Investing Wisely -- Dow 30 Industrials - Week #6

By: Steve Bauer | Fri, Apr 15, 2011
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Investment Course (a freshman - year Course of Study ) Week # 6

This is week number six and is your freshman year of learning to Invest Wisely. As you know, by now, we are using the Dow Jones 30 Industrial Companies in the pursuit of learning / applying analytics and of course - the art and science of Investing Wisely.

Note: The format for this week has been cut back on the supportive notes, information and data I included in the first two weeks. So at the beginning of my second, six week rotation of 5 Dow components per week - in (next week - week 7) I will repeat the longer version with more notes. To visit my latest 'long version' click on the following URL.

http://www.safehaven.com/article/20322/investing-wisely-dow-30-industrials-week-2


Introduction - (what to learn this week?)

For this week, I am continuing to walk you through the Dow 30 component companies. Next week will be the final set of 5 companies after which we will start all over. Over and over until you feel you have a grasp on how to focus your investment dollars in securities that offer the highest probability of profit with a fair (not Wall Street or Media slanted) risk ratio.

Next week, we will begain round two of going through the Dow 30 components 5 at a time. I will spend those weeks encouraging you to begin to hone your talents on Screening or Scanning the services for data and information.

So this is your last week of getting acquainted with the various financial (data and information) services. You should have been studying each of them thoroughly and learning the basics (good and bad) for each. It is likely you will get sick of the repetition and feel like this is not necessary. I will repeat what I have shared before. I still go through the basic analytics of these companies and many more every single week. I am also profitable for every single year, and that is a lot of years. Few financial analysts whom I know go through this discipline, and I know of no investor that even comes close to "do his or her" homework - as thoroughly as I believe is necessary.

As a freshman you will likely do what most all freshmen do and that is to convince yourself that you have learned "It All" and do not need the next three years or a diploma to be successful. View the Masters Golf Tournament, the probabilities of a 21 year old with an opening of 65 to win the masters is an excellent metaphor for Investing Wisely. Last week I included the above sentences. I hope you are aware that the 21 years old blew it badly when the chips were down. If you are following young people or perhaps 'traders' STOP and catch up with this course of study.

You will notice at the bottom I have also begun to offer you the indexes for Gold, Silver, Crude Oil and the U. S. Dollar. I hope that adds some bizzaz to this work you are doing.

I repeat and will continue to repeat: "this 'stuff' is a boring process and often believed to be an unnecessary exercise in the minds of many investors, (the mind of a human being is a very peiculiar thing!) but it is also very profitable.


General Market - Current Perspective

The following will be repeated each week: Within my work / analytics it is important to take into account the current position of the general market / sectors / industry groups and the economy as it relates to the companies that are being valuated. This is one of those - first things first situations. It is a fact that 60% of the influence of the direction of any security is that of the general market - bullish or bearish. A 20% influence is on the Sector and Industry Groups. That leaves only 20% for the Companies itself. I suggest two things: a) that you confirm my numbers and b) that when you invest that you had better - be in phase - with the bullish or bearish direction of the general market and sectors / industry groups. It is up to you to believe or dismiss this information. I urge to do your homework well and be very selective in the companies you take positions in. Many followers of my work / analytics - write to me with ridiculous remarks about the above and other important axioms of the marketplace. That my friends, is both dumb and totally ego centered. These people will ARE'T and NEVER will be consistent and profitable investors!

The general market is currently and remains over-valued, over-bought and is showing serious signs of deterioration, especially in the area of breadth. Interest rates are on the rise, and inflation is already an acute problem. These Dow 30 Industrials along with many other companies are quite vulnerable to a meaningful general market pullback. That means that you should strongly consider holding cash or perhaps taking bearish positions. I do not recommend taking short positions in any of these securities.

So - what is new to consider in the marketplace for this past week? I sent Alerts in my personal Blog last week and the bears could not pull off the import and "conformation" of a Bearish Inflection Point. Stay close to your Emails this coming week or, at worst, the following week.

For me that is an easy question and will be for you, if you do your homework. The rally this past week remained right on schedule and should continue to do one of two things. The first is what most investors think and that is to assault the previous highs and create what is often called a break-out. I agree that this is a possibility. However, I have been waiting for a General Market Bearish Inflection Point for three plus months. So, as of this posting, I believe that we are much closer to a meaningful pullback than going - meaningfully higher. Yes the strongest Companies and Sectors are already higher but the vast majority is Not! This is particularly true with the Dow 30.

My focus for all companies, Dow 30 or others, is - Investing Wisely. My methodology of taking advantage of the bull / bear fundamental 'rotation,' technical 'cycles,' and 'inflection points' are especially critical in this marketplace and to your annual profitability. I believe, most every investor I have ever met can profit from this course. That is if you / they do your homework well. This is a vital discipline in today's marketplace.


Companies - Current Perspective

A Ranking, using each of my three (weighted disciplines) -- Comments for each Company -- and current Numeric Ranking (and ever changing 'rotation') of the position of each Company within the Dow 30 Industrials should give you plenty hard analytics homework every single week, but soon you will be doing it like a professional.

