What's actually safe to buy after this total breakdown and what needs to be sold? Between Covid-19 and the collapse of oil prices, everything is in question.
So this week I'm taking you through all thirty stocks in the Dow Jones Industrial Average to give you a sense of what's at risk here and what's not. We'll do 10 of them at a time in alphabetical order.
1. 3M (MMM) . A few years ago, I would've considered 3M exactly the kind of stock to buy in an environment like this. With a 4% yield and a solid of mosaic of businesses in healthcare, transportation and electronics, you'd think it would be one of the safer conglomerates. Now, though, I see 3M as a more indebted company that's levered to merely okay end markets, as transportation and electronics don't have enough growth to really bolster the earnings. Plus, they've got some huge environmental liabilities that could potentially put those earnings at risk.
On the other hand, 3M's seems poised to return to low single digit growth after a couple of years lost in the wilderness. This company has a long track record of boosting its dividend, and while the surgical mask business is a small part of their portfolio, it absolutely gets a boost from the pandemic. I can't recommend it right here, but once 3M starts yielding 4.2%, I think that's enough to offset the substantial economic risk. That would put the stock at $140, down four bucks from these levels.
2. Apple (AAPL) . Here's where their huge installed base of 1.5 billion devices makes a difference. Without the service revenue stream, you might be tempted to write off Apple as a company that's way too levered to China both as a component supplier and an end market. But China's coming back online faster than we'd hoped thanks to the government's draconian efforts to contain the virus. In other words, China's not the problem -- we can take that risk off the table -- and that makes Apple a go-to name into this hideous weakness. We know they've already guided down, but it's possible we could get another guidedown given that we're likely to see a big decline in phone sales.
Again, though, at this point Apple's more about the service revenue stream than phone sales and the service stream is fine. If the futures keep hammering the whole market, I think Apple's a buy. Remember, the company has a vast treasure trove of cash that they can use to buy back stock right alongside you.
3. American Express (AXP) . This is one of the rare financial institutions that got through the great recession relatively unscathed, although the stock traded down to $10 at the lows. The problem this time around is that American Express is so levered to small businesses and to travel -- a double whammy. Their earnings could take a huge hit, which makes the stock almost impossible to value. How low can it go? I honestly have no idea. What I can tell you is that American Express has more earnings risk here than almost any other stock in the Dow. Hard pass.
4. Boeing (BA) . Here you have a triple whammy: We don't know when the FAA will clear the 737 Max for flight -- it sure didn't help when new CEO Dave Calhoun gave an interview to the New York Times where he made it clear that the company may be rotten to the core. That's not what anybody wanted to hear. After reading that piece, I felt like the FAA has the ammo to delay the approval for another quarter to see whether Calhoun's making any progress cleaning out the Augean Stables.
Then we have the problem of Boeing's customers. Thanks to the dramatic decline in travel, the airlines are now incredibly cash strapped. Finally, there's the balance sheet. Boeing's carrying far more debt than it can handle if we don't get a return to some form of normalcy and fast. I'm not sure what kind of dividend can protect you against that triple threat. If the airlines weren't so hobbled, I say buy Boeing once it falls to $164, where it would have a 5% yield -- down more than sixty bucks from here. But with their customers hurting, Calhoun saying the company's a mess and the balance sheet looking precarious? I just can't calculate the downside and I'm not going to hazard a guess. Again, hard pass.
5. Caterpillar (CAT) . When it looked like the Fed was going to throw us into a recession at the end of 2018, CAT traded down to $116. As of today, it's sliced through that level like a hot knife through cream cheese. At the height of the trade war, the stock traded down to $111. As of today, it's at $104. I think a recession is now unavoidable, which means you shouldn't start buying this one until it hits $100. That's only down a few bucks from here -- and at $100, CAT would have a 4% plus yield. Until then, stay away. Only a gigantic fiscal stimulus would change my mind.
6. Chevron (CVX) . CVX was down 15% at close on Monday as the price of oil plunged 24%, its worst single-day decline since the gulf war -- the first one. I've been telling you for weeks that the oil stocks are uninvestable now that Wall Street suddenly cares about the environment. This new price war between Russia and Saudi Arabia makes the whole group even more toxic. You've gotta understand, OPEC's been propping up the price of crude since the 1970s; now OPEC's effectively dead. The last time oil collapsed, Chevron plunged to the mid-seventies. Don't even think about starting a position until we revisit those levels, and even then I'd hesitate to recommend it.
7. Cisco Systems (CSCO) . The problem with enterprise-oriented technology companies is that in-person meetings help them close big deals, and as long as the coronavirus keeps spreading, those meetings won't happen. So I think Cisco's numbers may be too high, which is why we sold some for the Action Alerts Plus charitable trust last week. Honestly, there's not much reason to own this one here after they gave you such a downbeat forecast. I like the dividend, but it's not safe until the stock sinks to $36, where it will sport a 4% yield.
8. Coca-Cola (KO) . This one's a buy, plain and simple. The stock's been slammed by the futures even after a terrific quarter. I think investors will flock to Coca-Cola as a safe haven because it's a classic defensive stock that does just fine in a slowdown. Right now it's at $52 -- if you can get it for less than $50 that's a gift.
9. Dow Chemical (DOW) . I like the new Dow's management very much, but the company's heavily levered to oil, it has some very high cost facilities, and the balance sheet is nasty. While the stock yields nearly 9% after today's drubbing, you have to remember that the dividend's been cut before -- it happened in 2009, it can happen again. In retrospect, the Dow-DuPont transformation has been pretty bad for this commodity chemical spinoff. Avoid.
10. Exxon Mobil (XOM) . Again, oil's a nightmare, yet Exxon's trading at 14x earnings like it's some kind of safety stock. Ridiculous. I don't care if everyone presumes the dividend is safe, I just don't see any takers here. Exxon's even worse than Chevron for heaven's sake and I think this $43 stock would swiftly go to $40 if more people accepted that judgment.
The bottom line? I know all of these verdicts are severe, but as I've been saying over and over, there are very few stocks that are worth buying here and a whole lot that need to be sold. When I look over the first 10 stocks in the Dow, only Coca-Cola's an outright buy here, and maybe Apple down a bit from these levels. Everything else? Too early.
Join Jim Cramer's special Action Alerts PLUS members-only call to prepare your investment strategy during the economic fallout from the coronavirus and as oil prices fall amid a price war.
