So without further ado, here's how I see the stocks in the Dow Jones Industrial Average faring in 2014.
1. American Express (AXP - Get Report) . We own it for Action Alerts PLUS, and I have to tell you that I find it overvalued. But, because of its hybrid credit-card and interest-rate model and its play on small business, it is loved to death. That's how a company with $5 in earnings power is trading almost at $90. I don't see a lot of leverage to the earnings at this juncture unless we see a true global expansion at AmEx that includes more business formation and travel. But stranger things have happened, and this is what the stock is saying will happen.
Can AmEx get to $100? I think that the average multiple for stock next year will gravitate toward 17x as the economy expands with little inflation, and that makes American Express a $100 stock -- nowhere near the 50%-odd gain, but certainly nothing to sneeze at. This is a company that is benefitting from being knocked down to shocking levels because of its near-death bad lending at the depths of the recession. It has been recovering ever since. It also seems, perennially, to have accumulated more and more fat. However, I believe it is a company that has uniquely used technology to cut costs rather dramatically.
2. AT&T (T). If this company does nothing, the stock still could go higher because of general improvement in business conditions. But the under-5% share rise, even when you include the dividend, wasn't enough to write home about vs. Verizon (VZ). I continue to not be a fan, especially because an outfit like Verizon is not sitting still, and is paying up huge to own all of its lucrative wireless business. Verizon's got such momentum, and AT&T has virtually none. I think we'll see another tangential dividend boost and a slight uptick in earnings and a $36 stock, unless AT&T starts buying things overseas, where the growth is better. That would take more vision than this management team has right now, though.
3. Boeing (BA). This company is going to have another big year. I know, that seems pretty impossible after it put in the best performance of all of the Dow stocks, having gained about 80%. But this company is really only in year two of a new plane cycle, and the time it takes to make these aircraft will be much reduced, and the part costs will come down, too.
That means you are going to see earnings leverage galore. The Dreamliner model is now looking like a smashing success, and that's pretty amazing when you think about what people were saying about it just last year. One of my favorite business moments of 2013 was when CEO Jim McNerney came on "Mad Money" in the late summer and said he never doubted for a moment that the plane wouldn't be a success, since the fire issue was strictly an engineering question and could always be resolved by the incredible engineers at Boeing.
This company will also benefit from the restoration of the defense budget to higher levels, as the sequester had taken some of the upside away. The airline business has never been this healthier. The globe's airline companies are doing better and better, and airport expansion in China is unprecedented and doesn't have nearly enough planes to do the job. This is Boeing's time, and the average cycle for a new aircraft's profits before peaking is seven years -- five years away from now.
4. Caterpillar (CAT). You want controversy? Stephanie Link and I think this is Caterpillar's year. One of the few unchanged stocks in the Dow for the year, this name is coming in with the lowest expectations I can ever recall. CEO Doug Oberhleman is the key to this situation because, if he leaves or is pushed out, you have a $100 stock that same day, unless it is already north of $100. That's not inconceivable if you believe, as I do, that we are about to have an economic expansion in this country that will require a huge amount of earth-movers and engines.
Plus, I like that the write-offs from the failed Chinese mining company buy are behind Caterpillar, and people have given up on the beleaguered mineral complex, a key customer. If China hangs in at all and if Europe continues to stabilize, I think Caterpillar will restructure and deliver on the fourth quarter of next year, and that's how the stock will go to $110.
5. Chevron (CVX). This stock been stuck in neutral, having picked up less than 15% this year, even as the company has seen good growth and has enjoyed excellent replenishment rates. But Chevron's become neither here nor there. We have a ton of companies with a 3%-plus dividend yield, so that's not attractive. Many companies have much clearer, faster growth paths in the industry, including favorites of mine, like Noble (NBL) and EOG (EOG). We have the shadow of Warren Buffett casted on Chevron, much as the halo of Oracle (ORCL) plays out on Exxon (XOM). Plus I don't think it is a candidate to bring out value like Marathon Oil (MRO) and ConocoPhillips (COP) and perhaps Occidental (OXY) and Hess (HES) might do. A neither-here-nor-there stock means that, without a big run in oil -- which I do not expect, although I don't anticipate it to plummeting from these levels either -- I don't see how Chevron can go up more than $5 or $6. A dud.
6. Cisco (CSCO). I still can't believe this stock has been able to finish in the black this year. Here's a company that has reported progressively weak numbers, quarter after quarter, and I see no end for it in sight. Anyone prognosticating on Cisco knows all bets are off if the board decides to force the retirement of CEO John Chambers. But I think the board is enamored of this self-confident man with all of the answers who has badly bought back billions of dollars of and has seen Cisco fall behind old nemeses Alcatel (ALU) and Juniper (JNPR) in so many areas.
It wasn't supposed to be like this. Cisco fancies itself to be part of the Internet of Things, a company uniquely intertwined with the incredible growth of voice, data and video. If that's the case, and if there is a huge secular window to the positive, how is this company underperforming so badly? All that said, I have to believe that, by this time next year, the comparisons will at least be easy. I see the stock going back to $24, where it was before the most recent shortfall. Don't wait around for it, though, as I think the move will be a distinctly late-third-quarter affair.