44. The last up/downgrade activity was on Jan 13, 2010, when Credit Suisse upgraded the company from Neutral to Outperform.
Pfizer (PFE), a biopharmaceutical company, offers prescription medicines for humans and animals worldwide. The company is trading below analysts' estimates. Pfizer has a median price target of $23.00 by 15 brokers and a high target of $30. The last up/downgrade activity was on Mar. 14, when Standpoint Research downgraded the company from Buy to Hold.
Boeing Co. (BA), together with its subsidiaries, engages in the design, development, manufacture, sale, and support of commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide. The company operates through five segments: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support, and Boeing Capital Corporation. The company is trading significantly below analysts' estimates. Boeing has a median price target of $90 by 23 brokers and a high target of $96. The last up/downgrade activity was on Jul 20, 2011, when BB&T Capital Markets initiated coverage on the company with a Buy rating.
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General Electric Co. (GE) operates as a technology, media, and financial services company worldwide. The company is trading significantly below analysts' estimates. General Electric has a median price target of $24 by 14 brokers and a high target of $30. The last up/downgrade activity was on Jan 28, 2011, when Argus upgraded the company from Hold to Buy.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.