Wednesday, January 10, 2007

What the Dow is worth today

[1/10/07] Morningstar calculated (as of 12/29/06) the fair value of the Dow Jones Industrial Average to be 12,922 as compared to the actual value of 12,463. So it was 3.6% undervalued (compared to 9% three months prior).

[9/22/06] Back around Christmas of last year, [Morningstar] estimated the fair value of the Dow Jones Industrial Average to be 11,694 when it was trading at 10,837.

Since Dec. 19, the market prices of 23 of the Dow stocks went up compared to only seven decliners. The top three gainers over this time frame were General Motors (51%), Merck (MRK) (30%), and AT&T (T) (29%). The worst three performers were Intel (INTC) (-24%), Home Depot (HD) (-13%), and 3M Company (MMM) (-5%). Consistent with how the Dow index is measured, none of the figures above includes the effects of dividends; they are simply the changes in stock prices from Dec. 19, 2005, to Sept. 20, 2006.

As of the close of business on Sept. 20, [Morningstar] estimated the Dow's fair value to be 12,623, about 8.7% higher than its actual closing price of 11,613 on that day. In other words, we think the Dow as a whole is roughly 9% undervalued today. It's worth noting that the market closing price on this date was within 100 points of the Dow's all-time high set in early May of this year.

Morningstar's current list of five-star stocks are MMM, AA, KO, XOM, HD, JNJ, JPM, MSFT, WMT.

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