24/7 Wall St. has already identified its 2013 peak target for the Dow Jones Industrial Average of 14,590, which would translate to gains of more than 11.3% for investors. What is interesting is the breakdown of the 30 DJIA stocks. Some stocks appear to be overvalued according to analysts, and others appear to be undervalued.
We have identified the five most undervalued of the 30 DJIA stocks. These include Microsoft Corp. (NASDAQ: MSFT), UnitedHealth Group Inc. (NYSE: UNH), Alcoa Inc. (NYSE: AA), General Electric Co. (NYSE: GE) and The Coca-Cola Company (NYSE: KO). If that is not an unusual list, then what is?
Microsoft Corp. (NASDAQ: MSFT) is shocking to see on the list as the most undervalued DJIA stock according to analysts. Despite the weak environment and despite Windows 8 not living up to expectations, analysts are more bullish on Microsoft than they were even a year ago. The $26.71 price at the end of 2012 implies upside of 28.9% to that $34.44 price target. This was truly a surprise to see as the most expected upside of the 30 components and perhaps it shows that "upside" calls may often be a series of outliers rather than a series of assurances. That $34.44 target is even higher than the 52-week high of $32.95. Microsoft pays a dividend of 3.5%.
UnitedHealth Group Inc. (NYSE: UNH) is the newest of the DJIA components, now that Kraft has split itself up. The health insurance giant closed out 2013 at $54.24, and that was well off the 52-week high as its range in the past year was $49.82 to $60.75. Analysts believe that the stock will rise some 23.4% to $66.97 by the end of 2013. The insurer has a lower dividend than most DJIA stocks, at only about 1.6%, and its market value is close to $55 billion. UnitedHealth so far has recovered only about half of its losses from last summer.
Alcoa Inc. (NYSE: AA) is basically right back where it was a year ago. This expected upside appears to be even less than it was a year ago, as analysts now have a consensus target of $10.41. That would represent upside of 20.3% from the current $8.65 share price. For Alcoa, the challenges and the opportunities are often the same. The company keeps suggesting that the aluminum market will double on a global basis by 2020. Alcoa is the smallest of the DJIA stocks in market value, with a $9.5 billion market cap. Due to its very low share price, it also impacts the DJIA the least. Alcoa's dividend yield is also on the low side at only 1.4%.
General Electric Co. (NYSE: GE) is the conglomerate with the most upside in the 30 DJIA stocks. After closing at $20.99 in 2012, analysts see upside of some 17.7% to the consensus price target of $24.71. That target is also above the 52-week high of $23.18, and GE now pays a 3.7% dividend yield. With a dividend that is 1% higher than other DJIA conglomerates, and with so many units it can still spin off, GE might not just make it to the target. Longer term, this could recover to $30 if the United States avoids a recession and if Europe and Asia can reach the end of their woes.
The Coca-Cola Co. (NYSE: KO) was just shocking to see on this list. A beverage company? After closing out 2012 at $36.26 after splitting its stock in 2012, analysts see upside of 16.9% to a consensus price target of $42.38. The 52-week high is $40.67, and Coca-Cola yields 2.8%. Without making the analogy of Pepsi and an investor taste test, what else is there to say? Analysts expect that PepsiCo Inc. (NYSE: PEP) will rise more than 12% in 2013.
Consensus estimates came from Thomson Reuters, and the price, dividend and historical prices came from Yahoo! Finance.
Here is how we came to a DJIA peak target price of 14,590 for a gain of 11.34% in 2013.
JON C. OGG
Filed under: 24/7 Wall St. Wire, Active Trader, Analyst Calls, Dividends & Buybacks, Value Investing Tagged: AA, GE, KO, MSFT, UNH