Mr. Market And A Valuation Of The Dow Jones Industrial Average - February 2016

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Includes: DDM, DIA, DOG, DXD, SDOW, UDOW, UDPIX
by: Benjamin Clark

Summary

This article summarizes the 551 companies reviewed.

The average company is trading at a PEmg ratio of 22.25 and 79.54% price to intrinsic value.

Only 60 companies are suitable for Defensive Investors and only 169 are suitable for Enterprising Investors.

Click to enlargeMr. Market's Mental State

Legendary value investor Benjamin Graham is probably most famous for his Mr. Market parable. In the story, an investor is greeted each day by Mr. Market, who offers to purchase the investor's stocks. Every offer is different, and sometimes the price is insanely high, sometimes it seems fair, and other times it is clearly too low. But one thing remains the same - the intrinsic value of the investments does not change. As a result, the investor is left to decide when to buy and sell based on the relationship between the intrinsic value and the price Mr. Market is offering.

All value investors today should keep the analogy in mind, and implement the overall concept. To assist in that goal, we have various tools available, and the infographic shown above is one of them, displaying a summary of the valuations of 551 companies reviewed.

This month, out of the 551 companies reviewed, the average PEmg ratio (price over normalized earnings) is 22.25 and the average company is trading at 79.54% of its intrinsic value. Last month, the average PEmg ratio was 22.87 and the average company was trading at 82.61% of its intrinsic value.

The highest PEmg average we have seen while tracking this information was 26.17 in December 2014 while the lowest PEmg average was 22.25 in February 2016. The highest average intrinsic value was 93.48% in January 2015 and the lowest average intrinsic value was 79.54% in February 2016.

Month Average PEmg Average % of value Defensive % Enterprising % Speculative % Undervalued % Fairly Valued % Overvalued %
August 2014 24.36 90.57% n/a n/a n/a n/a n/a n/a
September 2014 25.37 93.37% n/a n/a n/a n/a n/a n/a
October 2014 24.29 90.24% 12% 35% 53% 31% 21% 48%
November 2014 25.32 90.61% 12% 35% 53% 29% 21% 50%
December 2014 26.17 92.28% 11% 34% 55% 28% 23% 49%
January 2015 25.63 93.48% 10% 34% 55% 30% 20% 50%
February 2015 25.79 92.72% 10% 35% 55% 33% 19% 49%
March 2015 25.79 88.03% 10% 35% 55% 31% 19% 49%
April 2015 25.64 86.18% 9.9% 35.2% 54.9% 32.1% 19.4% 48.5%
May 2015 25.17 86.64% 9.1% 36.1% 54.8% 32.1% 20.4% 47.4%
June 2015 25.47 86.43% 8.7% 34.7% 56.5% 30.0% 21.2% 48.8%
July 2015 25.24 85.65% 9.6% 33.1% 57.3% 30.9% 19.3% 49.6%
August 2015 25.08 86.79% 9.8% 32.7% 57.5% 29.5% 21.0% 49.5%
September 2015 23.2 82.45% 9.4% 32.6% 57.9% 35.7% 18.9% 45.5%
October 2015 22.95 81.80% 10.5% 31.7% 57.8% 35.5% 18.7% 45.8%
November 2015 23.97 84.84% 10.1% 32.2% 57.7% 32.0% 19.2% 48.7%
December 2015 23.27 84.55% 10.6% 31.5% 57.8% 33.0% 17.8% 49.2%
January 2016 22.87 82.61% 10.9% 30.8% 58.3% 35.9% 16.8% 47.3%
February 2016 22.25 79.54% 10.9% 30.7% 58.4% 36.7% 16.3% 47.0%
Click to enlarge

Valuation of the Dow

Each month we take a look at the Dow Jones Industrial Average, listing out each individual component in an easy to read table, and calculates a value for the index that is based on our valuation model's estimates for intrinsic values for each component. Over time this figure can be useful for determining whether the market as a whole is undervalued or overvalued.
^DJI Chart

^DJI data by YCharts

Readers may find it useful to review the history of this screen to see how the index has moved in relation to its intrinsic value.

