There are all kinds of Dow Jones components making new highs or very close to new highs in this stock market, and in my opinion, a lot of these companies aren’t expensively priced at all.
The Walt Disney Company (NYSE/DIS) has done tremendously well over the last year, moving significantly higher in price with a small dividend yield of just over one percent. This stock hit a low last October of just under $30.00 a share; now it’s at $50.00. The stock’s current price-to-earnings ratio is 17, and Wall Street analysts have been increasing their earnings outlook on the company across the board, this year and next.
Another Dow Jones component doing great on the stock market is Wal-Mart Stores, Inc. (NYSE/WMT), which currently trades around 16 times earnings, and the stock just hit a new record high of $75.00 a share, breaking out of a $60.00 trading range since the beginning of the year and $52.00 a share since last September. Wal-Mart seems to trade like this on the stock market. The shares sit and consolidate, sometimes for years; then they break out big time and hit a new record high. Earnings stay steady, and so does the share price, until the company surprises to the upside and things take off again. This Dow Jones component has been really hot lately.
There are several Dow Jones component laggards, and they aren’t surprising. Cisco Systems, Inc. (NASDAQ/CSCO), Bank of America Corporation (NYSE/BAC), Alcoa, Inc. (NYSE/AA), and Hewlett-Packard Company (NYSE/HPQ) are very reasonably priced on the stock market, but they have their own corporate issues. For the most part though, most Dow Jones components are doing well and so is the Dow Jones Industrial Average, as institutional investors crave yield and security in a stock market without a definable trend.
Even though Wall Street’s earnings outlook for the third quarter and bottom half of the year has come down significantly, I would say the majority of Dow Jones components have seen their earnings estimates increased recently. This is why it’s so important in a slow to no growth economy to own big, brand-name, dividend stocks that have the global power to maintain their earnings. (See Stock Market Leaders Producing Solid Earnings Reports.)
Smaller companies can’t compete with large-cap Dow Jones components in times like these, and this is why I expect the Dow Jones Industrial Average to keep doing well.
As I’ve written before, the stock market today is holding up incredibly well, considering all the investment risk in the world. I find it encouraging that so many Dow Jones components are doing well and are still reasonably priced on the stock market. As usual, the stock market is leading the economy.