This post appeared earlier Tuesday on RealMoney. Click here for a free trial, and enjoy Jim Cramer's commentary daily.
OK, where can it go? Time to start thinking worst-case scenarios, time to start dusting off the disaster schematic, as people are increasingly betting that way, and we now know the machines can take us there. If they can take us down 500 points in 18 minutes when nothing has changed, they can take us there.
Lets go through the
stocks, case by case, with some vicious assumptions, including a euro that trades toward parity with the dollar, a major catastrophe or two in Europe that slows growth down there by 20% -- huge GDP hit -- and no relief from Chinese policy makers or from the Congress and President Obama. I am not including World War III with Korea, because I really don't care where the Dow goes in the event of nuclear war and am far more concerned about my Saltine and Velveeta collection in my sub-basement.
You have to get through the analysis before I give you the total. Call it a tease, but you may just stop well ahead of the conclusion, and you
to know how I got there.
Please understand that I do not expect this to happen. I expect the policy makers to try to stop things and intervene to make these prices unrealistic, but people want disaster analysis, so here it is:
Alcoa : They blew the quarter. No yield support. Questionable if they even have $1 earnings power. People are thinking 70 cents. That's too high on a worldwide slowdown. Call it $8, using the recent 12 multiple.
American Express : Credit is improving. Business is better. Let's say it reverts to something between when the big defaults occurred and now, not $22 like last summer, but $30 on the 20% haircut that many in the market now expect from here.
Boeing has a new product cycle, but orders will be canceled because of problems with credit. So can't take it back to where it was when Dreamliner didn't work, but it's not worth it up here because of the credit freeze-up. Roll it back to $50.
Bank of America : You lose 20% earnings power because Blanche Lincoln wins. Take it down 20% as if nothing is in it yet for that lunacy: $12.
Caterpillar could be an accidental high-yield bounce candidate. It didn't cut its dividend during the bad old says. It could end up yielding 4 and change -- take it to $40.
Cisco just reported a terrific quarter and said things are gaining steam. Let's say the steam is over and the earnings get a 20% haircut. A little multiple-haircut takes you down to $19.
Chevron has traded down to $57 before when oil was lower, and it can hold at a 5% yield. Decent price target.
Disney just reported very good earnings and has a big slate of movies, but we now have had some disappointment in movies. The theme parks are leveraged to gasoline, which is going down, and employment, which is stable. Just not a big hit here to numbers. A 20% earnings slash and lower multiple yields $27.
DuPont's yield held up, and cost controls continue to improve, as well as housing and Asia. Let's say Asia stops improving but the dividend is a good one. Call it 5% floor. Not much downside, $32.
Exxon Mobil is problematic, just buy back, no real yield. Presuming oil sinks to $60. Didn't trade lower than the crash from here. $55? Taking out crash low. Extreme. But everyone's extreme.
General Electric has eliminated a lot of the big financial risk but has huge overseas exposure, and problem loans will come back to haunt its earnings. But the balance sheet is much better. Let's say it can trade to $12, where it was before commercial credit fell apart. Remember, it doesn't have funding problems anymore, as it doesn't rely on that short-term market, but people won't believe that.
Hewlett-Packard just reported a very good quarter and saw no real weakness. Let's say it starts now and estimates are 20% too high and the multiple shrinks a point -- make it $35.
Home Depot is improving. Let's say that improvement has run its course, even though it is domestic and the most positive it has been in years. Yield protection, a reduced estimate and a point-lower multiple still give you $29.
IBM is doing everything right and growing earnings, buying back stock, surprising to the upside. But it's big in Europe, and let's give the multiple a haircut. Earnings and multiple cut by $1 and 1 point gives you $100.
Intel : Yield support and earnings momentum, which could be tempered more by Asia -- assuming China does the wrong thing -- give you an $18 floor. It's truly in better shape than it has been in years. Can't take that away from it.
Johnson & Johnson has 50% overseas earnings, much of it Europe, and some patent problems, but it is still a staple. Safe dividend. It's going to $55 off of euro estimate cuts and patent woes.
JPMorgan : Blanche Lincoln takes the stock to $31 using the same Bank of America analysis. No choice -- for this analysis, you have to presume that all policy makers do the wrong thing.
Kraft has got great yield support -- remember, that matters, because in a disaster scenario, bonds are going to $3. Its earnings power is on upswing because of the merger, even though it increased European exposure. I see it to $27.