Grouping Six: (see below for a list of the six groupings of five - Dow 30 Industrial Companies.)

Symbol and Current Numeric Ranking within the Dow 30 Industrials Category Fundamental
(weighting 40%)
Technical
(weighting 35%)
Consensus
(weighting 25%)
 
(PFE) Ranked: # 5 Bellwether Good Very Good Very Good, but not deserved
Comments: Currently, at $20.5 - The theme, this week is the same as last week - and that is - that the information that you read in the "sources" below and other is Very Inconsistent with my analytics / valuations. This is particularly true when working with the enormous spread of information/ opinions as well as the flow of data propounded in public financial blogs by many unqualified and often very young financial analysts. This is a major problem for serious investors who cannot read between the lines / separate the wheat from the chaff. I hope you will see how this mis-information can be corrected and how you can benefit. Consensus analysis is the worst by far, in this realm of my three disciplines, so be careful when you think you have found a company that fits into my or your "Bell Curve." You will note that Pfizer is currently carrying a rather high (and I believe undeserved) Ranking against its Dow peers. ( please remember my strong emphasis on owning companies that are within the top 5% on my 'Bell Curve') However, you would not know it from its recent price action. There is decelerating Earning and both Executives and major Shareholders have been selling. The company is currently like Telephone currently under heavy accumulation, but most usually does not last. Fundamentally, there appears to be consolidation of the recent growth, and I am not impressed with the longer-term. This week I suggest you look at the PEG - currently negative about PFE, but will improve. Can you answer the question of WHY? Technically, it looks like it is going to the moon, but that is highly unlikely. However, it definitely remains a hold at least, for the time being. Consensus wise, it is only "good."
 
(MMM) Ranked: # 16 Bellwether Good Good Not so Good
Comments: Currently, at $93 - I suggest the company is definitely topping and is likely well placed with its Dow peers. Remember, this is again a "DOW" company that will produce very conservative 'numbers' as compared with other (Non-Dow) companies in it's industry group. I see yet another pullback in price on the near-term horizon. Fundamentally, clearly MMM deserves its modest ranking but is grinding out reasonable growth. It is one of my favorite Dow companies but that is not saying much. Earnings will improve but that currently has not been reflected in its price action. That offers a major fundamental concern to me. What about you? Technically, it looks like it has topped. The risk / reward factor for owning MMM is not good. I would sell at the top of this current bounce. Consensus wise it is "not very good." And that is unexplainable by this old Prof.
 
(UTX) Ranked: # 12 Bellwether Very Good Good Good
Comments: Currently, at $84 - Fundamentally, This year, earnings' against next years earnings' are improving quite well. Earnings' growth for the coming few years is also looking positive. I suggest UTX will move up on my peer Dow list. Technically, on a more near-term basis United Technologies could be topping, but it will likely take some time. Is there more life in it for the near term? My work says maybe. Consensus wise it is currently is one of the strongest. (Repeated Statement):You should know that Consensus Analysis is very important but often not all that accurate (and that is an understatement)! The financial analysts have their favorites and are paid to say good things about - companies that are - undeserving. Think about that. 10
 
(WMT) Ranked: # 23 Bellwether Good Good Good
Comments: Currently, at $53.5 - it sold for $56 in February and a low of 51 in March. Not much of a drop but the recent mini-bounce is not impressive. Fundamentally, It is not so bad as one might think. However, there is heaving selling from Executives and Institutions. I do not like "heavy selling." I think it has topped and would sell at the top of the current mini-bounce. The forward earnings' growth is flat and that is all you can expect from a company like this. Technically, I see a further pullback in the making. Consensus wise (and like so many companies in the Dow) the "Street" and its financial analysts are not doing an accurate job for you to follow their information and data - that is not a positive situation!
 
(INTC) Ranked: # 27 Bellwether Very Good Very Good Very Good !
Comments: Currently, at $19.6 - At this time, it is Ranked rather low by me and most everyone else, and I believe that is an accurate assessment. Fundamentally, Intel Corp. is going to fall back in its earnings just a bit. This is confirmed by recent price action. I would point out that the longer-term picture (20 years or so) the company had gone nowhere but down from its high o $62 in the year 2000. Why do investors stay on board a company that has a record of going down for over 10 years? That is a Prof. question, and you will get it on my (make-believe) test. Technically, The figures are pathetic. As a "Student" you should know better than to participate with this level of historical performance. The Consensus - Intel is ranked very high, and I believe you as a student or investor should understand - this is a blatant misrepresentation of the data provided to financial analysts and their presentation to you and I. The picture offered by the "Street", and its financial analysts are not doing an accurate job for you to follow their information and data - that is not a positive situation! Sound familiar, well you will hear more about this as I guide you through these 30 companies. It is your job to be able to filter out this purposeful BS.

In my 'Longer Version I have five (rather detailed) Notes: Again, click on the above URL to visit my last 'Longer Version' of this Course of Study.

