Dissecting the Dow's underperformance

If anything, don't blame these overachievers.

By Jim Cramer Jan 3, 2013 10:11AM

TheStreet logoStock index Image Source Getty ImagesWhither the Dow Jones Industrial Average ($INDU) in 2013, beyond that first, unsustainably nice day of the year? Despite Wednesday's rally, you have to be depressed and suspicious of how poorly this index performed in 2012, finishing up a pathetic 7.3% against gains of 15.9% in the Nasdaq ($COMPX) and 13.4% in the S&P 500 ($INX)  (We've already seen about half last year's performance on day one of 2013!)

Who are the culprits behind this underperformance? Who did well in a futile attempt to save the index from abysmal results vs. the others? What's next for the oh-so-venerable but -- at least last year -- out-of-synch index?

First, let's not blame Bank of America (BAC), which had been an anchor to leeward for ages and ages. The stock gained 109% last year and, frankly, given how cheap it is and that the housing recovery still seems to be in its infancy, it wouldn't surprise me if we saw still bigger gains. They'll be stutter-step advances, to be sure -- wracked, no doubt, by each sequestration boogie-man and every debt-ceiling debacle. Still, this stock could have much further to go.

I remember that, when the other bank stocks stabilized, BofA took not one leg down, but a second one, too. In part this was because of lawsuits, but it was also because of the myriad problems with the colossally horrible Countrywide acquisition. But then came a cash infusion from Warren Buffett, a cessation of the lawsuits and the overall housing recovery. These, coupled with massive cost-cuts, have led to a catch-up rally that could take this stock to $16 before it is fairly valued against the other institutions.

Don't blame Home Depot (HD) for the lagging Dow, either. Shares of this company, captained by the amazing Frank Blake, managed to gain 47% -- an outsized return that wasn't all from the housing recovery. The management here could have pulled off a nice gain just taking market share from others. I have no doubt that the rebuild from Hurricane Sandy, plus the resurgence of housing nationwide, will benefit Home Depot again. New Jersey Governor Chris Christie's blast of the Republican-controlled Congress may have done the trick -- even as the trick, as he points out, will be turned a lot later than it did for all of the other major hurricanes that have hit this country in the last 20 years.

Disney (DIS) sure didn't hurt the index with its 32% gain, augmented by fabulous theme-park attendance and remarkably resilient ESPN numbers. Robert Iger, one of my favorite chief execs around, threw some cold water on the company's future after that last quarter, but maybe that's where the opportunity comes in. It can go back to oil highs.

Meanwhile, that fourth-quarter rally in financial stocks gave new life to JPMorgan Chase (JPM), up 32%; American Express (AXP), which rallied 22%; and Travelers (TRV), which vaulted 21%. I don't know if these stocks can maintain that pace. JPMorgan's bounce-back came after that horrid "London Whale" incident -- but I fear that, unless the company is allowed to return gobs of capital to shareholders, it may not be able to repeat that performance. Have you noticed that it always seems to fail right here, seemingly for years?

American Express, for its part, seems a bit tapped out. I much prefer the non-credit-risk MasterCard (MA). Travelers, while a fabulously run company, is not a stock that goes up 21% year after year, and you shouldn't expect it to do so. It's a slow mover in the fast lane.

But you know what could have another great year? How about General Electric (GE), an ActionAlertsPlus name that advanced 17% in 2012 in spite of downbeat chatter at a recent analyst meeting? Here's a worldwide recovery play right in synch with a global recovery for oil and gas exposure, all during a time when that industry could be recovering courtesy of China. Don't forget, this company got the wind-subsidy break that was needed to maintain momentum in an otherwise faltering industry. Will we see dividend boosts galore here? I think so. It was four years ago that we saw a 66% dividend cut in GE. Many other industrial names have restored their returns to halcyon days, but GE has much further to go.


Pfizer (PFE), up 16% for last year, can not only repeat that performance but best it. The giant drug company is taking action to bring out value in its animal-health business, and management does its best to return capital in terms of even higher dividends. Pfizer's payout already amounts to a 3.75% yield -- still terrific, after even these new tax schedules. I like the paint-drying Pfizer; it lets you sleep at night -- and by day, too!

I don't know if Wal-Mart (WMT) can repeat its gain of more than twice that of the Dow, given the run it has had and in light of a weakened U.S. consumer, at least at the start of the year. This stock was a rocket after the revelations of Mexican bribery, vaulting from the $50s to the $70s before it retreated. But I think it, like all retailers, had a subpar holiday season, so now it has to wait for those results before the bar can be reset.

Still, 3M (MMM) and United Technology (UTX) -- up 14% and 12%, respectively, for 2012 -- are naturals to repeat if not do better, given their strong Asian exposure and best-in-class new technologies. Remember, 3M has been held back by a weak China, and United Tech has been living in the shadow of the fiscal cliff's threatened military spending cuts. Both names can only improve from here, although the latter will no doubt be a casualty at various points during the upcoming sequestration debate.

AT&T's (T) 11% gain for last year reminds you that even the most boring of stocks can generate double-digit gains through good dividends, bountiful buybacks and a steady-eddie performance. I think the same gain is in the cards for 2013, except this time the company stands to come from small-business landline improvement, something that could really spur high-margin business.

Coming soon: the less-than-stellar Dow performers.

Cramer's face

 


Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long MA and UTX.

 

 

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25Comments
Jan 3, 2013 10:55AM
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In the last 18 months cramer has said BUY   B of A at $15 and then after iit dropped like a stone he said SELL at $5 ............ it's all in these archived columns if you take the time to look !

