What do Boeing (NYSE: BA) and Alcoa (NYSE: AA) have in common? They are book-ends on the Dow Jones Industrial Average's ranking of best and worst-performing stocks thus far in 2010.
Boeing -- up +30.4% -- is seeing rising demand for airplanes, while Alcoa -- off -27.0% -- awaits a rebound in demand for aluminum. It's been a mixed bag of results for this leading index, with 19 stocks rising and the other 11 losing ground since the start of the year.
|Total Return YTD|
|Boeing (NYSE: BA)||30.4%||4.5|
|Caterpillar (NYSE: CAT)||27.2%||29.0|
|Du Pont (NYSE: DD)||26.5%||12.5|
|McDonalds (NYSE: MCD)||14.4%||16.0|
|American Express (NYSE: AXP)||12.5%||17.0|
|Kraft Foods (NYSE: KFT)||10.6%||14.5|
|General Electric (NYSE: GE)||9.8%||15.0|
|3M (NYSE: MMM)||7.1%||15.5|
|Walt Disney (NYSE: DIS)||6.9%||18.0|
|United Tech (NYSE: UTX)||5.8%||15.0|
|Intel (Nasdaq: INTC)||5.3%||11.5|
|Proctor & Gamble (NYSE: PG)||4.7%||16.5|
|Traveler's Ins (NYSE: TRV)||3.4%||8.0|
|Chevron (NYSE: CVX)||2.9%||9.0|
|Home Depot (NYSE: HD)||2.1%||17.0|
|IBM (NYSE: IBM)||0.9%||12.5|
|Coca-Cola (NYSE: KO)||0.6%||17.0|
|JP Morgan Chase (NYSE: JPM)||0.3%||12.0|
|Verizon (NYSE: VZ)||0.2%||13.0|
|AT&T (NYSE: T)||-0.4%||12.0|
|Cisco Systems (Nasdaq: CSCO)||-0.6%||19.0|
|Merck & Co. (NYSE: MRK)||-1.9%||10.5|
|Wal-Mart (NYSE: WMT)||-2.7%||13.5|
|Bank of America (NYSE: BAC)||-3.9%||31.0|
|Johnson & Johnson (NYSE: JNJ)||-7.3%||12.4|
|Hewlett-Packard (NYSE: HPQ)||-7.4%||12.0|
|Exxon Mobile (NYSE: XOM)||-7.9%||12.0|
|Microsoft (Nasdaq: MSFT)||-12.8%||12.5|
|Pfizer (NYSE: PFE)||-13.2%||7.0|
|Alcoa (NYSE: AA)||-27.0%||146.4|
So which stock is poised to lead the pack for the remainder of the year? Let's look at three candidates. The projected winner will be revealed at the end.
A bullish outlook
Judging strictly by body language, Intel (Nasdaq: INTC) is arguably the most optimistic name among these blue chips. Earlier this month, the company said that chip demand is hot and getting hotter. Based on current trends, analysts have boosted their EPS outlooks by about $0.20 for both of 2010 and 2011 -- the highest upward revision to forecasts on an absolute and percentage basis of any stock in the Dow.
But shares of Intel faded throughout last week, as investors seemingly doubt any bullish statements being made by Intel and its peers. They doubt any upturn Intel is seeing will last: consensus forecasts call for Intel to boost profits next year by just +3%, even though many technology forecasters expect enterprises to embark on a long-awaited upgrade cycle for PCs and servers.
Exxon Mobil (NYSE: XOM) remains the cash flow king of the Dow, routinely generating $30 billion in free cash flow almost every year. This has helped the oil giant throw off $39 billion in dividends during the past five years and buy back roughly $135 billion worth of stock during that time frame. But that doesn't seem to be good enough to retain investor interest. Since early 2008, shares have been drifting steadily lower from more than $90 to a recent $60. The company's 2.9% dividend yield has been of scant solace in light of that -30% loss in value.
But every dog has its day, and Exxon Mobil's may finally be at hand. That's because the stock's free cash flow market capitalization) has rarely been this appealing. The cash flow is more than twice the yield offered by corporate debt. The fact that shares also trade for nine times next year's profits also suggest the shares are getting short shrift. And Exxon Mobil's 2010 earnings forecast, which implies more than +15% profit growth, doesn't depend on higher oil prices. Any spike in oil prices from here would just bolster the earnings and free cash flow assumptions.of 10.7% ($30 billion in free cash flow divided by the company's $280
By the book
There's little reason to find cheer with bank stocks right now. The economy is moribund, Washington has just imposed new regulations, and fresh bombshells seem to pop up from time to time. But not for JP Morgan (NYSE: JPM), which seems to have trudged through the financial crisis and subsequent rebound with nary a scratch. Yet the sector-wide pall has shares trading right at tangible book value. Historically, banks have traded for 1.5 times book value, and in boom years, they trade up to 2.5 times book value.
What could get shares going? Well, an outlook that the U.S. economy might finally escape this low-growth, high-unemployment morass would kick up the animal spirits in the banking system, which these days is more known for being very stingy with credit. More robust lending activity would inspire analysts to start speaking of more robust growth in banking in the years to come.
Action to Take --> And the winner is . . . Intel!
Investor cynicism runs quite deep toward tech stocks these days, and Intel is no different. Shares are valued at about 12.5 times earnings, about -30% less than the 16.4 P/E it's garnered the past two years. Yet as the company has noted, demand just keeps rising and rising. Expect a higher multiple to be awarded to the shares if Intel's rosy outlook proves true. When tech stocks move back into vogue, Intel will lead the charge.