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19 stocks for a new Dow high
The index's surge toward the first new high in years has many investors wondering what to do next. First, review the basics. Then consider these 19 stocks that should benefit.
By Jon D. Markman
Not too long from now, with any luck, the most well-known measure of the U.S. stock market -- the Dow Jones Industrial Average ($INDU) -- is going to make a new all-time high. Its only about 230 points away from that level now, a mere 2.1%, and could get there with a lot more ease than bears and skeptics believe possible.
The event will be much celebrated, to be sure. But does a new high mean anything -- or is it just a number?
The answer may surprise you. The short response is that, yes, a new high is very significant and a huge positive. The long answer is that its important for reasons that are a little bit fuzzy and strange, and help explain a lot about the behavior of the stock market in general.
The allure of a new high
From a practical standpoint, analysts of stock-price behavior like to say that all new highs are bullish (until the last one). This makes a lot of sense. When the stock market makes a new high, people who have money in cash or bonds do a double-take. It gets their attention. They come to think of themselves as idiots for earning 4% on their money in passbook savings accounts when they could be earning 10%-plus by taking a little more risk. After a moment of shock, they get off the dime and begin sliding cash into the stock market.
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Investors in large companies do not have a lot of experience with a market going to a new high, because it hasnt happened in a while. Six and a half years, to be exact. So heres the point you really need to understand: New highs are a positive because price is the great persuader.
You see, arguments by analysts that the market should trade higher because of blah-blah-blah are one thing. They are intellectual arguments of something that might happen in the future. But when a new high actually occurs, an emotional tripwire is triggered in investors minds: The twin electric prods of regret (at missing the prior move) and greed (for future gains) coalesce into a fireball of impulse to get on the gravy train as fast as possible.
Another reason that new highs are bullish is more subtle. When indexes or stocks move into record territory, suddenly there are no bitter, long-time shareholders who have been waiting years to unload a losing position. At new highs, almost by definition, everyone is a winner.
With no overhang of losing positions to push through, stocks and indexes start to look light as a feather. As more and more buyers are attracted to a dwindling supply of shares held fast by owners, the heightened demand blows prices higher and higher. It is not at all uncommon to see markets that tip-toe ever so gingerly to a new high suddenly sprint to unimagined levels once that threshold has been passed.
Heres an example: From around 1970 to 1982, the stock market traded in a range from around Dow 600 to Dow 1,000. It looked like it was going to break out several times -- in 1972, 1976 and 1981. But each time, the market collapsed like Lucy pulling the football away from Charlie Brown. When the move definitively higher finally transpired in the summer of 1982, amid much moaning and groaning that it was one more fake-out, stocks went into launch mode. From January to mid-May 1983 alone, the Dow went up 20% -- hitting brand-new highs virtually every week.
Buying time
The Dow Jones industrials are only up about 7% so far this year, but it seems like so much more because weve become accustomed to no return at all after a lackluster 2005 and 2004. Just imagine the frenzy that will emerge among your friends and co-workers if stocks move to a new high, and then keep on going until theyre up 20% by mid to late summer. You just know that all those people who were bragging about flipping houses and condos are going to be even more insufferable -- and incite a lot more speculation -- when they start bragging about their stocks.
So whats the best way to take advantage of a march past new highs, if it does occur?
Well, genius, youve got to start buying stocks. Pronto. And the more you think its probably not the right idea -- that its too late in the day, that all the best names are up too high, that the economy is about to run off the rails, that Iran is going to blow up the world and the dollar is going to collapse -- the more likely that it is still the right time. (The wrong time, by the way, is when you are absolutely certain that youve got it made).
Basic lessons
If its been awhile since you actually picked stocks, let me remind you of a few basics first.
Successful investing is about becoming a capable, responsible actor in a story that stars you. It is not really about the economy, politics, the weather or corporate results. And its not about choosing the right brokerage, analyst, advisor or any other intermediary. It is about your own powers of observation and how you use your brains, intuition, memory and emotions to react and adapt to change.
The change that you are witnessing now, to come full circle, is a new high. Although it is a long way up from the bottom, it may also be a long way down from the ultimate next top. The new high -- if we get there, and if it holds -- marks a milestone of confidence in the strength and credibility of large U.S. companies after six long years in the wilderness following accounting scandals, recession and the 9/11 terror attacks.
