How the Dow Will Fare in 2014, Part III

 | Dec 24, 2013 | 12:00 PM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

nke

,

pfe

,

mrk

,

pg

,

ul

,

cl

,

trv

,

hig

,

unh

,

utx

,

vz

,

tmus

,

s

,

t

,

v

,

ma

,

dis

,

wmt

,

ibm

,

cost

,

wfm

,

kr

,

amzn

,

mmm

Note: This is a three-part piece. Please see part one and part two.

Here are my last 10 forecasts for how stocks in the Dow Jones Industrial Average will perform next year. See my first 20 predictions here and here.

21. Nike (NKE) had a fabulous quarter, but the Chinese futures orders weren't strong enough, and neither was the company's spending for the future. I think the company's China segment will turn on the strength of its economy, and that the U.S. and Western Europe will stay strong. I was surprised that China didn't roar, but I also know that Nike is a counterintuitive stock: You have to buy when a number is awry, because Nike's management has a very positive habit of fixing what goes wrong, and fixing it quickly.

It wouldn't be a stretch to see this stock sell at a super premium multiple on a number north of the $3-per-share consensus, and for the stock to rise to $85. That would make it the most expensive stock in the Dow, but it isn't as if the company missed on the top or bottom line -- and I think it will only do better as the year progresses.

22. Pfizer (PFE)? I don't know. This company has done pretty much everything it can to avoid really getting crushed by the patent cliff. But, unlike Merck (MRK), another drug company with no growth, I don't know what Pfizer can do for an encore after its 31% gain this year. Here's one that I think will tread water next year, and I believe it would be hard pressed to go above $34 unless the company reveals a blockbuster drug that no one knows it has, which I regard as unlikely. I just think it will be one of the bigger blahs of the Dow. Then again, it has a decent dividend and a pro-shareholder management, so maybe it has something up its sleeve that I can't see.

23. Procter & Gamble (PG). I don't think the U.S. is going to have a stop-start economy this year. To me, that 4% growth in gross domestic product is more of a beginning than a coda. So lots of people will continue to bail out of P&G, as they did at the end of the fourth quarter of 2013. I think they will be wrong. A.G. Lafley has come back to make changes, not to be a caretaker, and I think this is the year he'll do so. Frankly, P&G is too big and too layered, and even though Bob McDonald was starting to make headway with the overhead before he was sacked, there is much heavy lifting to do -- too much if the company isn't split up.

Plus, P&G has just been left behind by both Unilever (UL) and Colgate Palmolive (CL) when it comes to emerging markets and innovation. All that said, this is exactly when you want to buy PG -- when there is a lot that can be done. That's why this stock could shock with a run to $95 as earnings pick up, and as it potentially institutes a restructuring to rid itself of slow-growing divisions.

24. Travelers (TRV) can just keep being Travelers, taking in stock and increasing prices as performs does better with higher interest rates. On the buyback front, over six years a 650-million-share float has come down to 468 million shares. Despite the stock's 24% increase, this company's problem in 2014 will be the same one it had in 2013: the other guys. Travelers screwed up so badly during the downturn that there's still a great deal of upside potential as the economy picks up and its awful portfolios spring back to life.

That's why I like a Hartford (HIG) more than a name like Travelers. Hartford stumbled horribly and is still coming back, while Travelers merely kept doing it right. Still, higher interest rates mean more money for Travelers, as well as the possibility of another year when the company can grow the business and the stock. I believe shares can get to $100 via a combination of more income from its investments, more small business start-ups needing Travelers and multiple expansion.

25. UnitedHealth (UNH) is a company with nine lives. A company that was supposed to get scalded by Obamacare instead comes out on top: Shares are up more than 35% year to date. One reason is that the company seems to be the most technologically savvy of the companies in an industry that is known to have gigantic amount of waste. Another is the voracious share buyback -- almost one-third of the stock has been repurchased in the last six years. UnitedHealth is in a peculiar win-win situation. If Obamacare, as it is currently configured, keeps hobbling on, UnitedHealth will be a white knight. If Obamacare falters because of the election in the fall, it will win again -- because those who sold it fearing Obamacare will just rush right back in. People love this segment of the market and can't seem to love without putting one on their sheets.

