Not just a housing play
I see $5 in earnings for Caterpillar in 2006, and I am tempted to pay 18 times that for the stock, which puts this sucker at $90. OK, maybe that's extreme, given the flat-lining in housing and the strong dollar -- too strong, which is going to help Kubota ( KUB), its competitor. So, let's say $80, and you have one giant, well-performing metal bender.
Expect its multiple to expand in 2006
Citigroup ( C): At last this company is out of the penalty box. This is another company that spent more time meeting with lawyers than with investors in the last four years. That's about to change, although I don't believe that Chuck Prince can grow this company the way I would like it to grow. That's why I see Citigroup buying Goldman Sachs ( GS) and becoming a much bigger international presence. In the meantime, I don't expect any real earnings surprises, just multiple expansion, the kind that always comes for financials when the Fed stops tightening. I believe $4.50 is doable, and this year people will pay a couple of multiple points more for that $4.50 as they solve for M, as in M (multiple) times E (earnings) equals P (price). Yes, I believe this stock could trade as high as $60, and it will be a great financial to own.
Not much reason to smile here
Coca-Cola ( KO): Nope, another crummy year is on target for this faded blue-chip. Can we stipulate that Pepsi ( PEP) should come into the Dow and Coke go out? Can you believe how much wealth Pepsi has created between its restaurant spin-out and its snack and beverage divisions? Maybe Coke will make $2.23, mostly by having its way with the distributors, as always. You will pay right here for that, give or take a couple of points: price target $43. Nothing like asking a couple of other components in the Dow to do all the heavy lifting, as Coke, the drugs and the telcos just languish again.
Has become a wallflower
DuPont ( DD): This company will do better now that raw costs are under control, but nobody will really care. It has become a wallflower-dividend play, with about $3 in earnings power, give or take a dime, and a multiple that seems glued to $15. That's right, I don't see this stock trading far from its $45 anchor. It's a disappointment, despite all of that neat biotech and fuel-efficient stuff in the pipe.
|Exxon Mobil |
A wasting asset
Exxon Mobil ( XOM): Here's a company that gets so many undeserved accolades that it makes me sick. It hasn't grown its assets -- crude in the ground, my friends -- for years and has played the role of oil bank all too well. I believe it deserves a lower multiple than almost any oil company, even as I believe that the estimates are way too low and this company could earn $6. I am not paying more than $64 for that number, though, because it is, in the end, more of a wasting asset than any other oil company out there, including BP ( BP) and Royal Dutch ( RDS.B). Maybe, just maybe, Lee Raymond will become Maria Bartiromo's permanent co-host this year, and we can bring in someone who actually calls the price of crude right for a change.
|General Electric |
Too big to see its multiple grow
General Electric ( GE): Biased? Owned? Say what you like because I work with CNBC, whatever; excuse me for saying this, but GE's too cheap. I believe the darned thing can earn north of $2 and deserves to sell at $40 for that plus the dividend giving you a decent return, not great, not bad. The issue here, frankly, is that the company can't escape gravity. We are not going to give the largest company on earth a premium multiple because it is too much like the earth! That's right, the largest company on earth can't advance like a growth stock even if most of its businesses are growing faster than the rest of the economy. It just won't work that way.
|General Motors |
Abandon all hope
General Motors ( GM): Oops! What happens when this one goes to zero? That's what it is worth, by the way. I believe that if I were running GM, I would just do a prepackaged bankruptcy and let 'er rip. That's right, I would demolish this common stock. Of course, the people who run this company are so clueless they still are paying out a gigantic dividend. I don't know if the keepers of the Dow will keep GM in as it goes down the drain. I also believe that the company will drag this out as long as possible, which is just plain stupid. I see no earnings and no dividend in 2006, which means the stock trades to $10 and really keeps the averages from ramping. I see no hope whatsoever here, even as I hope that I am wrong! Editor's note: Be sure to read