You can find all Dow 30 Industrial Companies and a number of other supporting Bellwether and High Profile charts amongst the 100 or so in:

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID4095527

The Prof's Six Groupings of the Dow 30 Industrials
Grouping One: BAC, CSCO, GE, BA, XOM
Grouping Two: HPQ, AXP, KFT, TRV, CVX
Grouping Three: CAT, HD, KO, DIS, DD
Grouping Four: T, IBM, JNJ, AA, JPM
Grouping Five: VZ, MRK, PG, MCD, MSFT
Next Week -- Grouping Six: PFE, , MMM, UTX, WMT, INTC



Commodities - Current Perspective

Four for focus: These four commodities are offered in order to compare their on going analytics with that of the Dow 30 Industrials.

This presentation each week will be a simple update of the Technical picture. Fundamental and Consensus Analysis is much too complex to present in this format. However, understant in order to invest wisely in an appropriate ETF or Company the work / analytics is much the same as for any common stock.

Symbol and Name Category Fundamental
(weighting 40%)
Technical
(weighting 35%)
Consensus
(weighting 25%)
 
Gold ($GOLD) Bellwether Very Good Excellent Very Good
Comments: Currently, at $1,474., up again for the week. Gold is and has moved up strongly and has been a leader since late 2008 - that's a long time. Current Technicals: It looks like it is topping but may just keep doing its thing for awhile longer. If you were worried during the January 2011 pullback you can expect yet another pullback, and quite likely - more severe! Until Gold experiences a meaningful pullback, and then clearly fails to successfully test the previous highs, it is likely a hold. However, looking at the near-term and not wanting to "experience a meaningful pullback" - I suggest that prudence says that if Gold starts looking like it did in November and December that it could become a strong sell. Students and investors alike should develop an exit strategy. Few investors ever even consider this (an exit strategy) as part of their investment philosophy!
 
Silver ($Silver) Bellwether Very Good Excellent Very Good
Comments: Currently, at $42.1., ( Gold & Silver track each other very well historically) Silver is and has moved up strongly and has also been a leader since late 2008. Current Technicals: I suggest you re-read the above Comments on Gold.
 
Crude Oil ($WTIC) Bellwether Very Good Very Good Very Good
Comments: Currently, at $108.4., Crude Oil has been tracking Gold/Silver and the above is also applicable to this commodity. However, it could be starting to look like the topping action of December / January. I said it could and that simple means caution. Energy in general is not holding up nearly as well as Crude Oil. That should be a warning of some sort?
 
U. S. Dollar ($USD) Bellwether Very Good Very Good Good
Comments: Currently, at $74.7., at this time there is nothing to lead one to believe that the Dollar will be turning up - however!. Current Technicals: I now believe that any turn-up could well be coincident with a turn-down in the General Market. In other words - a possible rally in the U. S. Dollar and a pullback in the General Stock Market? Stay alert, this could be a very interesting study / scenario for both students and investors.

You can also find all these Commodities and a number of other supporting Bellwether and High Profile charts amongst the 100 or so in:

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID4095527

Source information and data:
Yahoo Finance
MSN Money
MorningStar
BarCharts
StockCharts
Nasdaq.com


The Bottom Line

Your 'bottom line' will depend on just how proactive you are about doing your homework on the above Companies and perhaps asking questions of the Prof. (that's me!)

This Week's Home Work Assignment: (Same as last week and will be very different next week) Study at least 3 of my "Source information and data" (see above) and learn to Navigate through all that is offered. (the above will be your - on going homework assignment and will require many hours if not months - these sites offer much information - some good and some worthless - but can be very rewarding if you are willing to learn)

Next read up on each of these companies and make some notes from your favorite sources of information. You may even want to make file folders for each company. Referring back to your notes can be a valuable learning experience. Remember, this is boring "stuff" to many investors, but it will provide you accuracy and profitability in your investment strategy.



More Notes about this Course of Study

Visit the 'Longer Version' URL for this information:

You may want to review my 38-week course - Investment Basics with SafeHaven.com. (see the sidebar on the SafeHaven.com home page or Authors and my name.)

Wishing you a wonderful learning experience and the continued desire to grow your knowledge. Education is an essential part of living wisely and the experiences of life, I hope you make it fun.

Learning how to consistently profit in the Stock Market, in good times and as well as in not so good times requires education, experience, time and unfortunately mistakes which are called losses. I believe if you will work ast it, you can be profitable while you are learning?

Let me know if and when I can help and tell a friend about this Course of Study.

Thanks for your interest in my work / analytics and possible my professional asset management / consulting / mentoring services.

Smile, have fun - Investing Wisely,

 


 

Steve Bauer

Author: Steve Bauer

Steven H. Bauer, Ph.D.

Steve Bauer

Steve has several degrees, i.e. post graduate degrees and doctorate and a great deal of (too much) continued education. For seven years, he did a stent as a University Professor of Finance and Economics.

Dr. Bauer also writes for SeekingAlpha.com. His articles can be viewed at: http://seekingalpha.com/author/steven-bauer?source=search_general&s=steven-bauer

He owned a privately held asset management firm and managed individual investor and corporate accounts as a Registered Investment Advisor - for over 40 years.

Professionally he is a financial analyst and private asset manager / consultant / mentor.

Steve can be reached at senorstevedrmx@yahoo.com

Copyright © 2010-2013 Steven H. Bauer, Ph.D.

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