Stupid ....crooked ....you be the judge !
Jan 3, 2013 12:50PM
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Whatever happened to our good friends in Greece,China,Japan,etc. ??Are their economies all fixed now ?They were the headliners for months and months.Just curious.
Jan 3, 2013 10:52AM
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where do these gains get calculated from?  are they the bell opening price of 1-3-2012 thru bell closing price of 12-28-2012?  what about the swings of high to low thru the year like bank stocks saw? 

 

cheery picking past results will always show the winners.  just like looking at a roulette table after the ball has dropped.  "gee - look at that smart guy who picked number 27".

 

going forward, is your list of winners now destined for looserville? 

Jan 3, 2013 1:57PM
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It is your fault BoBo Cramer and every other snake oil stumper on fraud street. Why do you think the volume is so low...... You remind me of the snake oil salesman in Jose Wells when he can't tell the indian what is in the bottle........... "You drink it" says the indian.

 

Here's to tobacco spit on your suit.

 

Jan 3, 2013 11:29AM
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What's to blame ? Simple - REALITY
A rigged market not held up by anything solid.


Jan 3, 2013 2:53PM
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he isn't stupid ...he is a smart crook....if you look in the archives you see many examples

just like bof a.......alcoa was his "stock of the year" for 2011 at 18....it went straight to 8 where

it still is...................DO NOT BE DUPED BY THIS CRIMINAL......................also he never speaks about

the street .com being indicted by the sec for fraud

Jan 3, 2013 1:02PM
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What do you mean... "who is to blame for the Dow's weakness?"

 

Inheritors, hired-in management, globalization, the Gramm Leach Bliley Act and Law Firms. What is the Dow comprised of right now? Nothing. Who in it is doing America any good? No one. What direction is the nation going in? Opposite the Dow.

 

You broke it. You bought it. You will lose everything.

Jan 3, 2013 1:44PM
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My return was 9.65% for 2012 ! Not bad in my opinion.  Banks pay 1/2% or less, Treasuries are rip-offs, Bonds are ready to Crash, but I got 9.65% this year, Last year was about 8.5%. How?

Large Iconic Dividend paying stocks. You know those products you buy and use almost everyday ? Like Proctor & Gamble, General Mills, Coca Cola, Exxon, Intel, IBM,Dupont , Clorox ............... you get the point - and they pay me great dividends to just buy and hold their stock.

 

Large Iconic Long Term Dividend Stock investing - so simple even the Wall Streeters can do it - But hey, they make a lot of money telling you that so keep buying phony Mutual Funds and their Phony Newsletters and Magazines and lose your money !

Jan 3, 2013 10:44AM
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Bank of America (TBTF) The Criminal Banking Cartel.   Rapes, Pillages and Plunders the Poor the Young and the Elderly !  DIE BANK OF AMERICA DIE !!
Jan 3, 2013 10:58AM
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It`s time to remove some of the companies in the Dow.HP, for one should go.Visa

or Mastercard belongs.Remove one of the banks.

Jan 3, 2013 12:39PM
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Very much agree that low volume can skew results....

 

And one to two, high flyers or cellar dwellers can have the same impact....

 

Part of the reason I have trouble with the NASDAQ....Although pretty much the "heartbeat" of Tech,

I question whether or not Apple Inc. (aapl ?) should have the "weighting" it has on the Index...?

 

If too many other Tech Companies are just dawdling along, And Apple has a very bullish run or quarter is the Nasdaq really healthy ??

Jan 3, 2013 12:10PM
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Cramer  Bank of America stock at $ 16.00 a share must be a fairy tale ? You need to check out your dose of reality ! Question what Planet are we on Jim Boy ??
Jan 3, 2013 11:35AM
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2012 results on all the indices were skewed just because of the low volume.  The lower the volume, the more skewed the results.

You go buy $1000 worth of beef.  That could mean a couple of freezers full of hamburger and chuck steak, or just a few pounds of Kobe filet mignon.  There's a big difference in how many people you can feed, but either way, you've got a thousand bucks worth of meat.
Jan 3, 2013 2:10PM
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All of this an no mention of McDonald's, one of the Dow's worst performers in 2012?
Jan 3, 2013 12:51PM
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And on the flip side, the NASDAQ could be in great shape but look ugly just because Apple has a terrible quarter.
Jan 3, 2013 5:14PM
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Bank of America is a nowhere investment.  They believe customer service is providing a pen with a string attached.
Jan 3, 2013 11:10AM
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Yeah, just maybe we can squeak out a better DOW this year..One day12/31 does not a DOW make.

And agreed, certainly can't blame it on HD...A fantastic run over the last couple years; And one of our best staid performers along with the likes of tobacco, think Philip Morris.

 

The last Quarter was a rough mother or step-mother...So moving forward the next few weeks, with some finality in Government Swashbuckling, we may expect to move Forward for us small investors in the World...

Jan 3, 2013 11:28AM
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Steve...EOW,EOM,EOQ and EOY....That's the way I look at how the Indices finish their Sessions throughout the Year...

 

The End Of Year...is 12/31/2012 and fell on a Monday...First trading day of the week. Not the first trading day of 2013.. 

Jan 3, 2013 11:42AM
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Foxy....Why remove one high-flyer(HD) to only be replaced by another hi-flyer such as Visa..??

 

I don't pretend to understand the "weightings" of an individual stock/equity on the DOW or the NASD.

But I'm sure there is formula for calculations that are used by the people that provide the selection process...And it is changed from time to time...

Up until AT&T was taken off (for awhile??) only a couple Companies were/are the "original" 30 that comprised the Index.....I believe GE, might be the only one that has weathered the storm since the beginning of it's inception??...Think the Index is named after Henry(??) Dow, from the Wall St. Journal many years ago..

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