12/21/2010 6:52 PM ET|
Cramer's top 10 Dow stocks for 2011
The 'Mad Money' host and TheStreet founder is bullish on US blue chips, many of which he says are in great position to reward investors with little risk.
People do a lot of top-down analysis at this time of the year, trying to figure out how much the Dow Jones Industrial Average ($INDU) and the Standard & Poor's 500 Index ($INX) could go up -- or down -- in the coming year.
That's not my style.
As someone who is a stock picker, I like a bottom-up approach, analyzing each Dow component to come up with what I think the most closely watched index will deliver in 2011.
I expect the Dow to hit 13,365 next year -- a 16% gain from current levels and a bountiful return -- based on a prognostication of the performance of the individual members of the venerable index.
As a backdrop, I am presuming a resumption of decent U.S. growth, courtesy of the Federal Reserve -- call it 3% to 4% -- continued worldwide growth, a stable to slight decline in the dollar and a decent increase in interest rates (30-year Treasury bond going to 4.8%) as befitting a return to economic health.
But I see the Dow's terrific gains coming mostly from the players themselves. Here are my individual stock predictions that add up to 13,365 for the index.
Let's start off with a bang. With a market cap of just $14 billion -- and being the leading independent producer of a metal that will be in intense demand in 2011 because of boosted aerospace, auto and power-plant production -- will be hard-pressed to stay independent.
Earnings have been depressed throughout the downturn, but the cash flow has picked up, courtesy of the excellent stewardship of CEO Klaus Kleinfeld.
If the company stands alone, its stock can advance and get a 12 multiple, a slight discount to many of the cyclical stocks in the index; that would put it at $18.
But I think it gets bought out at $22, a fabulous return and perhaps my favorite in the whole 30-stock average.
Bank of America
I think that this company, which trades basically at its cash value, will have a terrific year, especially because CEO Brian Moynihan should be growing into his role and become more of a spokesman who can help this riddled brand.
The integration of the three companies -- the original Bank of America (itself a pastiche of many banks, including Nations and Fleet, where Moynihan is from) Countrywide Financial and Merrill Lynch -- will finally be consummated in 2011.
Don't forget that, despite all of the turmoil, Bank of America now has an unheard-of 20%-plus market share in the nation's mortgage market, and I think that market will come alive as the housing shortage of 2012 (another of my predictions) comes about.
I see this stock trading at $18, where it stood not that long ago and a terrific gain from where it trades today.
Production is key to this company, because once it gets the per-plane cost down -- something that happens as it makes more and more of them -- gross margins explode.
I think that this stock could trade to $85 by the end of 2011, because it is inconceivable that the Dreamliner isn't being sold by then. Don't forget that aerospace makers have had seven-year cycles in the past, so I don't expect the stock to stop rallying in 2011. Lots of growth here for certain, and perhaps the most long-term visibility in all of the Dow.
Current earnings-per-share estimates of about $6 are, I think, way too low. I see this stock going to $120 in the next year. Too gutsy? Ask yourself what happens if the United States comes back as a growth nation? Right now almost all of the growth is overseas.
Still a fantastic mineral play and a terrific call on world growth.
I see oil going to $100 a barrel in 2011, given the expansion of the world's economy. Chevron (CVX, news) is very levered to the price of crude -- much more so than Exxon Mobil (XOM, news) -- and I see it outperforming its peers.
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John Stumpf acknowledges that growth has been slow, but he says he's still optimistic.
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