Growth Stocks Of The Dow Jones 30

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 |  Includes: AA, AXP, BA, BAC, CAT, CSCO, CVX, DD, DIS, GE, HD, HPQ, IBM, INTC, JNJ, JPM, KO, MCD, MDLZ, MMM, MRK, MSFT, PFE, PG, T, TRV, UTX, VZ, WMT, XOM
by: MyPlanIQ

We have already outlined the article written by Anand Chokkavelu, which is an interesting slant on the big boys in the stock market.

He points out that the Dow Jones Industrial Average (INDEX: ^DJI) is made up of only 30 stocks which make up more than a quarter of the U.S. stock market. These are blue chip organizations that are household names. With a decade of close to zero returns, these equities are not highly prized. The result is that the 30 stocks in the Dow are now cheaper than the rest of the stock market.

To assess cheapness, he used a five-year P/E ratio. In other words, today's price divided by the five-year average of earnings. Looking at five years balances the need to include good years and bad with the need to include timely data.

Company Name

5-Year P/E Ratio

Hewlett-Packard (NYSE: HPQ)

6.6

The Travelers Companies (NYSE: TRV)

7.3

JPMorgan Chase (NYSE: JPM)

9.2

ExxonMobil (NYSE: XOM)

10.6

Chevron (NYSE: CVX)

10.9

General Electric (NYSE: GE)

11.0

Bank of America (NYSE: BAC)

11.9

Microsoft (NYSE: MSFT)

12.2

AT&T (NYSE: T)

12.5

Cisco Systems (NYSE: CSCO)

13.5

Wal-Mart (NYSE: WMT)

14.0

Procter & Gamble (NYSE: PG)

14.3

3M (NYSE: MMM)

14.4

Johnson & Johnson (NYSE: JNJ)

14.5

Pfizer (NYSE: PFE)

15.0

Intel (NYSE: INTC)

15.4

Walt Disney (NYSE: DIS)

15.4

United Technologies (NYSE: UTX)

16.3

Boeing (NYSE: BA)

16.3

DuPont (NYSE: DD)

16.4

Home Depot (NYSE: HD)

16.5

IBM (NYSE: IBM)

16.9

American Express (NYSE: AXP)

16.9

Merck (NYSE: MRK)

17.4

Kraft (NYSE: KFT)

19.5

Coca-Cola (NYSE: KO)

20.2

Caterpillar (NYSE: CAT)

20.7

Alcoa (NYSE: AA)

21.1

Verizon (NYSE: VZ)

21.2

McDonald's (NYSE: MCD)

22.2

Average

15.0

Click to enlarge

Source: S&P Capital IQ.

We took this approach and split the top and bottom performers and created value (bottom) and growth (top) selection. In the last article we looked at the value stocks -- the ones with the lowest P/E ratios. Today we look at the growth stocks -- the ones with the highest P/E ratios. They are:

  • Intel
  • Walt Disney
  • United Technologies
  • Boeing
  • DuPont
  • Home Depot
  • IBM
  • American Express
  • Merck
  • Kraft
  • Coca-Cola
  • Caterpillar
  • Alcoa
  • Verizon
  • McDonald's

We have reported on equity selections for a lot of these stocks. There is no real dominance by any one market segment. These are companies that are going to be world leaders, and the real question is whether they can keep growing because they are more expensive stocks and will only return increased value by continued growth in their markets.

Asset Fund in this portfolio
REAL ESTATE ICF (iShares Cohen & Steers Realty Majors)
CASH CASH
FIXED INCOME TIP (iShares Barclays TIPS Bond)
Emerging Market VWO (Vanguard Emerging Markets Stock ETF)
US EQUITY DVY (iShares Dow Jones Select Dividend Index)
US EQUITY VIG (Vanguard Dividend Appreciation ETF)
INTERNATIONAL EQUITY IDV (iShares Dow Jones Intl Select Div Idx)
High Yield Bond HYG (iShares iBoxx $ High Yield Corporate Bd)
INTERNATIONAL BONDS EMB (iShares JPMorgan USD Emerg Markets Bond)
Click to enlarge

Portfolio Performance Comparison

Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Retirement Income ETFs Tactical Asset Allocation Moderate 2% -5% 10% 79% 8% 61%
Dow Jones Growth Stocks 13% 64% 24% 102% 6% 21%
Retirement Income ETFs Strategic Asset Allocation Moderate -1% 2% 14% 74% 2% 10%
Click to enlarge

We can see strong performance by this set of equities. We have to be cautious and recognize that we have selected companies with high P/E ratios, and so the prices of these companies have been good in the past. The question is whether they have peaked, or are expensive and ripe for a fall.

However, their short term performance has also been good, and I think that this is likely because of a desire for safety. Many of these have either continued or announced good dividend performance.

Three Month Chart

One Year Chart

Three Year Chart

Five Year Chart

More...

This is an intriguing set of choices, and we can see how they have performed well even after the 2009 crash. I believe that safety and dividends are going to be a potent and winning combination to draw and retain investors and maintain positive momentum through a rocky period. This merits serious consideration.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.