GPI’s 888 Top Stock Picks for 2011

This is not an index fund; so obviously, Golden Panda Investment is not going to pick 888 stocks for the year 2011.  Instead, GPI will only pick 8 stocks for the coming year.  In fact, the selection has been based on a triple-value rule that GPI has developed through evaluation of the past year performance, growth prospective and fundamental valuations among the examined stocks.  888 simply stands for triple value selection of 8 stocks.

The calculations and careful evaluations of all US stocks with the market caps larger than $7 billion have concluded the following top 8 stocks.  The final selection of these 8 stocks has also considered the sector effect, i.e., you shall not pick too many stocks from single sector, only the top ones have been selected based on experience judgments.  Nevertheless, the top 888 list is still heavily occupied by financials and insurances.  The reason is very simply.  Share prices of these stocks have been significantly depressed so much in the past two years, that currently they are showing tremendous hidden values and great run-up potentials.

12/24/2010 Closing Data

	Ticker	Company Name	Last Trade	Mkt Cap	GPI Target	Projected Return
No.1	BAC	Bank of America	$13.06	132B	$19.52	50%
No.2	HIG	Hartford Financial	$26.70	12B	$35.55	33%
No.3	CNA	CNA Financial	$27.01	7.3B	$34.62	28%
No.4	XL	XL Group plc	$21.90	7.1B	$26.61	21%
No.5	MS	Morgan Stanley	$27.41	41.5B	$31.96	17%
No.6	WLP	WellPoint	$57.44	22.6B	$66.70	16%
No.7	C	Citi Group	$  4.68	136B	$5.33	14%
No.8	JPM	JP Morgan Chase	$42.08	164.5B	$47.63	13%

2011 Top DOW Stock Picks - BAC and JPM

2010 is coming to an end and 2011 New Year is right around the corner.  Now, it is that time of the year again for a lot of major investors to reshuffle their DOW-5 stock portfolios.  In this strategy of picking DOW dogs, you simply invest in the worst beaten 5 DOW stocks based on the stock performance in the previous year and their current valuations.  Let’s take detailed checks on all 30 DOW stocks to screen the 5 or even fewer DOW dog stocks with the best up potentials for the incoming 2011.

2010 Worst DOW Performers

The evaluation starts with identifying the worst DOW performers for the year 2010.  This is an easy but a painful exercise since most people have lost big money on these stocks.  Compared to peak stock prices reached during 2010, the ratio of the current stock price to the peak price is a good representation of how much the stock price has dropped in 2010.  Larger percentage of the drop ratio corresponds to a larger stock price drop.  The list here showed the stock price performance of all 30 DOW stocks during the past 52 weeks.  Majority of the DOW stocks, 18 out of 30, are reaching or closing to their 52-week high with less than 6% below their peak prices.  9 stocks are 10-18% below their 52-week high and only 3 stocks have dropped more than 20%.  Bank of America is the worst performer among all DOW stocks, it has plunged 37% from its 52-week high $19.86 reached in April 2010.  Based on the worst performance and the consideration of a corresponding quick rebounding, the 5 DOW stock selections for 2011 are AA, JPM, HPQ, CSCO and BAC.

	Symbol	Share Price	52-wk High	52-wk High Drop
1	BAC	12.57	19.86	37%
2	CSCO	19.55	27.74	30%
3	HPQ	41.96	54.75	23%
4	JPM	39.67	48.2	18%
5	AA	14.56	17.6	17%
6	PFE	17.03	20.36	16%
7	BA	65.03	76	14%
8	MRK	36.48	41.56	12%
9	INTC	21.46	24.37	12%
10	MSFT	27.9	31.58	12%
11	AXP	44.01	49.19	11%
12	GE	17.7	19.7	10%
13	MMM	86.37	91.49	6%
14	JNJ	62.54	66.2	6%
15	HD	35.1	37.03	5%
16	MCD	76.81	80.94	5%
17	TRV	55.18	57.55	4%
18	WMT	54.41	56.27	3%
19	DIS	37.05	38	3%
20	KFT	31.93	32.67	2%
21	CAT	92.59	94.33	2%
22	IBM	145	147.53	2%
23	T	29.21	29.56	1%
24	CVX	88.49	89.22	1%
25	XOM	72.17	72.75	1%
26	UTX	78.8	79.41	1%
27	VZ	34.64	34.83	1%
28	PG	64.81	65.04	0%
29	KO	65.7	65.75	0%
30	DD	49.86	49.88	0%

 

One-Year Target Price

Next selection factor is the one-year target price estimate that is based on the future earnings and the earnings growth prospective.  In this case, the ratio of the one-year target estimate price to the current share price will be a good indicator of stock up-moving potential for the following year.  Once again, most of the stocks, 13 out of 30 stocks are within 10% of reaching to their one-year target price.  Verizon actually surpassed its target value.  6 stocks current are more than 25% below their target prices with JPM (33%) and BAC (44%) on the top 2 and 1 rankings.  From this up moving potential, the DOW 5 stock picks are BA, CSCO, HPQ, JPM and BAC.

