The Dow Jones Industrials Average
Commensurate with the Dow surge, the Volatility Index
|Gain / Loss %||Ending Value|
|Dow Jones Industrial Average||+3.6%||12,554|
Source: S&P CapitalIQ.
The rock stars
The truly impressive performance came from a few individual components, though. Home Depot
Home Depot's big jump follows the company's announcement that it upped its stock-repurchasing plan by a whopping $500 million. For a company that's intrinsically tied to a still-weak housing sector, Home Depot has been an incredible stock to own over the past 10 months. The company is up a ridiculous 88% since its Aug. 9, 2011, low. What's particularly impressive is that over those 10 months we've had lukewarm housing data.
Home Depot has filled out its multiples as well, though. It went from a P/E of 15 in August to almost 20 today. That's why I'm less than pleased that the company upped its share buybacks now instead of 10 months ago. The company has a history of overpaying for shares and timing them right before drops. In 2007 it bought back about $10 billion of its stock when it was around $35 and then stopped as shares fell off and got really cheap. Then the company started repurchasing again in 2010 and bought just shy of $2 billion back in the first four months of 2011 -- right before shares fell off in the second half of the year. Now, I think that after what's almost a doubling in share price, Home Depot is late to its own party.
Monkey see, monkey do
Bank of America and JPMorgan Chase are crazy volatile stocks right now. They react to the same news and generally trade in tangent. When JPMorgan announced its $2 billion trading loss, Bank of America inexplicably traded lower as well. That's why I'm not surprised to see them at the top of this list right next to each other. The future of the eurozone will have an outsized impact on them as our global financial structure becomes ever more intertwined.
That's why, when the European Central Bank announced that it was ready to take decisive action -- i.e., offer more quantitative easing -- Bank of America and JPMorgan cheered and roared 7.6% and 3.4% higher, respectively.
Who will maintain this run?
Of these three companies I'd be most willing to add JPMorgan to my portfolio. I'm bullish on the finance sector long-term and believe that it continues to be one of the best-run banks out there. It got unnecessarily hammered on a rare, albeit large, trading loss, but that just opened up the door of opportunity to the patient investor. Bank of America would be my second pick. The company is cheap -- cheaper even than JPMorgan -- but also more risky. Their balance sheet could be fraught with landmines or daises, and we really have no way of knowing. I see B of A as a multibagger or bust over the next few years, but I like its odds of outperformance. While I'm also bullish on the housing sector long-term, I don't like Home Depot's share-repurchase history.
There are actually better banking stocks to own, though. In fact, they're The Stocks Only the Smartest Investors Are Buying. We know Warren Buffett has made huge bets on big banks, but even he can't buy these because his portfolio has grown so large. If you have the same problem, congratulations. But if you're like everyone else and want to learn about these truly best-of-breed and dirt-cheap stocks, you can read more.