At the time of writing, the Dow Jones Industrial Average (DJIA) was at 16,336.66. Our valuation of the DJIA was 20,375.43. As a result, the DJIA was trading at 80.18% of its estimated value. This figure is within the margin of error, and therefore it appears the DJIA is presently fairly valued.

To see the individual valuation articles, please click on the company name in the table below. For the investor type, a "D" indicates the company is suitable for the Defensive Investor, an "E" indicates the company is suitable for the Enterprising Investor, and an "S" indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Dividend Yield
AXP American Express Company E 10/29/2015 $103.25 $54.10 52.40% 11.84 2.14%
AAPL Apple Inc. S 9/8/2015 $268.10 $96.35 35.94% 13.84 2.16%
BA Boeing Co E 11/24/2015 $188.84 $121.83 64.51% 17.81 3.58%
CAT Caterpillar Inc. S 7/21/2015 $82.62 $63.23 76.53% 10.74 4.87%
CSCO Cisco Systems, Inc. D 11/4/2015 $37.94 $23.10 60.89% 12.62 3.64%
CVX Chevron Corporation S 6/2/2015 $33.69 $84.61 251.14% 9.80 5.06%
DD E I Du Pont De Nemours And Co E 11/11/2015 $50.38 $58.76 116.63% 16.51 2.59%
DIS Walt Disney Co S 12/10/2015 $157.29 $95.11 60.47% 20.54 1.49%
GE General Electric Company S 3/2/2015 $9.65 $28.67 297.10% 21.56 3.21%
GS Goldman Sachs Group Inc E 11/10/2015 $243.19 $152.53 62.72% 10.31 1.70%
HD Home Depot Inc S 11/10/2015 $166.55 $123.81 74.34% 28.59 1.91%
IBM International Business Machines Corp. S 11/10/2015 $200.54 $124.61 62.14% 9.26 4.17%
INTC Intel Corporation D 11/18/2015 $37.07 $29.34 79.15% 13.52 3.54%
JNJ Johnson & Johnson D 1/8/2016 $79.55 $104.15 130.92% 20.26 2.88%
JPM JPMorgan Chase & Co. D 1/25/2016 $101.46 $57.42 56.59% 10.48 3.07%
KO The Coca-Cola Co S 3/3/2015 $19.68 $42.72 217.07% 23.09 3.09%
MCD McDonald's Corporation E 11/10/2015 $61.89 $121.49 196.30% 24.30 2.93%
MMM 3M Co E 2/3/2016 $132.97 $152.49 114.68% 20.30 2.69%
MRK Merck & Co., Inc. E 11/11/2015 $27.04 $50.04 185.06% 20.18 3.68%
MSFT Microsoft Corporation E 11/5/2015 $21.54 $52.16 242.15% 23.39 2.76%
NKE Nike Inc E 11/12/2015 $97.92 $62.48 63.81% 18.01 1.02%
PFE Pfizer Inc. E 9/11/2015 $54.29 $29.68 54.67% 15.30 4.04%
PG Procter & Gamble Co S 2/16/2015 $31.58 $81.09 256.78% 20.85 3.27%
TRV Travelers Companies Inc D 11/16/2015 $296.43 $106.89 36.06% 11.46 2.28%
UNH UnitedHealth Group Inc S 11/16/2015 $130.87 $112.77 86.17% 19.72 1.77%
UTX United Technologies Corporation D 11/16/2015 $106.91 $85.96 80.40% 13.75 2.98%
V Visa Inc E 11/27/2015 $90.18 $74.36 82.46% 31.78 0.75%
VZ Verizon Communications Inc. S 3/4/2015 $37.76 $50.62 134.06% 23.99 4.46%
WMT Wal-Mart Stores, Inc. D 11/18/2015 $63.07 $66.27 105.07% 13.95 2.96%
XOM Exxon Mobil Corporation S 6/4/2015 $42.51 $78.47 184.59% 12.15 3.72%
Click to enlarge

Disclosure: I am/we are long DIS, HD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.