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Watching The Dow For Stocks To Invest In?

Read more articles on Finance and Investing.

November 22, 2007

Posted by neillevine

About This Editor: I am a writer. Have been writing for other sites, but expect to do most of my future work HERE! My expertise extends from the esoteric such as burning hydrogen to the unpredictability of the stock market and my writing makes me a jack of all trades and exasperated master of none. I have had some influence over national wildfire and water policy and there are hints of a change in energy policy, BUT as Samuel Goldwyn once said, "A verbal promise is not worth the paper it is written on."

         

The Dow Jones is a statistical composite combining the stock prices of thirty well known companies. While numerically a one point rise in any member stock translates into an eight point change in the Dow itself, to get real world investing insights, it sometimes pays to look behind the numbers.

J P Morgan Chase, JPM, American Express, AXP, AIG, AIG, and Citigroup, C, are all in financial services and all are down, apparently attributable to the problems in the subprime market. Mortgages get bundled. Credit card loans get bundled. There is a whole lot of risk sharing going on. The question to ask is if the problems are solved and confidence in the financial system is restored how much will these companies benefit and will their profits increase in the future, given that the Federal Reserve, which controls interest rates does not necessarily operate for the benefit of the financial companies it hypothetically oversees.

Then there is Home Depot, HD, whose profits have been suffering because of the problems in the housing market caused by those high interest rates. When will the home improvement market improve so HD can profit?

And General Motors’, GM, has problems with high costs and lost market share that have been covered pretty well by the news media. Have they been able to automate enough and get enough burdensome costs such as health insurance off their books to profit from the car sales they still have? The problem with health care is that this cost is increasing faster than General Motor’s sales meaning that health insurance would keep costing proportionately more compared to income, not good for the company.

But there are two hundred billion more or less in sales. One billion shares more or less to make the math easy. Five percent profit, a low figure, is ten billion dollars or ten bucks a share. Will they recover? The stock has dipped below $30 on fears of rising fuel prices hurting overall sales and especially the mix of sales with gas guzzlers having been more profitable, but even though it continues to lose share car sale by sale GM still has enough sales and hopefully has pared by costs enough to eventually make money on the vehicles it does sell. .

Even IBM, IBM, and Hewlett Packard, HPQ, have their stock price cycles. Despite the newly announced Cognos software acquisition, IBM is down around seventeen percent from its all time high. Eventually it should recover. Hewlett Pakcard just reported a nice increase in sales and profits to an all time high so the stock continues to be high. If sales and profits continue to grow, the value of shares will increase. Meaning there is money to be made by investing in this stock.

And if enough components increase in value the Dow will go up into record territory and beyond as it has in the past.