Investing

The 11 Most Attractive Dow Stocks for 2017: Is DJIA 22,000 in the Cards?

Jon C. Ogg

Published: December 6, 2016 11:35 am

Last Updated: January 12, 2020 5:04 pm

As 2016 winds down and 2017 becomes the prevailing concern, investors have to wonder what to expect. Donald Trump unexpectedly beat Hillary Clinton in the presidential election, and now both sides of the aisle are considering more pro-business and higher growth economy oriented than we have been used to for recent years.

Investors have bought every major market pullback for more than five years now, and the bull market is almost eight years old. Those same investors are looking for value, and they are looking for new ideas to generate income and gains ahead. It turns out that 11 of the 30 Dow Jones Industrial Average (DJIA) stocks have a consensus (mean) analyst price target from Thomson Reuters that calls for more than 10% upside in the coming 12 months, and that is without considering their dividends.

24/7 Wall St. has evaluated each of these 11 Dow stocks. Many of these companies are likely to raise dividends in 2017, and many are expected to be beneficiaries of repatriating billions in overseas cash. With the bull market mature, valuations may matter, so we have included an earnings multiple for 2017 on each name. We also have included color on each company and basic trading history.

There are some serious caveats to consider as well. Many Dow stocks are now valued above their consensus analyst target prices, even if these are not. The post-election rally has taken many of the Trump-beneficiary stocks up, perhaps with too much good news being priced in. Analysts are also wrong just about as often as regular investors. Sometimes the analysts just get their thesis wrong, or sometimes an outside force that was unknown yanks the bull-case out from under a stock.

Investors need to understand that these target prices from Thomson Reuters should not yet be considered full 2017 targets for a bull-bear analysis. In fact, some analysts have not updated their 12-month price targets for weeks or even months, and they could be subject to serious revisions in December and after the start of 2017.

24/7 Wall St. showed a preliminary bull-bare case for the Dow in 2016 at 19,700, with a peak value of 19,142 for the Dow in 2015. The Dow was valued just above 19,200 on December 6.

When we look at the upside here, the average total return (gain in stock plus dividends) when you consider 2017 dividend hikes and buybacks would be closer to 15%. That of course does not mean that the rest of the Dow would rise unilaterally with these, nor by the same amounts, but if so then the Dow could be looking at getting closer to 22,000 in late 2017.

Again, there are many “ifs” and a whole lot of things that have to go right without any hiccups that would have to take place to get there. These companies all matter to the economy, as they would have a combined market cap of more than $2.3 trillion as of now.

Apple

Shares of Apple Inc. (NASDAQ: AAPL) were last seen at $109.05, and its consensus analyst price target is now up at $131.00. If analysts are right, that implies upside of 20%. Then there is the 2.1% dividend yield to consider, and Apple is valued at less than 11 times next year’s earnings estimate.

Credit Suisse just on December 6 reiterated its Outperform rating and $150 price target for Apple. The firm is looking forward to the iPhone 8 super-cycle, and the analysts feel Apple’s earnings outlook is strong regardless of the gross margins and OLED capacity for the iPhone 8. One additional boost is that Apple has the largest cash trove of all companies, and it buys back large amounts of stock.

Apple has a 52-week trading range of $89.47 to $119.86 and a market cap of $581.5 billion.

Cisco Systems

Recently trading at $29.55, Cisco Systems Inc. (NASDAQ: CSCO) has a consensus price target of $33.11 generates an implied 12% upside, before adding in that 3.5% yield. Cisco shares are valued at less than 12 times forward earnings.

Cisco has so far been a stock buyback king, and its shares are still about 10% shy of its 2007 high. That stock price is still less than half of its all-time back in the tech bubble peak in 2000.

The 52-week trading range here is $22.46 to $31.95, and the market cap is $148 billion.

Coca-Cola

Coca-Cola Co. (NYSE: KO) recently traded at $40.60, and the consensus price target of $46.61 generates an implied upside of 14.8%, before adding in the 3.5% dividend yield. The stock is valued at 20 times expected earnings per share.

Despite having more dependence on sugar-water beverages than rival Pepsi, the reality is that Coca-Cola has been diversifying away from its name brand for years. Its shares have done much of nothing in 2016, and it mostly has been in a $39 to $44 trading band for the past three years. With global expansion opportunities and cost containment efforts, maybe value investors will begin to focus on what may be a defensive stock with limited downside — and it has raised its dividend for more than 50 years.

Coca-Cola has a market cap of $175 billion. Its 52-week range is $39.88 to $47.13.

Home Depot

Recently trading at $129.72, Home Depot Inc. (NYSE: HD) has a consensus price target of $146.73 that would generate upside of close to 13.1%, before considering the dividend yield of 2.1%. The stock is valued at 18 times expected earnings for next year.

Home Depot ran into some issues after peaking in the summer, when the consumer was looking less aggressive and home improvement trends were starting to feel toppy. Some issues may continue, but if the housing market is going to be strong in 2017, then it seems hard for Home Depot to not be participating in that as it has held up better than Lowe’s so far in 2016, despite not being up much for the year.

Home Depot has a 52-week range of $109.62 to $139.00 and a market cap of $158 billion.

