This is the final installment of the five-part series where I examined the past operating histories and valuations of the 30 Dow Jones Industrial Average stocks. With this 5 Part series I attempted to cover the 30 Dow stocks in order of highest valuations to lowest. For the most part, I suggested that the Dow stocks were generally overvalued but only a few dangerously so. With this final group, I take a fundamental look at the 5 least expensive stocks in the Dow Jones based on operating earnings P/E ratios.
However, as I have stated in each article in this series, valuations based on calculations such as the P/E ratio only tell part of the story. For starters, traditional metrics such as the P/E ratio are predominantly historical. This partially explains why P/E ratios reported on various financial sites often differ. In some cases they report P/E ratios based on trailing 12 months (ttm) or pure historical data. Other sites will report a P/E ratio based on forward earnings estimates. And some sites such as FAST Graphs reports P/E ratios with a blended approach (considering past, current and the closest forecast). Nevertheless, the point is that future earnings achievements are a major valuation consideration.
Portfolio Review: Five Fairly Valued Stocks in the Dow Jones Industrial Average
The following portfolio review lists 5 stocks in the Dow Jones Industrial Average that appear undervalued based on their current low blended P/E ratios. The 6th Dow constituent, DowDuPont Inc. will not be reviewed because of the lack of historical data due to the recent merger.
However, as previously stated, there are many ways to value a stock in addition to the P/E ratio. Consequently, I suggest the reader also notices the price to cash flow of each of these 5 Dow constituents. For those investors most interested in dividend income, price to cash flow might be more relevant for higher yielding dividend paying stocks. Furthermore, when ascertaining valuation, other factors such as expected growth need to be considered as well. I will elaborate more fully in the video below.
The following portfolio review is presented in order of lowest blended P/E ratio to highest. As an additional valuation check, note that the earnings yield (EPS Yld) of each of these 5 Dow constituents is above 7%. Consequently, this particular group of 5 Dow stocks appears more attractively valued than what we’ve seen in previous parts of this 5-part series. However, low valuations don’t necessarily make these the 5 best investments in the Dow Jones currently. Investors must also consider the future potential growth of both earnings and dividends.