21. You want an industrial with a big year ahead of it despite a strong dollar and a weaker China and Europe? Then look no further than United Technologies (UTX). You think that the board took the extraordinary action of removing Louis Chenevert without a belief that new CEO Greg Hayes won't shake things up? I don't think so. I can't tell what the company can earn under the break-up scenario I am seeing, but let's just say that a United Technologies divided like the old American Standard was, perhaps into a heating, ventilation and air conditioning elevator company that dominates in non-residential construction and a fast-growing defense and aerospace play. Could be worth upwards of $135 a share just looking at how some of the comparables trade. Now the stock's already up $10 from the CEO coup, although it's still $5 off its high. But a potential $20 restructuring gain from $115, or 17%, is nothing to sneeze at, especially given that UTX gave you only a pathetic 1% increase last year. You want to own this diversified industrial because it may be among the biggest breakup stories of 2015. $115-$135.
22. The stock of Caterpillar (CAT) resembled a roller coaster in 2014, starting out at $90, rallying to $110 and then returning right where it started. The always-congenial CEO Doug Oberhelman failed to deliver once again on the promise of mega earnings growth. With China continuing to slow its capital expenditures, with Europe weakening, with oil and gas and mineral prices lower and with only the United States as a star, I can't see Caterpillar making the $6.50 a share number. I don't expect a big miss, although CAT's given you some real whiffs at times and some of the decline will be dollar-related, but $6 seems more likely. But a 3% yield keeps the stock from going much below these levels. CAT gained a little less than 1% last year. I believe that with the way the world is set up, a repeat of that performance, or slightly less, could be in the cards. Let's say this $91 stock does nothing. A zero. $91-$91.
23. McDonald's (MCD) is in fish-or-cut-bait mode in 2015. Either Don Thompson reverses the course of sales and earnings or the board reverses CEO course and tells Thompson to move on. There's really no other tenable solution. The status quo's just not sufficient as McDonald's remains a great American corporation and a great American corporation's board is not going to sit there and let this once-amazing growth company have a declining earnings year, and I don't just mean because of currency, as the U.S. is horrendous, too. Before you think that it is written that McDonald's must do badly because of its unhealthy menu, consider that Burger King (BKW) went to $35 from $22 last year and that chain didn't serve any veggie burgers that I know of. Sure, a lot of Burger King's gains came because of an acquisition that changed its tax domicile, but buying Tim Horton's isn't exactly like buying a tofu donut joint. Look, the truth is that Burger King and Wendy's (WEN) are running circles around McDonald's and even the incredibly China-challenged Yum! Brands (YUM) is doing better than Mickey D's. It is inconceivable to me that one of the best-growth stories around just a couple of years ago under different management can't be fixed by someone new. That's why I think McDonald's at $93 with a 3.65% yield is such a bargain.
Now, I know the best performers in the group are the ones that have the food that's healthiest, and here I am thinking, of course, about Chipotle (CMG) and its marvelous returns. But Jack in the Box (JACK) went to $79 from $47 just on improving menus and a turnaround at Qdoba and I think McDonald's can give you something very positive with even the smallest of changes that JACK gave you. That's why I am betting that either a change at the top, or some operational improvement under Thompson, can allow McDonald's to take out its all-time high of $103 and then some, maybe as much as $7 more without a lot of effort. Why else does my Charitable Trust pick up the dividend and wait other than perhaps because a 17% gain lurks on the horizon from either of two not-so-impossible changes. Certainly beats last year's 3.4% loss. $93-$110.
24. It's pretty incredible that AT&T (T) a utility with a 5% yield, could still go down 4.5% in 2014 in light of the incredible 24% gain in coal, nuclear and natural gas burning utilities. In fact, it's downright incredible. But utilities are monopolies and AT&T is in a four-way price war with Verizon (VZ), T-Mobile and Sprint (S) going at it hammer and tongs. Which is why in 2015 I am excited about T's prospects because it is buying DirecTV (DTV) which, I think, with its NFL package, is an under-marketed powerhouse. I have always felt that whoever has the every-football-game-televised franchise is in the catbird seat in an era where ESPN has 90 million names playing fantasy and Fan Duel and its copy cats have strutted onto the scene. AT&T now has the football ticket and I think that it's almost impossible to screw up. That's why this stock could be big in 2015, maybe with as much as a 10% increase plus the dividend. That's a sweet, commonsensical return given its outsized -- and safe -- dividend with some decent growth and, more importantly, some new differentiation vs. a DTV-free AT&T. So, the stock trades to $38 without much of a problem and shareholders -- as well as new shareholders -- rejoice. $33-$38
25. It's amazing how much the world seemed to turn on Boeing (BA) after several stellar years of outperformance. There seemed to be almost total Boeing ennui, a collective "we've gotten all we can out of this one" in 2014, which is how a tremendous company's shares could fall 4.8% for the year. It didn't help that Boeing showed some serious cracks in the defense side of the story. Nor did it do any good to see such a strong dollar subsidizing Airbus even more than the governments currently give it. At the same time, some fretted that a gigantic decline in the price of oil will make it so companies just hold onto their older planes and don't need to upgrade. I think that what we will discover in 2015 is that airline companies need every plane they can get their hands on and these worries will prove ephemeral. Plus, the airlines are more flush than they have ever been in their history because of higher fares and lower fuel, so they will plow their proceeds back into growth mode and the only growth an airline can show right now is to add more planes to accommodate ever more travelers.