Intel

Shares of Intel Corp. (NASDAQ: INTC) were last seen trading at $34.38. The consensus analyst target was $39.82, implying upside of 15.8% over the next year, without even considering the 3.0% dividend yield. Intel is valued currently at only about 12 times forward earnings.

This may seem hard to imagine, but the PC market was finally of interest again. Maybe the growing demand for virtual reality, artificial intelligence and machine learning are driving it more than anything. Intel also has expanded well beyond desktops, and it is even a growing partner for many chip companies now.

The market cap is $163 billion. Shares have traded in 52-week trading range of $27.68 to $38.36.

Johnson & Johnson

Johnson & Johnson (NYSE: JNJ) recently traded at $111.95, and its consensus analyst target of $126.26 would generate implied upside of 12.8%, before adding in its 2.85% dividend yield. The stock also is valued at just over 15.5 times expected 2017 earnings.

Johnson & Johnson is one of those companies that just seems to keep chugging along, growing earnings and increasing its footprint. It has been one of the Dow stocks that has raised its dividend over 50 years in a row.

It has a 52-week trading range of $94.28 to $126.07 and a market cap of $304 billion.

Nike

Shares of Nike Inc. (NYSE: NKE) were last seen at $51.75, and the consensus price target of $51.96 gave an implied upside of 21.8%. The dividend yield of 1.4% was not included in that upside on a total return basis. The stock has pulled back substantially from its highs but is still valued at 19.2 times forward earnings.

Nike is the leader in the athletic apparel market. There have been concerns that “athleisure” has peaked, and of course brands like Under Armour, Adidas and Reebok want their piece of the market. Still, the consensus is that it will grow sales to $41 billion in 2019 (from $32 billion in 2016) and that earnings per share will grow 40% over the same period. What if everyone has been too negative, with over a 15% drop in 2016?

Nike has a 52-week trading range of $49.01 to $68.19 and a market cap of $86 billion.

Pfizer

Given that Pfizer Inc. (NYSE: PFE) was trading at $31.64, its consensus price target of $37.76 implies upside of 19.4% for the next 12 months, before considering its 3.8% dividend yield. Shares are valued at 12 times forward earnings.

This year has been a dud for Pfizer, despite sharp gains for rival Merck. The company had been torn in long-term efforts, like whether to move or acquire overseas, deciding if the restructuring would lead to a break-up, and deciding whether to sell some assets. Then there was the endless overhang of political pricing pressure on drug prices. What if Pfizer has become too cheap versus Merck?

It has a market cap of $192 billion and a 52-week range of $28.25 to $37.39.

Procter & Gamble

Last seen trading at $82.80, Procter & Gamble (NYSE: PG) had a consensus analyst upside of $92.00, which left an implied upside of 11.1%, and that is without considering the 3.2% dividend yield. The company has been restructuring and paring its brands, but it is still valued at 19.5 times forward earnings.

Procter & Gamble has been a key dividend payer, raising the dividend for over 50 years now. One issue is that it has faced harder overseas sales comps due to that strong dollar, and it seems hard to imagine that the company can shrink its brands back into a growth company. Still, this remains quite friendly to shareholders, and maybe its endless list of brands should just speak for itself.

The 52-week range is $74.46 to $90.33. Having a market cap of $222 billion makes it larger than its top three consumer products peers in the United States combined.

UnitedHealth

UnitedHealth Group Inc. (NYSE: UNH) was trading at $157.25, and the consensus price target of $176.05 leaves implied upside of more than 11.9%, before considering its 1.5% dividend yield. The largest insurer of them all is valued at 17 times expected earnings.

Being a health insurer under Obamacare turned out to be fine for UnitedHealth. Now it has vacated most exchange operations and is focused on the group market and other value-added opportunities. How the health insurer will be treated under a regime where Obamacare gets dismantled remains to be seen, but even the lowest analyst price target of them all is barely $2 lower than the current share price. Just keep in mind that UnitedHealth shares have already had a massive run of 35% so far in 2016.

UnitedHealth has a market cap of $150 billion and a 52-week range of $107.51 to $162.52.

Visa

Last seen trading at $77.32, Visa Inc. (NYSE: V) has a consensus price target of $93.70. That would suggest upside of 21.2%, before considering its dividend yield of just under 1%. Visa may be well off of its highs, but it is still valued at over 19.5 times forward earnings.

Many investors consider Visa a financial powerhouse as it is a newer Dow component. It is actually a platform provider, and it has grown and has massive room to boost its weak dividend. Still, investors have noticed that everyone under the sun wants to compete in payment technology, and that has to be weighing somewhat on Visa’s dominance. If analysts are right, then they have oversold Visa as its shares are basically flat in 2016. Just don’t ignore that analysts often overstay their welcome when it comes to keeping bullish price targets.

Visa has a 52-week trading range of $66.12 to $83.96. Its market cap is $163 billion.

Look for an update with more formal 2017 targets into the end of 2016 and start of 2017. The formal bull-bear case for 2017 does not yet look like it would be DJIA 22,000, but it is looking north of 20,000 as of the start of December.

Also, for a relative value between these Dow stocks and the S&P 500 Index: The S&P 500 was last seen trading at 17.3 times on a next 12 month basis, or at 18.7 times on 2016 estimated EPS of $117.15 and 16.7 times on 2017 estimated EPS of $131.00.