Thus far, with the first 3 parts of this five-part series,
we’ve examined 60% (18 of 30) of the 30 stocks in the Dow Jones Industrial
Average. What we found so far were that the majority of these constituents are
currently overvalued or at least fully valued. Finally, with this Part 4, we
will examine 6 additional Dow constituents that appear fairly valued with
blended P/E ratios of 14-16.But as the title of this article asks, why are
these 6 Dow stocks trading within the historical normal valuation range of the
market when the others are being valued much higher? In other words, are they
cheaper for good reason?
The following portfolio review lists 6 stocks in the Dow
Jones Industrial Average that appear fairly valued based on their current
blended P/E ratio. However, there are many ways to value a stock in addition to
the P/E ratio. Consequently, I suggest the reader also notices the price to
cash flow of each of these 6 Dow constituents. For those investors most
interested in dividend income, price to cash flow might be more relevant for
higher-yielding dividend paying stocks. Furthermore, when ascertaining
valuation, other factors such as expected growth need to be considered as well.
I will elaborate more fully in the video below.
The following portfolio review is presented in order of
highest blended P/E ratio to lowest. As an additional valuation check, note
that the earnings yield (EPS Yld) of each of these Dow constituents is above
6%, but only 3 of 6 are above my 6 ½ to 7% threshold. Consequently, this
particular group of 6 Dow stocks is more attractively valued than what we’ve
seen in previous parts of this five-part series. On the other hand, these 6 Dow
stocks are not necessarily bargains at current levels either.
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