NEW YORK (Real Money) -- Sometimes you need to sit back and understand why a stock that's been terrific can go higher still and how there may be more points to be had if you are just willing to understand the bull case that brought the stock to an exalted level in the first place.
I say sit back because our natural inclination is to say, "it's too late for the winners," and "I guess I missed them," which are words that could prove costly as stocks continue to power higher.
So, with Dow Jones 17,000 beckoning, why don't we scrutinize the bull cases for the crowned winners, the stocks that have moved up the most since Dow 16,000 back in November of 2013? I think I can show you how the justification for buying these stocks is not only rational, but eminently reasonable.
Five stocks -- Caterpillar (CAT), Disney (DIS), Intel (INTC), Merck (MRK) and Cisco (CSCO) -- are responsible for most of the Dow's performance from 16,000 to this vaulted level. Now, the natural thing is to say that the moves have been missed.
Let me take the other side of the trade.
First is Caterpillar, up 33% since Dow 16,000. Let me sell Caterpillar to you. Here's a stock that, despite the improving economy worldwide, particularly the domestic economy, has still not returned to levels seen since May of 2011 or February of 2012. That's despite a much better undertone to the U.S. economy and a possible stabilizing of the Chinese economy, as witnessed by the better-than-expected Purchasing Managers' Report earlier this week and some very strong activity in the Chinese stock market.
So, alas, no all-time high here. I think that six months from now it is possible that the world's economies will look much better than they do now and CAT can earn $7 a share in 2015. Sorry, that makes the stock cheaper than the average S&P company, with a much better balance sheet and a 2.5% dividend. The darned thing's a strong buy with any uptick at all in mining and is a buy right now considering the return of non-residential construction in this country, as well as the booming oil and gas businesses worldwide. Plus, it remains a favorite short of the cognoscenti, a label you simply can't afford to have in an animal-spirited market like this one.
Next up, Disney, which has rallied 24% since Dow 16,000. OK, Disney's not a cheap stock, selling at more than 20x earnings. But let me ask you a question. If there is any large growth company that deserves to sell at a premium because of its consistency and its 20% compound annual growth, isn't it Disney? Some stock has to be worth more than the average stock doesn't it?