Editor's note: This is an excerpt of Jim Cramer's Dow 30 predictions.
NEW YORK (
) -- People do a lot of top-down analysis at this time of the year, trying to figure out how much the Dow and the S&P could go up -- or down -- in the coming year. That's not my style. As someone who is a stock picker, I like a bottom's up approach, analyzing each Dow component to come up with what I think the most visible index will deliver in 2011.
I expect the Dow to hit 13,365 next year-- a 16% gain from current levels and a bountiful return -- based on a prognostication of the performance of the individual members of the venerable index. Although I am a bottoms up guy, as a backdrop I am presuming a resumption of decent U.S. growth courtesy of the Federal Reserve -- call it 3% to 4% -- continued worldwide growth, a stable-to-slight decline in the dollar and a decent increase in interest rates (30-year Treasury bond going to 4.8%) as befitting a return to economic health.
But I see the Dow's terrific gains coming mostly from the players themselves. Here are my individual stock predictions that add up to 13,365 for the index.
(AA - Get Report)
: Let's start off with a bang. With just a $14 billion market cap -- and being the leading independent producer of a metal that will be in intense demand in 2011 because of boosted aerospace, autos and power plant production -- Alcoa will be hard-pressed to stay independent. Earnings have been depressed throughout the downturn, but the cash flow has picked up, courtesy the excellent stewardship of CEO Klaus Kleinfeld. If the company stands alone its stock can advance and get a 12 multiple, a slight discount to many of the cyclical stocks in the average, and that would put it at $18. But I think it gets bought out at $22, a fabulous return and perhaps my favorite in the whole average.
Bank of America
(BAC - Get Report)
: The bank will settle the mortgage putback claims, put a lot of its bad mortgage loans behind it and have an assertive Merrill Lynch to boost its earnings. I think that this company, which trades basically at its cash value, will have a terrific year, especially because CEO Brian Moynihan should be growing into his role and become more of a spokesperson that can help this riddled brand. The integration of the three companies, original Bank of America - itself a pastiche of many banks including Nations and Fleet, where Moynihan's from -- Countrywide and Merrill Lynch will finally be consummated in 2011. Glorious. Don't forget that despite all of the turmoil, Bank of America now has an unheard-of 20%-plus market share in the nation's mortgage market, and I think that market will come alive as the housing shortage of 2012, another of my predictions, comes about. I see this stock trading at $18, where it stood not that long ago, a terrific gain.