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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 41629  
Subject: DOW30 redux Date: 11/1/2012 8:21 AM
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I've still got cash sitting on the sidelines, which makes me cringe so I'm looking at this again.

Using BMW as a screen, I find the following suggestions (based upon RF & ER):

3M
AA
BAC
XOM
GE
HPQ
JNJ
JPM
MRK
PG
UTX

I screen this list to remove bank stocks and stocks in distress (HPQ!) and these remain:

3M
AA
XOM
JNJ
MRK
PG
UTX

and for non-BMW reasons I find CAT, CVX, and INTC interesting.

Here are my thoughts:
3M
The stalwart of stalwarts. All it's numbers look good, but not great. I love the company but don't see a compelling reason to buy its stock at this time. 3M on average outperforms the market (and is currently throwing off earnings to the tune of 6+% of it's stock price) so you could do a lot worse than buying 3M right now.

AA
A traditional cyclical. It's fundamentals look terrible right now. This is due to suppressed aluminum prices (due to a slow global economy). AA will recover and provide a nice return when it does. I do not expect the world economy to turn around in under a year or two. In the meantime, this stock won't do much of anything. Also the company has historically underperformed the market.

CAT
Another cyclical but perhaps less so than AA. It's fundamentals look much better than AA's. As with AA I expect CAT to provide a great return when the global economy recovers. In the meantime, it provides a better return on your investment dollars (according to current numbers PE < 10% - equating to an earnings return of >10%).

CVX
An oil and gas company. BMW screen doesn't pick this up, indicating that, historically speaking, the stock is fairly valued. It's PE looks juicy but PEG is extremely bad - meaning the company is throwing off cash but hasn't been increasing earnings. I suspect it's fundamentals are hurt by lower oil prices. I expect these to improve when the economy does AND in the meantime it, like CAT, should be throwing off earnings at a rate of 12+% of its stock price. Meaning it might be a good place to park your cash while awaiting a market rebound.

XOM
Ditto CVX in every respect except XOM seems to be continuing to grow its earnings (I suspect this means the lower oil price hasn't hurt XOM as much as it hurts CVX). XOM is throwing off earnings at a rate closer to 10% of its stock price than the 12% returns by CVX. Make your choice between more earnings now (CVX) or more earnings later (XOM).

INTC
Giant chip maker. Don't expect to make a lot on stock price growth (BMW indicates the stock is fairly valued), however, the PE and PEG of INTC indicate it'll provide ~10% earnings return on your stock and that it has recently been growing. I would not be surprised to see the growth slow a bit before resuming when the world economy recovers. I don't thinks this will become a barn burner but it could be a safe harbor to park your cash while you wait out the global economic storm.

JNJ
Another traditional stalwart. I love the company and already own some stock. JNJ barely passes my BMW screen and it's fundamentals right now are good but not great. The main reason I see to buy it is it's average CAGR should provide a safe return while you wait for something else to pop. JNJ's PE and PEG are pretty high, so I'm not sure you can count on the average CAGR to pull you through. IMO I won't buy more but am not willing to sell what I have.

MRK
MRK only barely passes the RMS filter on my BMW screen. Other than being a "safe" investment there's nothing else in its fundamentals that I find enticing. I'll skip MRK.

PG
PG likewise only barely passes my RMS filter and I don't see anything in its fundamentals that makes the stock enticing enough to buy.

UTX
A stalwart conglomerate. It passes my RMS and ER filters and has recently been growing at a decent clip. It's a strong, "safe" company. Nothing screams at me to buy it. A total speculation is that the stock price might rebound if the sequestration law (reducing defense spending by $500 billion starting on 1/1/13) is overturned. IMO there are better choices right now.

That leaves me with:
maybe AA
CAT
CVX
XOM
INTC

Disclosure:
I currently own
MMM
AA
CVX
XOM
JNJ
PG
UTX
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