Dow Stocks Remain Attractive Despite Earnings Warnings
Some Dow companies have issued earnings warnings due to a slowdown in China and Europe's debt crisis, but profit margins remain strong at 17.5%, close to the 2007 peak of 17.75%. The Great Recession provided corporations the opportunity to cut costs, improve productivity, and strengthen balance sheets, enabling them to operate more efficiently. Investors should consider buying Dow stocks from a long-term perspective, but wait for guidance to be released and stock prices to reset before entering.
Key Takeaways:
- Profit margins for Dow Jones Industrial Average members have widened to 17.5%, close to the 2007 peak of 17.75%.
- Some investors were jolted by news that Europe's debt crisis and a slowdown in China is hurting Dow members, including DuPont (DD) and Intel (INTC), which reduced their earnings estimates.
- Caterpillar (CAT) expects "improving but slow growth in the developed parts of the world," which has been a concern for the construction-equipment company.
- The average dividend yield for Dow components is just under 3%, higher than Treasury yields.
- DuPont's 2012 earnings guidance is 12% to 17%, while providing respectable revenue guidance of a 10% to 20% increase.
- Intel lowered its fourth-quarter guidance due to a worldwide disk-drive-supply shortage, a broader industry theme playing out with limp demand for PCs.
- Management teams have learned from the 2008 experience, where it's better to beat conservative guidance than to miss.
- Dow stocks are attractively valued, trading at only 12 times forward earnings compared to 16 times earnings in 2008 and 2009.
Statistics:
- Profit margins for Dow Jones Industrial Average members have widened to 17.5%, close to the 2007 peak of 17.75%.
Sources:
- TheStreet.com
- Lindsey Bell (linkedin to her Twitter account)
- DuPont (DD) earnings guidance
- Intel (INTC) earnings guidance
- Caterpillar (CAT) earnings guidance