One of the perks of working with The Motley Fool is the interaction you get to have with your fellow writers. We're all stock junkies to some extent, and our conversations run the gamut of screwball ideas and true hidden gems. And what most readers don't know is that our published writings capture only some of the flavor and breadth of these conversations.
Well, we're going to take a stab at opening up more of our daily stock talk to readers.
The two of us spend a considerable amount of time chattering about stocks -- stocks we own, stocks we would like to own, stocks that we're glad we don't own. But one theme that's struck us lately is that we both seem to be spending an unusual amount of time looking at Dow stocks.
Since both of us generally make our money with stocks that are far, far beneath the regular Wall Street radar, we found that a bit odd and wondered just how many values might be hiding in that Dow Jones Industrial index that gets talked about literally every trading day. And rather than just chat back and forth amongst ourselves through instant messaging, we thought we'd share our everyday banter with readers and go about this in a slightly more formal way.
So without further ado, here are our takes on the first five stocks of the Dow:
3M (NYSE:MMM)
SS: Obviously, I like 3M, or I wouldn't own the stock. Although this huge company is usually thought of in terms of its consumer and office products, like Scotch tape and Post-It notes, it's a huge enterprise with its fingers in all sorts of market pies, like healthcare, electronics, transportation, and general industrial. I'd like to see the company, a copious cash generator, transition a bit from margin optimization to revenue/research-and-development optimization and generate a bit more growth.
NP: Out of the five companies we'll look at today, 3M is my favorite, and I think it's one of the 10 best opportunities in the Dow. I also need to give Philip Durell some kudos for making it a Motley FoolInside Value selection. I wish Jim McNerney was still the CEO, but I don't think we would have seen the stock trading as low as $70 last month if he were still at the helm. The logical question is, "Why don't I own it?" I missed the boat the first time around, but I'm waiting and hoping for another opportunity to buy it around $70.
Alcoa (NYSE:AA)
SS: Alcoa bugs me. Aluminum inventories have been falling, China is consuming more and more, and I think commercial construction and aerospace are on the upswing. Yet Alcoa can't get a hold of its costs, and earnings estimates keep falling. I want to like this one, but I don't just yet.
NP: I want to like the largest producer of aluminum, too, and China's increasing consumption is important because the country has been a net exporter of aluminum of late. I think parts of Alcoa's woes are temporary because of the spike in energy costs from Hurricane Katrina. There are worse opportunities in the Dow, but I also think there are better opportunities. For that reason, I'm taking a pass.
American International Group (NYSE:AIG)
SS: This insurance giant was more interesting back in April, when it was on sale for the scandal-wracked price of $50, but I think the stock still merits a solid "hold" at worst. With an exceptional franchise throughout Asia, this is a great way for Fools to play an overseas theme without the risks of investing directly in a foreign company.
NP: I'm generally not a fan of large financial and insurance businesses unless they offer a nice, juicy yield. AIG's sub-1% yield doesn't pass the test. However, like most insurance companies, AIG should benefit in the next couple of years from better pricing after the hurricanes. The company is also inexpensive relative to the multiples it has historically been able to command. The company's announcement this morning that it needs to restate -- yet again -- its financial results for the past three years, however, is unwelcome because it adds uncertainty to the stock. To be sure, today's restatement of the company's derivatives holdings adds $500 million to this year's results, but the effect on prior periods is still unknown. Furthermore, how can we be sure that there won't be additional restatements? Given the lingering accounting questions and the fact that the shares aren't dirt cheap, I'll pass here, too.
American Express (NYSE:AXP)
SS: Here's a great brand wrapped up with a not-so-great stock. Maybe people really are traveling more again, and maybe that'll boost the company's travel-related revenues, but I'm a little nervous about what could happen to the credit card business if consumers decide to sit on their wallets. Still, 16 times earnings isn't a bad price on a historical basis.
NP: I like American Express, the company and the brand. And I really like the company's decision to spin off its financial advisor business as AmeripriseFinancial (NYSE:AMP). American Express isn't a typical financial company, and its P/E of 16 is therefore reasonable, given its growth rate. But it's not cheap enough to put it into the top 10 Dow stocks I have my eye on.
Boeing (NYSE:BA)
SS: I was miffed to see Jim McNerney jump ship at 3M to run the show at Boeing, but he could prove to be a great hire. With experience running General Electric's (NYSE:GE) aircraft engine business and a keen focus on profitability, McNerney will help this highly cyclical company make the most of the recent upswing in its commercial aircraft business. Still, I'd worry about owning shares in a company where one nutjob's terrorist act could potentially hammer the order book.
NP: It was disappointing to see McNerney leave 3M, but if there is a company that needed to make a statement about the quality of its CEO, it was Boeing. I'm confident McNerney will have positive effects at Boeing and make the company more lean, just as he did at 3M and GE, but I also think some of that is priced into the shares. As a fully priced stock, Boeing is a bit unique in the Dow right now.
There you have it, two Fools and the first five Dow stocks. Tune in again as we tour the rest of these ultra-caps and see whether value may be hiding underneath everybody's nose.
Fool contributor Stephen Simpson owns shares of 3M. Nathan Parmelee has no financial stake in any of the companies mentioned. The Motley Fool has a disclosure policy.
