The world economy is at a critical turning point. A double dip is looming on the horizon. A repeat of the massive sell-off we experienced in 2008 could be on the way. The European crisis is far from over. Greece has been negotiating a debt swap for weeks. Greece's creditors could realize losses up to 70%. This move is not expected to solve the problem. The current deal with Greece only covers private creditors and doesn't touch any debt owed the European Central Bank. Needless to say, Europe will be dragging on the world economy throughout 2012.
China and Asia are also slowing. Recent reports from Bloomberg say China's GDP rose 8.9% in the fourth quarter. This was a little higher than the 8.7% average estimate but still foreshadows China's earlier statements of slowing growth in 2012. With two of the major influences of the world economy floundering, how can anyone expect the stock market to rise? The answer is simple, stick to solid American dividend-paying stocks. The Dow dogs made huge gains last year and they will do it again this year.
General Electric (GE) has been making a good run up since forming a bottom last year. The stock has gained more than 25% since moving up from its base around $15. GE is currently trading around $19 and looks strong to continue. In its fourth-quarter statement GE reported earnings of $0.39/share, an 11% gain over the same quarter in the previous year and full-year earnings are up 22%. GE is expecting to do well into 2012. Total orders for the fourth quarter were up in several key places and included 9% organic growth in sales. The backlog of orders for the fourth quarter totaled $2 billion and the financial arm, GE Capital, increased earnings 58% for the quarter.
With all this in mind it is easy to see that GE is undervalued at 14 times earnings. This stock has institutional ownership over 50%, next to no short interest and growing earnings. Not to mention it still yields over 3.5%. This stock is going to see action just from dividend hunters, and speculators and others. I think GE is going to $25, and quickly.
DuPont (DD) has been trending sideways for over a year. The company has been making money, I'm not sure why it has been performing so poorly. Maybe it's because there are other stocks that yield higher than DuPont's 3.2%. I don't know. The third-quarter earnings per share figure was about 75% higher (pdf) than previously and sales increased by 32%. The gains were credited in part to its acquisition of Danisco and improvement in two key sectors.
DuPont's chart doesn't look good. DD is brushing up against resistance and doesn't have much strength behind it. I expect to see DD bounce down to $40 before making another try at resistance. It is currently trading around $49. A move down would be a huge discount on a good stock and would increase the dividend yield. At $40 DD would yield over 4%.
Johnson and Johnson (JNJ) has reason to trend sideways. The company makes (pdf) money but doesn't have proven growth. A look at the five-year history shows that sales (pdf) are basically flat and earnings per share fluctuate. Full year guidance for 2011 was increased in the third-quarter statement but sales growth was weak. Nearly half of the international growth was attributed to a positive currency impact. Regardless, JNJ does continue to make money in the current environment. The company isn't going to disappear; it will probably continue to trade in its range of $60 to $67.50.
Johnson and Johnson yields 3.5% now and is looking to move up before it moves down. JNJ is currently trading around $65 and has been moving up in the range. The long-term charts show a rising market without conviction. The short-term charts are weak and leave lots of room for doubt. There are better places to get 3.5% yield.
Intel (INTC) is making an impressive move forward. The stock yields 3.5% and is making continued sales gains. The semi-conductor giant reported a record year for 2011. Revenue, operating income and earnings per share were all company records, sparking a strong move up from the 30-day moving average and a previous resistance line. Earnings per share are up 25% from 2010 to $2.53/share. Intel is expecting sales to grow again in 2012. The company's new estimate is for a 9% increase, up from the previous 3%. The effects of flooding in Thailand earlier this year were less than expected.
Intel is currently trading around $26, at four-year highs. The stock recently broke above long-term resistance and is now bouncing from new-found support. Momentum is bullish and rising, with plenty of room to move upward. The next area of resistance is around $28, where I expect to see a pause and consolidation. Intel could go as high as $35 before stopping. Growing sales, increased earnings and a high yield will continue to attract new investment. Intel will be a market leader in 2012.