A Look at the Dow's Component Stocks, Part 2

Editor's Note: Part 1 of this column ran Dec. 21 on RealMoney. Please click here to read it.

This is the second in a two-part series analyzing the 30 stocks that make up the Dow Jones Industrial Average. With the Dow dancing around record heights, I've been going through the Dow in alphabetical order, seeing which companies get high grades from the guru strategies I use and which do not. This is a look at the remaining 15 companies.

Home Depot (HD - commentary - Cramer's Take): The nation's largest home-improvement retailer, Home Depot gets passing grades from three strategies, which is a very strong endorsement.

The strategy I base on Warren Buffett's approach likes this company, in part, because it has great brand recognition, is the leader in its market and has had EPS increases in each of the last 10 years, moderate debt compared to its earnings, a solid return on equity of 18.1% and an expected rate of return of 15.1%, which is very desirable.

The strategy I base on the writings of James P. O'Shaughnessy likes this company because of its large market cap, sizable cash flow per share and yield (2.25%).

The final strategy that likes the company is the one I created by interpreting the writings of Peter Lynch. This strategy likes the company's P/E/G ratio of 0.67 (P/E ratio relative to earnings, must be 1.0 or less), EPS growth rate of 20.2% (based on the average of the three-, four- and five-year historical EPS growth rates) and reasonable total debt-to-equity ratio.

Honeywell (HON - commentary - Cramer's Take): Honeywell is in many businesses, including auto products, chemicals and aerospace. The O'Shaughnessy strategy likes it because of its large market cap and sizable cash flow per share ($3.48, which is about 50% more than the market's mean cash flow per share). At 2.1%, its dividend yield is one of the highest among the 50 companies that have passed the strategy's other criteria.

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At the time of publication, Reese was long Home Depot, Johnson & Johnson, Verizon and Wal-Mart, although holdings can change at any time.

John P. Reese is founder and CEO of Validea.com, an investment research firm, and Validea Capital Management, an asset management firm serving affluent investors and companies. He is also co-author of the best-selling book, The Market Gurus: Stock Investing Strategies You Can Use From Wall Street's Best. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback. Click here to send him an email.

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