26. United Technologies (UTX) is in a remarkable position to be owned right now. Its last pronouncements, which included some reflection on lost contracts from the government, has taken out a lot of the risk of owning shares of this high-quality equity. That's despite the fact that it's getting none of the potential rewards from the brilliant Goodrich acquisition, which skewed the whole company toward more aerospace exposure at a time when aerospace is in secular advance mode. United Technology is also going to be a monster beneficiary of the return of the orders for its heating, ventilation and air conditioning division -- which should come with the revival of commercial, non-residential construction.

Try as I must to get people to understand the importance of non-residential to the growth of the economy, I think people will just have to see it first to believe it. If they do, United Technologies will be at $135, which would be a terrific advance. Now, if we every started building new skyscrapers in this country, can you imagine what that would do for the company's Otis unit? Stay tuned.

27. Verizon (VZ). The new Verizon will face some serious competition from a revitalized Sprint (S) and an aggressive T-Mobile (TMUS), as well as an AT&T (T) that's hanging in there. We've heard a lot of talk about a potential T-Mobile-Sprint tie up, and if that happens I think Verizon shares will back to the $54 level. That's where, bizarrely, the stock traded up to immediately on the announcement that it would buy the rest of Verizon Wireless that that it hadn't already owned. I don't see Verizon stock gaining much more than that, though, because the company talked already about how additive the deal is, and I don't think this in one of those situations in which more synergies will be discovered, because these weren't really separate companies to begin with.

28. Visa (V) is one of my absolute favorite Dow stocks for next year, in part because people didn't like that last quarter and I say, "What's not to like?" This remains a terrific growth company -- just a consistent, higher-growth "faux financial" that portfolio managers crave. There is a ridiculous, and I mean ridiculous, price-to-earnings-ratio disparity between MasterCard (MA) and Visa right now: Visa is 5 multiple points below MasterCard. I am not sure there should be any discount, but even if you just get near the same P/E multiple, you'll have a $280 stock -- which is exactly where I think it is going. That last quarter was a gift, not unlike the Disney (DIS) gift earlier in the year and the Nike gift that I have already explored.

29. In many ways Wal-Mart (WMT) is the most problematic Dow stock next to Pfizer. First, you will have a new CEO, and I hate to own a stock the first year of a new CEO. That's partly because these new chief executives usually discover what's wrong and are certainly not adept at dealing with research analysts or the media, as you can see from IBM's (IBM) paltry numbers.

Second, I think Wal-Mart is being squeezed by everyone, from the dollar stores to Costco (COST) to Whole Foods (WFM) and Kroger (KR) to Amazon (AMZN). Wal-Mart has become the whipping boy of retail. Now it has too much heft to really disappoint, but here's one that actually might be down for the year. Considering that it took me to the 29th stock in the Dow to find a down one, though, that's not all that bad -- and not all that different from 2013, when you think of it.

30. 3M (MMM). When will Inge Thulin get his due? The pensive CEO of 3M is slowly but surely adding more and more growth through innovation at the exact same time that the world is growing giving this company a very strong GDP kicker. Unless you have looked through the annual or the most recent earnings presentations, you might not know how much of 3M is new and has just been invented. This is a research-and-development, developing-market powerhouse that delivered an exceptional last quarter. That performance followed a previous quarter that had been considered a shortfall until you realized that the stock rallied 20% not long after.

Thulin is growing this company at an impressive rate, and I think it can earn close to $7 per share and trade at $154, as it a big-cap international company that happens to be located in the U.S. It's perfect for portfolio managers who want growth and dividend -- and excitement, too.

Will 2014 be a remarkable year? I think it will be a good one from the bottom up. I am sure that we will be told endlessly that what matters is the presumed new Fed chair Janet Yellen, or Obamacare, or the fall elections. Me? I am keeping my eyes on profit -- and from where I am, they look awfully good for the coming year.

Columnist Conversations

Is this the biotech revolution or the biotech bust? View Small Cap Biotechs Like Never Before: Transparency is...
Market gets hit from impact of sanctions against Russia for second day in row but manages to rally a bit to en...
We took out some of the high end of support, but I'm still looking at this symmetrical pullback for entries on...
going into trading today roughly 37 million shares of X (US Steel) was held short.today big X has traded 27 mi...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.