The Dow Jones’s Top 3 Stocks: Who Made the Cut?
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Dow Jones Industrial Average was one of the modern world’s first market indicators. Today, the price-weighted index is comprised of 30 large publicly owned companies based in the United States. Year-to-date the blue chip index has returned 11.02% to shareholders, while the S&P500 has returned 16.03%, and the NASDAQ has returned 21.98%. But even within this poorly performing index there are several stocks that shine. This article will examine the top three performers of the Dow since the start of 2012.
Bank of America (NYSE: BAC)
Bank of America has been the best performing stock on the Dow, and has returned 67.09% year-to-date. Returns haven’t been as pleasant for the multinational banking and financial services firm over the past few years, though. After acquiring Countrywide in 2008, Bank of America was tied to the company’s $2 trillion in mortgages.
Consequently, this massive amount of mortgages was one of the main drivers that caused the company’s stock to plummet after the housing market crash. Bank of America is still down 81.6% over the past half-decade, with most of these declines coming between 2007 and 2009.
But don’t worry, all this means is that there’s nowhere for the stock to go but up! Warren Buffett appears to thinks it will, considering that since the beginning of 2012 Buffett has increased his position in Bank of America by nearly 30 million shares. From a valuation standpoint, Bank of America is trading at 10.19 times earnings, and 0.46 times their book value. The bank has grown revenues at a five-year compound annual growth rate (CAGR) of 5.2%, has an ROA of 0.51%, and an ROE of 4.95%.
Home Depot (NYSE: HD)
Home Depot, the world’s largest home-improvement retailer, is the second best performer listed on the Dow, returning 41.46% to shareholders year-to-date. In its most recent quarter, Home Depot grew sales 1.7% and improved earnings by 12%, which led to higher operating margins and earnings. Looking at the valuation, the company’s stock is trading at 21.38 times earnings, and has an EV/EBITDA of 10.88. Home Depot’s revenues have grown at a five-year CAGR of -5.0%, with an ROA of 10.72%, and an ROE of 23.84%.
Despite a disappointing economic recovery, Home Depot has still impressed investors with improved sales and efficiency. While the company makes a good core investment in most portfolios and offers exposure to an upside in housing, it is trading near its 52-week high of $60, and is a little expensive for our taste.
The Walt Disney Company (NYSE: DIS)
Behind only Home Depot and Bank of America, The Walt Disney Company has seen its stock price grow 40.53% year-to-date. Disney is more than just children’s movies and theme parks; it also operates ESPN and ABC, two of the U.S.’ most popular media networks.
In 2011, ESPN and ABC accounted for 46% of Disney’s revenues, while their parks contributed 29%, and their studio entertainment branch brought up the rear with 16%. ESPN is the clear leader in sports TV, and recently locked in a deal with Monday Night Football that gave them rights to broadcast the weekly event for $1.8 billion a year.
Looking at the stock’s valuation, Disney trades at 17.42 times its earnings, and has an EV/EBITDA of 9.76. The company’s revenues have grown at a five-year CAGR of 3.6%, they have an ROA of 7.53%, and an ROE of 14.54%. Disney has excelled in all of its segments and continues to create value for shareholders. This high-quality company continues to gain momentum and is a good pick for long-term investors.
What’s on Hedge Funds’ Minds?
The value of Bank of America shares held by hedge funds decreased $565 million during the second quarter of 2012. These declines coincided with nine hedge funds liquidating their shares in BAC, including Brian Stark, Michael Messner, and Robert Bishop.
During the first quarter of 2011, 38 funds were invested in Home Depot for a total of $1.6 billion. By the second quarter of 2012, 35 hedge funds still had interest – an amount valued at $1.4 billion. Some of the most prominent managers still involved in the stock are Ken Griffin, Cliff Asness, and Steven Cohen.
Looking at Disney, the number of hedge funds remained the same at 40 from the first to the second quarter of 2012, but the value of shares held by the funds increased $600 million. For a longer look at how the hedge fund industry is valuing Disney and the rest of the Dow’s top trio, continue reading here.
Dig Deeper
To learn more about the most-talked-about bank out there, check out the Fool’s in-depth company report on Bank of America. The report details Bank of America’s prospects, including three reasons to buy and three reasons to sell. Just click here to get access.
This article is written by Mike Pate and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article.The Motley Fool owns shares of Bank of America and Walt Disney. Motley Fool newsletter services recommend The Home Depot and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