To get started again with your cash, you need to get back to basics -- like a major-league infielder taking ground balls during spring training -- and make sure you are using your personal strengths to their best advantage. Financial Web sites like MSN Money can help by providing all the tools, data, analysis and new ideas that you need.
Over the rest of this month, Im going to give you a crash course in using this site and others to be a successful investor for the next phase of the market. But because were running out of time here today, lets cut right to the fastest possible way to get some stocks back in your portfolio, and then circle back next week with more basics.
We built the StockScouter stock-rating system exactly for moments like this. Visit our Screener, request a list of the stocks in the major Dow Jones indexes with StockScouter scores greater than 8, and you are good to go. Here is the list that I came up with on Monday. Buy them now, and hold for at least six months.
Next week: Finding small-caps and mid-caps the hard, but fun and profitable way.
| Top Dow Jones index stocks | | Dow industrials | StockScouter Score | 5/8 close | Mkt cap | | Caterpillar (CAT, news, msgs) | 10 | $79.79 | $53 billion | | Citigroup (C, news, msgs) | 9 | $50.19 | $250 billion | | Alcoa (AA, news, msgs) | 8 | $36.05 | $30.5 billion | | Boeing (BA, news, msgs) | 8 | $87.38 | $70 billion | | General Electric (GE, news, msgs) | 8 | $35.01 | $365 billion | | Johnson & Johnson (JNJ, news, msgs) | 8 | $58.71 | $174 billion | | JPMorgan Chase (JPM, news, msgs) | 8 | $46.14 | $162 billion | | 3M (MMM, news, msgs) | 8 | $87.99 | $65 billion | | Altria Group (MO, news, msgs) | 8 | $73.54 | $154 billion | | United Technologies (UTX, news, msgs) | 8 | $64.97 | $65 billion | | ExxonMobil (XOM, news, msgs) | 8 | $63.84 | $387 billion | | Dow transports | | | | | GATX (GMT, news, msgs) | 9 | $47.93 | $2.4 billion | | J.B. Hunt Transport Services (JBHT, news, msgs) | 9 | $25.62 | $3.9 billion | | CSX (CSX, news, msgs) | 8 | $73.22 | $16.4 billion | | Landstar System (LSTR, news, msgs) | 8 | $45.01 | $2.6 billion | | Norfolk Southern (NSC, news, msgs) | 8 | $56.01 | $23.3 billion | | Overseas Shipholding Group (OSG, news, msgs) | 8 | $51.50 | $2.0 billion | | Dow utilities | | | | | TXU (TXU, news, msgs) | 9 | $57.23 | $26 billion | | Edison International (EIX, news, msgs) | 8 | $40.09 | $13.2 billion |
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Fine Print
Here are the screens to help you find the top-rated Dow industrials, Dow transports and Dow utilities. ... I have used this technique to find the best Dow stocks for several years, and I run a portfolio like this in my Strategic Advantage Newsletter; click here. The 2006 portfolio is up 12%, lead by Expeditors International of Washington (EXPD, news, msgs), CSX (CSX, news, msgs) and Caterpillar (CAT, news, msgs), up 59%, 46% and 39%, respectively (trial subscription required). ... I promised to review how some past portfolios in my column have done. Here are a couple: On Jan. 25, I wrote about four CEOs that were worth every penny of their pay. Their four stocks are up an average of 23% since, led by W&T Offshore (WTI, news, msgs), up 40%, and Choice Hotels International (CHH, news, msgs), up 24%. On Feb. 1, I explained how to find stocks to trade for a few weeks or months at a time. The list of 14 stocks is up 24% on average since, led by NewMarket (NEU, news, msgs), +118%; Ladish (LDSH, news, msgs), +66%; L.B. Foster (FSTR, news, msgs), +57%; and Valmont Industries (VMI, news, msgs), +45%.
Jon D. Markman is editor of the independent investment newsletters Strategic Advantage and Trader's Advantage. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jon.markman@gmail.com; put COMMENT in the subject line. At the time of publication, Markman owned shares of ExxonMobil.
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