Five Stocks That Could Push The Dow To 14,000

The Dow Jones industrial average, the best-known barometer of the U.S. stock market, has been on a tear recently, gaining more than 16% over the past year.

Investors have not yet recovered the losses that they incurred from the depths of the biggest economic slowdown since the Great Depression.  Skepticism abounds about whether the fragile recovery will falter given high gas prices and the shaky real estate market.   Moreover,  Wall Street remains unnerved by Republican threats to block the raising of the government’s $14.3 trillion debt ceiling which is needed to prevent the U.S. economy from careening into a black hole.

Hope, however, is far from lost.  Many pundits argue that the economic recovery is more resilient than the skeptics believe.  Warren Buffett, for one, remains as bullish as ever on the United States.  Morgan Stanley today argued in a report that global GDP will moderate to 4.2% this year from 5% last year, which though not great, is still above the 3.6% average for the last 40 years.

“Keep in mind that this global recovery is only two years old – it only started in the middle of 2009,” writes Morgan Stanley’s co-head of global economics Joachim Fells. “Keep in mind that this global recovery is only two years old – it only started in the middle of 2009. On average, recoveries in the global economy have lasted a little more than six years. The shortest one over the past 40 years took place in the second half of the 1970s and lasted only four years. The longest one was in the 1980s and ended after eight years. On average, recoveries in the global economy have lasted a little more than six years. The shortest one over the past 40 years took place in the second half of the 1970s and lasted only four years. The longest one was in the 1980s and ended after eight years.”

24/7 Wall St. is not going to fall into the trap that pundits did back in the dot com bubble days when irrational exuberance was in the air.  There were a series of books predicting Dow 36,000,  Dow 40,000, and Dow 100,000.  Of course, the market tanked as soon as the pages were inked.  The stock market, of course, is not the ideal proxy for the economy.  In 2009, the Dow crossed 10,000 as unemployment hit 9.8%.

The Dow currently trades at 12,589.80, up from 11,577.51 at the end of 2010.  Pundits including Citigroup’s Tobias Levkovich are expecting the index to continue to rise.  He placed a 13,150 target on the Dow in January.  My colleague Jon Ogg expects the index will hit 13,042.  Jim Cramer’s guess is for 13, 365.  All of them may be conservative.  We think that the Dow can easily hit 14,000 in the next year.

Inflation is remaining under control — for now —  despite the run-up in gasoline prices, which are showing some signs of softening.   Corporate profits were strong during this past earnings season.  Unemployment is rebounding.  Bloomberg’s John Dorfman recently argued that half of the index’s high-performing stocks are headed higher.

To be clear,  no one is jumping for joy.

“… the recovery in the U.S. economy is still slow – and the recession cut jobs so deeply – that growth will be insufficient to surpass the employment peak reached in early 2008 within the boundaries of the current forecast, which runs through the end of 2013,” according to the UCLA Anderson Forecast issued in March.

To make the cut for 24/7 Wall St.’s list of 5 Stocks That Could Push The Dow To 14,000,  a stock had to have at least a 10% upside to consensus estimates of Wall Street analysts.   Many good companies whose shares have run-up this year such as IBM (NYSE:IBM), whose 15.7% increase this year indicates that Wall Street analysts only see a 5% upside to consensus targets of $179.30.  Big Blue trades at $169.96, the upper end of its 52-week trading range of 120.61 – 173.54.   Companies with large headaches and cheap stock prices such as Cisco Systems Inc.  (NASDAQ:CSCO) and Bank of America Corp.  (NYSE:BAC).  Those with a potential for surprise made it.  Also, the stocks had to underperform the market.

Nonetheless, there are plenty of bargains to be had in the Dow.  That even goes for the oil companies, which this week got battered in the U.S. Senate over their high profits and high gas prices.  Exxon Mobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE: CVX),  two of the largest names in big oil, are up more than 10% for the year.  Exxon traded Friday afternoon at $80.86, well under the mean price target of $92.36.  Chevron’s stock price is around $102.46 .  Analysts have a mean price target of $117.76 on the oil company.     Though neither company expects huge growth, both are extraordinarily profitable, as their critics repeatedly mention.

Here are 24/7 Wall St.’s list of Stocks That Will Push The Dow to 14,000.  It is in no particular order.

1) Microsoft

>Current Share Price: $25.05
>Median Price Target: $33.11
>Year-t0-date share performance: down 10%
>Implied Upside: 32%
>52-Week Trading Range $22.73 – $29.73

Microsoft has been written off more times by investors than a soap opera actor.  The world’s largest software company continues to hum along, powering most of the world’s computers. It sold 10 million of its Kinect game systems for the Xbox 360.   For investors, the big question is whether its planned $8 billion acquisition of Skype will provide it the growth in the wireless sector that has proved to be elusive.

2) JPMorgan Chase

>Current Share Price: $43.17
>Median Price Target: $55.69
>Year-t0-date share performance: up 1.7%
>Implied Upside: 29%
>52-Week Trading Range $35.16 – $48.36

When JPMorgan reported a second straight quarter of record profits last month, Wall Street yawned.  Said one analyst to Bloomberg News: “I thought it was a good quarter, but it’s just not a quarter that’s going to get people excited.”  What does Jamie Dimon have to do?  Pull a rabbit out of his hat.

3) Hewlett Packard Corp.

>Current Share Price: $40.41
>Median Price Target: $53.74
>Year-t0-date share performance: down 4%
>Implied Upside: 33%
>52-Week Trading Range: $37.32 – $50.00

H-P shares are dirt cheap, trading at a p/e ratio of 10/3.   The company has loads of problems ranging from ineffective management to weak demand for servers and PCs.  Nonetheless, if the market will make a run at 14,000, several sleeper picks will need to come through with surprising earnings.  H-P reports next week.  Surely, there is some Mark Hurd mojo left.

4) General Electric Co.

Current Share Price: $19.89

>Median Price Target: $24.07
>Year-t0-date share performance: up 8.75%
>Implied Upside: 21%
>52-Week Trading Range: $13.75 – $21.65

Investors lost their patience with CEO Jeffrey Immelt many moons ago.   Now,  Wall Street wants to give the conglomerate a second chance after the completion of the NBC Universal Deal with Comcast Corp. (NASDAQ:CMCSA).   The company stunned Wall Street in April by reporting better-than-expected first quarter profits.  If that trend continues, the Dow will be lifted.

5) Home Depot Inc.

>Current Share Price: $37.01
>Median Price Target: $40.90
>Year-t0-date share performance: up 5.6%
>Implied Upside: 21%
>52-Week Trading Range: $26.62 – $39.38

Home Depot serves as an excellent barometer of consumer sentiment.  Stocks will be lifted next week if the home improvement retailer reports better-than-expected profit in spite of hiring 6,000 temporary seasonal workers.

– Jonathan Berr