The Dow Jones Industrial Average and S&P 500 just hit another all-time high Thursday. But analysts still think the blue-chip average still has 7.6% upside in 12 months — thanks largely to just eight stocks.
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Analysts are forecasting the Dow Jones to jump an additional 2,450 points in 12 months largely thanks to stocks like technology play Salesforce.com (CRM), IBD Long-Term Leader Microsoft (MSFT) and health care giant UnitedHealth (UNH), says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. These stocks are seen adding more than 150 points apiece to the Dow in 12 months.
All told, analysts’ 12-month price targets on the 30 Dow Jones stocks imply the average will hit 34,942. That’s up 7.6% from Thursday’s record close of 32,485.59. All these stocks are also in the S&P 500. But unlike the S&P 500, which is market-value weighted, the Dow Jones Industrial Average gives a higher weight to stocks with the highest per-share prices.
Nonetheless, the Dow Jones’ breathless march higher to all-time highs is building confidence with investors.
“While it’s not Wall Street’s go-to index for U.S. equity performance and imperfect due to its price-weighted composition, it is still the way most Americans track the domestic stock market,” said Jessica Rabe of DataTrek Research. “The Dow’s ascent to record highs reflects investor confidence in a robust U.S. economic recovery amid improving fundamentals for cyclicals.”
What’s Driven The Dow Jones So Far?
If there’s a lesson of 2021 so far, it’s that the stock market isn’t just about the big tech stocks. The Dow Jones Industrial Average is up 6.1% this year, or nearly 1,900 points. That’s a strong performance. The broader S&P 500 is up 4.9% in 2021 so far, while the tech-heavy Nasdaq 100 is up just 1.3%.
But the Dow’s gains so far mostly stem from just six stocks, Rabe found. Goldman Sachs (GS) contributed 36% of the Dow points added this year. That’s followed by 17% from Caterpillar (CAT), 12% from Chevron (CVX), 12% from Boeing (BA), 12% from JPMorgan Chase (JPM) and 11% from American Express (AXP).
Just these six mostly “industrial” companies account for the Dow’s run this year. “They all continue to reflect confidence in reopening trades and a steepening yield curve,” Rabe said.
And it turns out that a third of Dow stocks are actually down this year, including Apple (AAPL) and Procter & Gamble (PG). Salesforce.com, a new tech addition to the Dow, is also down. Ironically, the Dow’s rising tech influence is a drag on the Dow Jones. “The rotation into cyclicals and out of tech has been far more helpful than harmful to the Dow’s returns,” Rabe said.
What Now, Dow?
Hopes are high that tech stocks in the Dow Jones will start to contribute again. Analysts think Salesforce.com will jump nearly 28% in 12 months to 215.95. If they’re right, that would add more than 390 of the 2,400 points the Dow is seen adding.
It’s a call on a stock that hasn’t performed well since being added to the Dow Jones last year. Salesforce shares are down 3% this year as analysts expect adjusted profit per share to fall 30% this fiscal year ended in January 2022. Growth, though, is seen resuming next fiscal year. Do you know what do look at before you buy Salesforce stock?
And Salesforce isn’t the only tech in the Dow Jones from which analysts see gains. Microsoft analysts think the software giant’s shares will hit 275.59 a share in 12 months. If they’re right, that’s 16% upside, worth 252 Dow Jones points.
And health care remains an area of potential. The Health Care Select Sector SPDR ETF (XLV) is only up 0.8% this year.
Health care giant UnitedHealth is up 0.7% this year. But analysts think there’s more than 12% upside in the next 12 months, bringing shares to 396.74. If right, that would add 287 Dow Jones points, or the second-most after Salesforce. Do you know if UnitedHealth is a buy now?
Is the Dow Jones flawed? Yes. Is the S&P 500 a better measure of the market? Probably.
But a rising Dow tells you about how people are feeling about the economy. “It’s also a positive sign for consumer spending/confidence as it is the main barometer of U.S. equity performance used by most Americans,” Rabe said.
Dow Jones Darlings Of Tomorrow?
Stocks expected to add the most points to the Dow Jones in 12 months, based on price targets
| Company | Symbol | Close on 3/11/2021 | Sector | Stock YTD % change | Gain expected in 12 months* | Additional Dow points expected |
|---|---|---|---|---|---|---|
| Salesforce.com | (CRM) | $215.95 | Information Technology | -3.0% | 27.5% | 390.9 |
| UnitedHealth | (UNH) | 353.10 | Health Care | 0.7% | 12.4% | 287.1 |
| Microsoft | (MSFT) | 237.13 | Information Technology | 6.6% | 16.2% | 252.4 |
| Home Depot | (HD) | 268.85 | Consumer Discretionary | 1.2% | 13.1% | 232.4 |
| McDonald’s | (MCD) | 211.57 | Consumer Discretionary | -1.4% | 13.8% | 192.1 |
| Apple | (AAPL) | 121.96 | Information Technology | -8.1% | 22.4% | 180.1 |
| Walmart | (WMT) | 132.13 | Consumer Staples | -8.3% | 20.7% | 180.2 |
| Procter & Gamble | (PG) | 126.91 | Consumer Staples | -8.8% | 19.7% | 164.7 |
Sources: IBD, S&P Global Market Intelligence, * – based on analysts’ average 12-month price target
Follow Matt Krantz on Twitter @mattkrantz
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