How did we get up here? How did we take out the all-time highs, and could we power even higher based on the fundamentals of companies, not necessarily a Fed rate cut or a threatening Trump tweet on Iran?
That's what I am thinking about on a historic day when we set new records. Even as we may not finish at the high, this has me wondering, correctly, what's next? What can happen, provided we stay even keel?
Let's look at the Dow's Top 10 winners to see how lofty -- or nosebleed -- we really are. First, is a household trillion-dollar name, Microsoft (MSFT) , with a stock up 33% year-to-date. Microsoft's stock now trades at just below 30-times earnings, which, I am afraid, is rich for a name that I own for my charitable trust. That said, the company has repeatedly blown away the numbers and tends to be the go-to name now for non-FAANG buyers. It's not my first choice to go higher as it is now growth at a fairly reasonable price. That said, it's a quality company that's just kind of run too much for now.
Next up is American Express (AXP) , the fabled credit card company that has become the big fintech play that money managers are clamoring for. This one's a keeper; at 15-times earnings with that franchise and with falling rates, it might be one of the most desirable stocks in the Dow. I would buy it right here, even as it is up 30% for 2019.
Cisco Systems (CSCO) comes in third and you know I think this company has radically changed under CEO Chuck Robbins. It's become an Internet-of-things cyber security enterprise, the true backbone of the web and it is doing fabulously. I still can't believe with that momentum, declining raw costs and incredible management, you can get this stock for 18-times next year's earnings. Periodically, the stock, which is up 29%, dips as it did just recently. I like it here.
Fintech remains all the rage in this market, so it is a natural that No. 4, Visa (V) , is up 29.5% for 2019. Visa's not cheap at 32-times earnings. I do prefer American Express even as if it has some credit risk and my charitable trust owns Mastercard (MA) , which trades at a slightly more elevated level but has faster growth. Let's give it a soft pass as it is an erratic trader, given to vicious dips that make buying warranted.
When Walt Disney (DIS) chief executive Bob Iger outlined his vision of Disney Plus and gave a road map out until 2024, the stock took off and has never come back. That's an extraordinary vindication of a stock that seemed forever stalled in the low $100s. That said, to come in now when this stock has periodically dipped to the $130s does not make sense; hold the fifth best performer, up 28%; don't chase.
Sixth is the nameless, faceless, incredibly well-run Travelers (TRV) with a stock up 26%. Travelers is an excellent underwriter that is being viewed as a play on lower rates. I just like it for its sure-footedness and its low price-to-earnings multiple 13-times next year's earnings. I am not that enamored of the financials per se, but this is a good company, and it wouldn't hurt to buy it.
Apple's (AAPL) next, at No. 7, and boy, what a quandary we have here for a stock that's up 25% for the year. Today Deutsche Bank (DB) rolled out coverage with a hold on the stock, worrying about iPhone short falls among other frets. I totally get that. CEO Tim Cook, arguably, is in the hottest seat of all when it comes to the trade war with China. He's a gigantic employer in both countries and he sells a huge amount of product in both. Before Trump, Cook represented everything that was good about world trade: Apple's a dominant company, based in the United States, that has probably done more to spur growth in this country than any entity outside the U.S. It's been able to make the most inroads in China of any American company and, as part of the bargain, China assembles a gigantic amount of Apple goods.
Theoretically, it could be targeted by both countries. China could boycott the company in retaliation against our trashing of Huawei; Trump could include cellphones in the tariffs on the next $300 billion in imports. So why do I persist in owning and not trading Apple? Because I think that Apple is developing a fabulous razor-razor blade model with services being the blades. The wearables are coming on strong. And the health uses for the watch are just now starting. There's too much going right now to bolt from a stock, up 25%, that sells at 16-times earnings.
I like No. 8, the stock of Home Depot (HD) , up 21%, very much. Home Depot's part of the retailer cohort that's winning because it has tremendous scale. It joins Walmart (WMT) , Costco (COST) and Target (TGT) as retailers that can jawbone down prices. At 20-times earnings, I don't think you are paying too much for one of the best big-box retailers in the world. That said, the weather's been bad for gardening season. That could crimp earnings. I would wait before I pulled the trigger.
IBM (IBM) got thrown out at the end of last year, and it was natural that it could rebound given its high yield. Here is a company that is on the verge of being transformed as it is buying Red Hat (RHT) , one of our favorite cloud kings at the end of the second half of the year. I would buy the stock, up 20% for the year, right now in anticipation of the deal closing.
Finally, the tenth best may be the most surprising of all: Procter & Gamble (PG) . This stock has been nothing short of amazing with 20% spurt and an earnings beat with what I think will be many more. I do feel that you've missed a very big part of the move. But it still yields 2.67% when the 10-Year Treasury yields 2% and David Taylor is doing a superb job.
So there you have it, the big cap companies most responsible for the run. As you can tell, I remain fairly bullish judging by my buy calls, but with the optimism running high about a trade deal, I want to take the other side of the trade and wait for a pullback on the ones I am less certain on if just because if the talks do break down you will need dry powder to buy some of these stocks.
Apple, Disney, Mastercard, Microsoft, Cisco, and Home Depot are holdings in Jim Cramer's Action Alerts PLUS member club.