Why These 3 Dow Stocks Exploded Today

The Dow Jones Industrial Average (INDEX: ^DJI  ) slipped 0.10% today, but that didn't stop these three stocks from surging:

Company

Today's Price Change

Bank of America (NYSE: BAC  ) 3.6%
Alcoa (NYSE: AA  ) 2%
JPMorgan Chase (NYSE: JPM  ) 1.7%

Why, you ask, did shares of these three companies take off?

After a string of positive economic news in recent weeks, investors are placing their bets on the stocks that could outperform the most strongly should the economy pick up in 2012. Cyclical sectors outperformed the market, with materials, financials, and transportation coming out on top.

Banking stocks like BofA, JPMorgan Chase, and Citigroup (NYSE: C  ) -- a non-Dow component whose shares rose 4.2% today -- are hugely sensitive to economic conditions. Credit quality, demand for credit, and trading results all rely on economic strength. Leverage only increases the importance of these factors.

Similarly, aluminum demand and pricing depends heavily on economic growth. This week, Alcoa reported that it expects global demand for the metal to increase 7% in 2012.

Another issue that sets these names apart is that they are among the cheapest stocks in the Dow. All three got torched by more than 20% last year. Alcoa trades for 10 times earnings, while BofA and JPMorgan Chase trade for 0.5 and 1.1 times tangible book value, respectively. The average Dow stock trades closer to 15 times earnings.

Bank of America, Alcoa, and JPMorgan Chase all beat the market today. But if you're interested in one stock that our chief investment officer picked to crush the market in 2012, check out our brand-new report, "The Motley Fool's Top Stock for 2012." It highlights a company that is revolutionizing commerce in Latin America. For a limited time, you can get instant access to the name of this company for free

Ilan Moscovitz doesn't own shares of any company mentioned. The Motley Fool owns shares of JPMorgan Chase, Citigroup, and Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On January 11, 2012, at 11:36 PM, BlazerMania wrote:

    I'm not sure 1.7% counts as "exploded." The editors should be embarrassed by the headline.

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