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TheStreet Open House

Consider These Dow Components for Your Stock Allocation

Stock quotes in this article: GE, HD, IBM, KO, MCD, MMM, PG, T, UNH, UTX, VZ, WMT

NEW YORK ( TheStreet) -- Over the past six months or so I have been suggesting that investors book stock market profits and raise cash to at least 50% of assets that would normally be invested in stocks.

Allocations to stocks should focus on buy rated components of the Dow Industrial Average including General Electric (GE), IBM (IBM), Coca Cola (KO), 3M Company (MMM) and AT&T (T).

My main reason for caution is that I believe that Federal Reserve policy is creating a stock market bubble. Fundamentally, this thought is supported by the ValuEngine valuation warning that continues to intensify. We now show that 84.4% of all stocks are overvalued with 52.9% overvalued by 20% or more. All 16 sectors are overvalued with 12 overvalued by 22% to 33.6%.

The technicals are now overbought on the weekly charts for the five major averages I follow. This week the Dow Industrial Average joined the S&P 500, Nasdaq, Dow transports and Russell 2000 with a 12x3x3 weekly slow stochastic reading at 80.68 above the 80.00 overbought threshold. The Dow's five-week modified moving average is 15,509. This configuration makes the weekly chart for the Dow positive but overbought.

Investors should consider these 12 Dow components as a portion of a 50% allocation to stocks. One of the stocks is undervalued by 13.6% and the other 11 are overvalued by 6.0% to 30%. One of the stocks is down 3.3% over the last 12 months, while nine have gains of 10.5% to 43.9%. Three are below their 200-day simple moving averages while nine are above.

Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

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DOW 17,042.90 -28.32 -0.17%
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