Six DJIA Stocks With Most Upside In 2011 (BA, BAC, CSCO, HPQ, JPM, PFE)

It is 2011 and we have our outlook target pieces for sectors and for indexes for the year ahead.  After taking a look at the implied upside to one-year price targets for Dow Jones Industrial Average components, the average expected upside by analysts for each DJIA component is roughly 12.65% in 2011. After refining the list to find stocks for value investors there were 6 of the 30 DJIA components that have an implied upside of more than 20%.  Those with the most expected upside are as follows: The Boeing Company (NYSE: BA), Bank of America Corporation (NYSE: BAC), Cisco Systems, Inc. (NASDAQ: CSCO), Hewlett-Packard Company (NYSE: HPQ), J.P. Morgan Chase & Co. (NYSE: JPM), and Pfizer, Inc. (NYSE: PFE).

We have compiled a chart here for the 2010 ending prices and listed the consensus price target by Thomson Reuters on each component, listed what the implied gain is expected to be, given the 52-week range and the gain from the low of 2010 and the drop from the high of 2010. After the table, we have broken out each stock in more detail with dividends, added in color on each, and shown what the caveats are that could get in the way.

More detail on each of the six DJIA stocks with the most implied upside as follows…

The Boeing Company (NYSE: BA) closed the year out at $65.26 and the Thomson Reuters implied one-year consensus price target objective of $81.62 leaves an implied upside of roughly 25%.  Shares have traded in a 52-week range of $54.80 to $76.00 and that is up over 19% from the lows and down over 14% from the highs of 2010.  Boeing has a dividend yield of roughly 2.6%.

The caveats for Boeing are many.  First and foremost, forget tankers and defense for a moment.  That is largely factored in.  The biggest issue is the future of the Boeing Dreamliner.  This one has been plagued with problems and delays and when the first real round of deliveries can be expected is anyone’s guess.  If Boeing can right its wrongs, analysts and pundits will be calling for higher target prices for 2012 to 2014 along with all of its other plane orders.  If problems persist or if the 787 program suddenly takes a turn for the worse then all of that implied upside will suddenly be phantom upside.

Bank of America Corporation (NYSE: BAC) closed the year out at $13.34 and the Thomson Reuters implied one-year consensus price target objective of $17.74 leaves an implied upside of roughly 33%.  Shares have traded in a 52-week range of $10.91 to $19.86 and that is up over 22% from the lows and down almost 33% from the highs of 2010.  BofA has a dividend yield of only 0.3% due to the TARP restrictions after the bailout.

There is a reason that Bank of America has so much implied upside.  Shares have underperformed and it has been in hot water over all the potential mortgage issues it is trying to work out from the Countrywide acquisition.  It now has what may be a limitless stream of lawsuits based upon mortgage fraud in securitization as well as mortgage disclosure and documentation issues on the lending side.  How many foreclosures it holds is yet another issue.  If things get resolved, the upside could even be greater.  We also expect a return to a higher dividend in 2011 with the note that it will not likely be the highest dividend payout in the money center banks.

Cisco Systems, Inc. (NASDAQ: CSCO) closed the year out at $20.23 and the Thomson Reuters implied one-year consensus price target objective of $24.45 leaves an implied upside of almost 21%.  Shares have traded in a 52-week range of $19.00 to $27.74 and that is up only about 6.5% from the lows and down about 27% from the highs of 2010.  What Cisco’s dividend yield will ultimately be remains up in the air.  Cisco was just named one of our five “Sloths of the Dow for 2011” due to its poor 2010 performance.

Cisco’s situation is one that may be a company-specific issue where it got its revenue guidance so wrong.  The company is now fighting a war on many fronts now that it is competing against former partners in the war for data-center revenues.  There are caveats and there is no assurance that Cisco will be a solid gainer in 2011.  It does still remain as one of our Ten Stocks To Own for the Next Decade.  The sentiment went negative enough that to reach its objective price target would still not even be close to a 52-week high.

Hewlett-Packard Company (NYSE: HPQ) closed the year out at $42.10 and the Thomson Reuters implied one-year consensus price target objective of $53.63 leaves an implied upside of more than 27%.  Shares have traded in a 52-week range of $37.32 to $54.75 and that is up almost 13% from the lows and down more than 23% from the highs of 2010.  HP’s dividend is a paltry 0.8% (about 1% lower than that of IBM).  HP was recently designated as one of our five “Sloths of the Dow for 2011” due to its performance in 2010.

HP went from hot to snot in 2011.  Despite trying to maintain forward growth guidance, its ouster of Mark Hurd was a disaster for the company and the company has not exactly won over the heart and soul of HP-lovers with its CEO replacement being former SAP-chief Leo Apotheker. HP has made many acquisitions it is still trying to properly integrate in its data-center war with Cisco and elsewhere.  The upside price target objective here may be one that needs to come down further if some gains are not made in the very early part of 2011.

J.P. Morgan Chase & Co. (NYSE: JPM) closed the year out at $42.42 and the Thomson Reuters implied one-year consensus price target objective of $52.61 leaves an implied upside of roughly 24%.  Shares have traded in a 52-week range of $35.16 to $48.20 and that is up over 20% from the lows and down almost 12% from the highs of 2010.  J.P. Morgan pays a dividend of only about 0.5% due to TARP restrictions after the bailout.

Jamie Dimon and friends remain the most favorable bank with the most solid position.  Dimon is very eager to begin a return of the higher bank dividend and his bank is perhaps the healthiest of the money center banks to do so.  There is also talk of a massive share buyback that could be as much as 10% of the bank; while that seems outrageous, Dimon is conservative in business yet aggressive for shareholders.  The last time shares were north of $50.00 was Summer-2007.

Pfizer, Inc. (NYSE: PFE) closed the year out at $17.51 and the Thomson Reuters implied one-year consensus price target objective of $21.23 leaves an implied upside of roughly 21%.  Shares have traded in a 52-week range of $14.00 to $20.36 and that is up over 25% from the lows and down 14% from the highs of 2010.  Pfizer’s dividend yield is a whopping 4.6%.  Pfizer is one of the ten “Dogs of the Dow for 2011” due to its high yield and it is the only of the six with the most upside to have such a high dividend payout.

Pfizer remains a low growth story, is in a management change situation, and faces the same Big Pharma challenges of patent expiration on key drugs in the coming years.  Still, shares have held up better than many might have expected.  That $21.23 consensus price target is not quite 5% above its 52-week high.  The shares were last that high in mid-2008 and Pfizer was a $30+ stock (outside of dividend adjustments) back in late-2004.  Cost containment may be Pfizer’s biggest key to achieving its price target objective.

Much of the ‘implied upside’ here revolves around Thomson Reuters consensus price targets.  As we have shown, some of those targets may be mere numbers that need to be adjusted.  The most important issue for each is of course the caveats and suppositions that can drive these stocks or impede these stocks.

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JON C. OGG