The earnings growth plus the 2.8% yield cushion should get Boeing aloft again, although it's hard to see how it can plow too much ahead given its strong dollar issues. But a year ago this stock stood at $145 when the ennui begun. I think that the played-out factor has now been, well, played out, and Boeing can run to that level and maybe a little more, perhaps $150, done on a $9 earnings-per-share number, 70 cents more than people expect and a still below market multiple of 17x. This target, which yields a 16% gain, could prove conservative if Boeing gets its defense act together, which certainly seems possible given the future of other nations arming themselves in light of our declining role as the world's policeman. $129 -$150.
26. Verizon's (VZ) got all of Verizon Wireless, but that doesn't solve the price war issues that drove the stock down 4.8% in 2014 and it won't help much in 2015 either. Sure, the 4.68% yield will keep the stock from going back down and might bring some buyers in to take it back to $50, up from $47 where it is now, but I don't know if it can even go to $53, its all-time high, without something giving among the four-player shootout. You will have to be content with a 6% gain, which, when coupled with the dividend, is better than a sharp stick in the eye. At least it's a GAIN. $47-$50.
27. Shareholders of ExxonMobil (XOM) were pretty lucky to get out of 2014 with just an 8.6% loss, given that oil was cut in half in just a few short months. But Exxon's always traded at a premium to the group and that's because it's the least sensitive to commodity pricing of any of the majors. It did go down to $86 at one point, piercing its 3% yield protection, and while I think oil can start rebounding by this time next year, my belief is that Exxon's stock revisits the $86 level when investors tire of the earnings disappointments and guide-downs, even from the likes of this vaunted company. It's still well above the $56 price of 2010 when just the demand side waned, so don't get too distraught. Call it almost a reprise of the 8% down that Exxon gave you in 2014 and, yes, call that a victory. $93-$86
28. General Electric's (GE) shares had such a poor 2014 that it's hard to believe it can't do better than the 9.8% decline that the stock registered. But here's the problem. In 2014, General Electric moved out of finance in a big way with its Synchony spin -- a huge win for the buyers, by the way -- and spent big on oil and gas and energy-related construction. In other words, it de-emphasized one of the stronger performers in the market and doubled down on two of the weakest, especially with the recent $17 billion Alstom acquisition. That purchase solidifies General Electric as a major player in European infrastructure and energy spending, two groups that I suspect investors will want to flee from as it becomes clear that there will not be a rebound in energy or Europe any time soon. I don't expect GE to reprise its 2014 downturn, as the company's 3.67% dividend yield with the possibility of a nice-sized boost won't let that happen. But I would not be surprised if GE finishes next year where it finished this year. Lots of pain, no gain. $25-$25.
29. Chevron's (CVX) a real good company with some of the best growth prospects of any of the major oil companies, including some very impressive Gulf of Mexico prospects that will soon come to fruition. But, in the end, it is an oil company plain and simple and that means it's going to be a year of downward earnings revisions for CVX. That's just not palatable to the vast bulk of investors out there, so Chevron's going to have to spend some time in purgatory, perhaps losing even more than the 10% it shed last year. That means a return to the $100 level where it bottomed last, a 4%-and-change yield preserving the year from much more downside. But that may turn out to be charitable, as we know yield greater yield protection didn't stop the decline in Royal Dutch (RDS.A) which, to me, has much better upside. So, be careful, Chevron's 12% decline might be the best-case scenario. $112 -$100
30. So far, most of the dogs of the Dow are keeping their mutt status. Don't expect that to change with IBM (IBM) pulling up or, more accurately, pulling down the rear. I don't really know what good can happen here with this very broken company with a very broken stock. The other day someone speculated to me that management could break the company up, but the one thing the company does have going for it is that it does offer a one-stop consulting shop, which has some basic appeal to many large companies. A transformative acquisition that could beef up the consulting side could help, perhaps a buy of Accenture (ACN) using cheap borrowed dollars? Yet, I think that's way too bold for this timid outfit. IBM right now sells at 10x a $16 earnings estimate. But I don't know how it can possibly do that $16 number. I question every assumption about this company's earnings power. The move to the cloud cuts margins. The business in Europe and China is hurting badly. Only 43% of its sales are domestic at a time when investors will pay much higher multiples for all domestic companies. It doesn't even have a real needle-moving product cycle to look forward to. Meanwhile, it will just keep buying back stock at what will turn out to be inflated levels, similar to its 2014 strategy, if you can call it a strategy. You have to ask yourself how long will big shareholder Warren Buffett stay the course. If he leaves, I think the stock could see $125, an astounding 22% decline on top of a 14% drubbing, a truly eye-catching, if not eye-putter-outing performance. Oh, and I don't think an activist will take a big stake to shake things up because there isn't much to shake. Nor would I think a change at the top matters. Virginia Rometty was dealt a very bad hand and only a colossal acquisition can change that. $162-$125
Still, the companies like IBM, Exxon and Chevron are very much the exception to my bottom-up look at 2015. There are enough positives, whether they be lower oil prices, a resurgent United States, special situations like restructurings or new products and product cycles. There's enough here to merit another year ensconced in the black for the Dow Jones. How big a gain? These changes add up to a 2,078 point advance, bringing the averages to almost 20,000 or 19,901, to be precise, up 11.66% for 2015, a slightly larger gain than 2014 and one certainly worth hanging around for.