 

	Symbol	Share Price	1y Target Est	Up Potential
1	BAC	12.57	18.05	44%
2	JPM	39.67	52.57	33%
3	HPQ	41.96	53.69	28%
4	CSCO	19.55	24.55	26%
5	BA	65.03	81.38	25%
6	PFE	17.03	21.23	25%
7	GE	17.7	21	19%
8	AA	14.56	17.01	17%
9	MSFT	27.9	32.57	17%
10	MRK	36.48	42.19	16%
11	MMM	86.37	99.38	15%
12	AXP	44.01	50.63	15%
13	MCD	76.81	86	12%
14	WMT	54.41	60.88	12%
15	INTC	21.46	23.91	11%
16	TRV	55.18	61.23	11%
17	DIS	37.05	40.96	11%
18	UTX	78.8	86.69	10%
19	PG	64.81	71.19	10%
20	KFT	31.93	35	10%
21	DD	49.86	54.5	9%
22	JNJ	62.54	67.84	8%
23	CVX	88.49	95.19	8%
24	KO	65.7	69.75	6%
25	T	29.21	30.93	6%
26	CAT	92.59	97.13	5%
27	XOM	72.17	75.33	4%
28	HD	35.1	36.5	4%
29	IBM	145	150.72	4%
30	VZ	34.64	33.24	-4%

 

Value Discounts

Additionally, the true values of the DOW stocks can be evaluated based on their corresponding book values.  The price to book value ratio shows how market values the company stocks based on their net assets.  This ratio varies in a very wide range among the 30 DOW stocks.  Whereas IBM and BA showed very high price-to-book ratios above 8, most companies are around 2 to 3.  Only 3 companies show the ratios less than 1, or in another word, the market is valuing the companies with a big discount.  Bank of America only gets 60% of the stock valuation for its book value, which seems extremely cheap.  Based on the price-to-book ratio, the 5 DOW choices will be AT&T, AA, JPM, Travelers, and BAC.

	Symbol	Share Price	Book Value	P/B
1	BAC	12.57	21	0.59
2	TRV	55.18	59	0.94
3	JPM	39.67	42	0.95
4	AA	14.56	13	1.11
5	T	29.21	19	1.53
6	PFE	17.03	11	1.57
7	KFT	31.93	20	1.58
8	GE	17.7	11	1.64
9	CVX	88.49	51	1.75
10	DIS	37.05	20	1.87
11	MRK	36.48	18	2.04
12	HPQ	41.96	18	2.33
13	CSCO	19.55	8	2.47
14	INTC	21.46	9	2.49
15	XOM	72.17	29	2.51
16	VZ	34.64	13	2.59
17	PG	64.81	22	2.93
18	JNJ	62.54	21	2.99
19	WMT	54.41	18	2.99
20	HD	35.1	12	3.02
21	AXP	44.01	13	3.37
22	UTX	78.8	23	3.43
23	MMM	86.37	22	3.98
24	DD	49.86	10	5.03
25	MSFT	27.9	5	5.1
26	KO	65.7	12	5.42
27	MCD	76.81	13	5.94
28	CAT	92.59	15	6.01
29	IBM	145	18	8.08
30	BA	65.03	6	10.6

Combining the 5 stocks selected from the 3 criteria discussed above, the overall 5 DOW stocks with best potentials will be AA, HP, CSCO, JPM and BAC.

Ranking	Price Drop - 2010	Up Target - 2011	Book Value Potential	Overall
1	BAC	BAC	BAC	BAC
2	CSCO	JPM	TRV	JPM
3	HPQ	HPQ	JPM	CSCO
4	JPM	CSCO	AA	HPQ
5	AA	BA	T	AA

Given the slow but firm improvement of the US economy and the tax cut stimulus package from the Obama government, the worst for financials might have passed.  If there are only 2 DOW stocks you have to invest in 2011 that will be JPM and BAC, since they are the only 2 stocks that have been on the top 5 list for all three criteria.

JPM and BAC have the high potential to be the best DOW performers for the year 2011. 

Make the reshuffle quick before the run-up starts!