Coca-Cola's big international exposure is a hindrance and will lead to number cuts, but the dividend is safe. I can't see it going through $45 with that combination.
McDonald's : So tough because it's doing so well, and the U.S. is on the upswing, and it is defensive, but it does have big Europe business, which will likely not slow, but you have to presume a euro that could go to parity with the dollar. Let's shrink the multiple and the earnings but remember the yield and run it down to $59.
Merck : The Schering-Plough deal allows it to grow, but it has huge exposure to the euro and has exposure to universal health care by governments worldwide. The dividend is safe and well covered, but drug stocks have 6% yield. Take it to $28.
3M : Another one that is doing better than expected, but it is linked to Asia, and we have to bet for this analysis that China does the wrong thing. So take the multiple down 2 points as multiples are shrinking worldwide and earnings are down 10%, as opposed to 20% for Europe, and you get a $60 stock.
Microsoft : New cycle and lots of cash flow, but it's losing out on the Web and in video games, and Google and Apple are gunning for it. It traded as low as $20 last year when we thought we were going to collapse. Let's presume it will do that again: $20.
Pfizer : Bad patent cliff. Some help from Wyeth. Bad euro exposure. Dividend not safe, since they already cut it once. I can see it going to $12.
Procter & Gamble , like McDonald's and Home Depot, is starting to do much better. It has a decent yield and can buy back shares, but it has extreme currency exposure. I bid $49 on it on air a few weeks ago. Let's presume $50. Dire, but things are dire.
AT&T : It's down so much already with dividend boost ahead and earnings not being cut. $23 seems like a reasonable floor.
Travelers : Huge bond portfolio that's doing great. It's well run and a beneficiary as weakened players drop out. Small yield, but no great earnings risk: $45.
United Technologies . Like 3M except more Europe. Again, haircut of 20% on Europe and multiple down 2 points, but yield support help gives you a $45 stock. Extreme, but again, we are in an extremist market.
Verizon goes down in synch with AT&T, even though I expect a dividend boost, and there's huge cash flow now that the FIOS build-out is almost complete, and Verizon Wireless could get the iPhone.
Wal-Mart : Best in show. Actually, it should rally here like the dollar stores are. But the machines won't let any S&P 500 stock, especially one as big as this, rally. Let's move it to $45 in deference to the machines.
There you have it. Comes to 8286, much below my
, but then again, that target was based on policy makers reacting and doing the right thing after a 5%-6% decline. This analysis presumes the wrong thing. That's how you get a 21% decline from yesterday's close. Dire? Yes. But given that we are up from Dow 6500, it's not a nightmare, just a hideous correction. Will all of these politicians do the wrong thing? Unfortunately, that's a distinct possibility.
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At the time of publication, Cramer was long BAC, BA, CSCO, HD, INTC, JPM, MCD, AAPL and PG.
Jim Cramer, co-founder and chairman of TheStreet.com, writes daily market commentary for TheStreet.com's RealMoney and runs the charitable trust portfolio,
. He also participates in video segments on TheStreet.com TV and serves as host of CNBC's "Mad Money" television program.
Mr. Cramer graduated magna cum laude from Harvard College, where he was president of The Harvard Crimson. He worked as a journalist at the Tallahassee Democrat and the Los Angeles Herald Examiner, covering everything from sports to homicide before moving to New York to help start American Lawyer magazine. After a three-year stint, Mr. Cramer entered Harvard Law School and received his J.D. in 1984. Instead of practicing law, however, he joined Goldman Sachs, where he worked in sales and trading. In 1987, he left Goldman to start his own hedge fund. While he worked at his fund, Mr. Cramer helped start Smart Money for Dow Jones and then, in 1996, he co-founded TheStreet.com, of which he is chairman and where he has served as a columnist and contributor since. In 2000, Mr. Cramer retired from active money management to embrace media full time, including radio and television.
Mr. Cramer is the author of "
," "You Got Screwed," "Jim Cramer's Real Money," "Jim Cramer's Mad Money," "Jim Cramer's Stay Mad for Life" and, most recently, "Jim Cramer's Getting Back to Even." He has written for Time magazine and New York magazine and has been featured on CBS' 60 Minutes, NBC's Nightly News with Brian Williams, Meet the Press, Today, The Tonight Show, Late Night and MSNBC's Morning Joe.