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The M, the magical M, the multiple that people will pay for earnings, remains the single-most difficult element to predict in the stock market. All the quantitative people and all the engineers and all the Nobel prize winners in the world can try to figure out earnings and where those earnings will figure in a world of both sane and insane valuations, but it's not worth squat if you get the M wrong.

That's what I conclude when I look at

my 2004 predictions for the

Dow Jones Industrial Average

and see where I made my biggest mistakes and where I was most clairvoyant. Oh, for certain, on some I was so right, it's scary. I predicted that



would earn $5 and the market would pay $100 for it. Nice. And that



would earn about $1.60 and the market would take that stock to $36. Sweet.

But who would have thought how much people would pay for the aerospace earnings cycle? I thought



would earn $3.25 and the market would pay $48 for it. Although the year's not over yet, Boeing looks like it will come in at $2.50, yet the market likes it enough to pay $53 for the stock! Or how about



? It's gotten so out of favor that the market hates the $1.95 it earned and is going to pay only $41 for those earnings. However, when you consider that I thought Coke was going to earn $2.10 and it had a high multiple, you can understand that with those estimate cuts came the phenomenon of multiple contraction.

The whole process of prediction can be quite sobering. I was off by a third in my

General Motors


earnings power calculation, a third too high, which led me to be wrong about GM's closing price by 25 points! Same with



, which I predicted could earn $1.35 and have people pay $38 for it. Nope, how about $1.13 and $23. You get the estimate too high, you can see the air come out of the stock.

Nevertheless, my sum total of Dow 11,300 certainly has not been far off the marker and my individual directions of equities was far more right than wrong. Which brings me back to the prediction table for 2005, using the same bottom-up methodology that has worked so well for me in all my years of investing.

So, what's it going to be for 2005? As usual, I write this piece with a fill-in-the-blank approach. After I am done, we can add up all the Dow Components' target prices and arrive at where the Dow should be. In keeping with that style, the totals won't be revealed until the series has run its course, but suffice it to say, I think we are going to have another good year.

A disappointing year



: Here's a stock that severely disappointed in 2004. I thought $2 was doable for the great aluminum giant and that we would see $40. Hardly. The earnings-challenged Pittsburgh company proved that only the Steelers are worth betting on out of that town, and it looks like the company will be lucky to do $1.60. I no longer think that, despite ample demand from China, Alcoa has big earnings power. It simply doesn't know how to translate sales into earnings, at least with this current management. I think it earns $1.80 and trades to $35 and not a penny higher.

Set for a huge year



: It's losing its litigation risk. You can see it in what happened last year. I thought the company would earn $4.70 and that we would pay $56 for that earnings power. I was dead right about the earnings; it looks like $4.70 will be right on when the final totals are in. But yield-challenged people are willing to pay $60 for it. I think Altria's going to have a huge year next year, one where the company at last unlocks the value, and we will pay $75 for that $5. Altria's a winner; I should not have dissed it with faint praise last year.

American Express
Tore the cover off the ball

American Express


: Tore the cover off the ball in 2004. I thought it would earn $2.40. Turns out that $2.70 is more like it. Now that banks will be issuing American Express cards, I think that this company's earnings could explode and that $3.10 might be doable. It is realistic to think that people will pay $65 for those, which makes American Express a decent bet for 2005.

Spitzer's impact will be felt

American International Group


: Got added to the Dow in 2004 so I didn't hazard a forecast. The company looks to make $4.40 this year. Frankly, I am not a fan and think that the fallout from New York Attorney General Eliot Spitzer is going to hurt the whole industry's profitability. I see subpar earnings growth, maybe no more than $4.50, and the stock will just mark time in the $60s.

Enjoying a multiyear move



: Enjoying a multiyear move of which 2004 was just year two. These moves tend to last more than four or five years and the market loves the predictability of the earnings cycle. I think Boeing, which I said would earn $3.25 in 2004 -- $2.50 is more like it -- will get to the $3 level. Those earnings will take the stock to $75. I know, I know, really bullish, so why don't I own it


Action Alerts PLUS? The answer is, I have been waiting for a pullback for about nine months now. Maybe I should stop waiting.

A 'wish I owned it' stock



: I've always had a great feel for Caterpillar, in part because I always thought of myself as a bit of a machinery analyst, with machinery including technology. I thought Caterpillar would hit $100 after it earned $5, and I am right on target. Next year, with a weak dollar and still low interest rates, I think $6 could be doable, which would put this stock at $120. It will split, of course, making it even sexier. Another "wish I owned it" stock.

Click here to read Part 2 of this series.

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At the time of publication, Cramer was long Intel.

James J. Cramer is a director and co-founder of He contributes daily market commentary for's sites and serves as an adviser to the company's CEO. Outside contributing columnists for and, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made.

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