12/21/2010 11:45 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
Bank of America (BAC) will settle the mortgage putback claims, put a lot of its bad mortgage loans behind it and have an assertive Merrill Lynch to boost its earnings.
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) is very levered to the price of crude -- much more so than Exxon Mobil (XOM) -- and I see it outperforming its peers.
Nevertheless, those who bought Chevron because of its yield will, of course, be left high and dry, as I think it can go to $110 on the strength of the oil price and a very aggressive plan to produce more oil. Just a great solid stock to own in 2011. Maybe the best management in the industry, too.
Growth is back, and this fantastic company will shine in 2011. I think that the aggressive nature of management and the worldwide prospects for more sales, plus a turn in Japan, will mean a stock that rallies through the year, although not at the pace that Coca-Cola (KO) once thrilled us at.
Then again, that was 20 years ago, and this is a very mature growth stock. I think it can trade to $70; not bad considering the safety of the enterprise. More dividend boosts and an aggressive buyback should also help the cause, as the bottler buy will be behind the company.
I like this stock very much for those who seek a nice return with low risk.
It is clear to me -- if only me -- that housing will mount a comeback in 2011. Home Depot (HD) doesn't even need it, as we saw this year with its remarkable 23% return DESPITE the housing weakness.
A lot of that is CEO Frank Blake, who has done a masterful job turning the company around. I see bigger-ticket items (where the margins are) finally being sold in far greater numbers, and comparable-store sales better around the country.
People think the company can deliver EPS of $2.25. I think that's too low. Maybe $2.30 is more like it, given the endless small boosts. Why can't it trade to $45 on that and the housing shortage I see coming in 2012? Another great year for Home Depot coming up.
The dividend's going to be boosted, the buyback enlarged, the earnings power revealed, the shroud gone. JPMorgan Chase (JPM) is still the best-run bank in America, if not the world, and CEO Jamie Dimon is one of our greatest bankers.
The company really did come through this period relatively unscathed and with a better branch network, courtesy of the dirt-cheap price of Washington Mutual. This company's stock has done nothing, literally nothing, year over year. Unchanged! That won't be the case in 2011.
I see it going to $50, propelled by earnings power and the dividend hikes. It will be the pre-eminent financial to own and become a staple of many a mutual fund portfolio.
The disappointing analyst meeting and the negative previous quarter haunt this stock going into 2011. But if you are like me and believe there will be worldwide growth, you would be nuts not to consider buying this 13% grower for just 15 times earnings. 3M (MMM) has got so much going for it in Asia and has so many new businesses -- it remains the most potent inventor of new products among the major companies I follow -- that I think it will drift back up to its 52-week high of $91, if not higher. Perhaps $100, which I think is my stretch goal, given its $6.16 in composite EPS estimates.
Why $100? I think the dollar gets weaker, and this is one of the most sensitive companies to the greenback, which means that $6.16 could be too low. Cheap stock that's in the penalty box because of the ever-so-slight shade down of earnings, a shade down that, when I analyze the company, is something that will be left behind in 2011.
This is the year for Verizon Communications (VZ). The iPhone is coming in the first quarter, which will lead to a growth spurt.
The FIOS buildout is largely paid for, and now the company can reap the benefits. The company's half-owned portion of Verizon Wireless will be paying hefty dividends in 2011, and I think we will get a nice dividend boost.
We're talking about $40 being reasonable, if conservative, giving this stock one of the best risk-reward profiles we've got in the Dow, or the S&P 500, for that matter.
CEO Ivan Seidenberg has done a remarkable job turning this staid company into a growth vehicle with a nice dividend. It will be a core holding for many mutual funds.
Read Cramer's full analysis of the Dow 30 stocks.
Cramer holds Alcoa, Bank of America, Boeing, Caterpillar, Coca-Cola and JP Morgan Chase in his Action Alerts Plus charitable trust portfolio.
Cramer shares his stock ideas with Action Alerts Plus subscribers before he trades.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
As geopolitical tensions threaten to spin out of control, investors are wondering how best to position their portfolios for the global turmoil.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.