Cramer: Worst-Case Dow View

Editor's note: This article was originally published March 6.

Levels elude me. Levels like, "The Dow can trade to 6000." Or, "The Dow's headed to 5000" or "It can take out the 1991 lows." I don't know anything about those. I like stock-by-stock analysis, not top-down. I like individual stock valuation and individual stock levels, not top-down levels. That's how I think. I total them to see where they could go.

At the beginning of the year I did an analysis of where I thought the Dow could go. It was full of misplaced optimism about the Obama administration and the potential for a second half recovery.

(On Monday, the Dow closed at 6,547.05, down 79.89.)

I should have just called it the bull case, because we will have no second-half recovery, and the agenda of the Obama administration is ensuring that.

So, today, I calculated the bear case to see where we can go, case by case. Keep in mind that this analysis was done with an eye toward the continued wealth destruction, and it is not something that I expect will happen right now, all at once. We are due for the inevitable bounce, and I don't want to ignore it.

And with that note of caution, drum roll please: 5320. I simply can't get any lower no matter what I do. I just can't. So with that in mind, you can say that 15%, give or take a few percent, might actually be, are you ready, buyable if we get to 6000. Frankly, after this analysis, I am more sanguine, not less, because of how harsh and disaster-oriented this line-by-line calculation is.

No further ado, here's how we get to 5320, something that I simply can't believe will happen before the fated bear market rally spike.

Alcoa ( AA): Here's a stock that's become a mid-cap play at $4 that is losing money and has a terrible balance sheet. It is overvalued on earnings and undervalued as a public company, but there is no private equity for this one, and suitors have dried up since the mistaken Alcan acquisition. I think it could get cut in half to $2 and hang there if it keeps taking losses, which I expect it will.

American Express ( AXP) is a bank with bad loans. Banks get taken down by shorts to $2 when they don't have an earnings cushion and can't be taken over because no one has the capital to do so. Why would AXP be able to buck this trend, particularly when the shorts are pushing it down betting on ratings downgrades, no ability to roll over debt and a needed dividend elimination? Not taking it to $1, because I do not foresee government ownership. So $2 it is.

AT&T: A Dow favorite of mine that has not taken out its $20 low from October and has a safe, recently raised dividend. It should go back to that October level in a stressed situation where estimates might be too high. So, $20, where I want to make it clear that I want to buy it.

Bank of America ( BAC): What's more important than Tier 1 equity is how the common stock is doing, because the administration cannot seem to understand that bank stocks are easy prey for the shorts who know that as long as they drive the stocks down, it is game over for banks. That means BAC can trade to $1 like Citigroup. No reason why it couldn't.

Boeing's ( BA) balance sheet could be stressed mightily by the huge downturn in aerospace and a cut in defense spending for Boeing-like systems. That means the 5.6% dividend is questionable, and so is the low of $30. With big order cancellations, a place like Boeing begins to lose money, even though it is extremely profitable right now. The stock can drop 20% easily on that news. Make it $24.

Citigroup ( C) is a zombie, and zombies retain optionality, so there's a $1 target here, and it has been reached.

Caterpillar has a 7% yield and has traded as low as $21. I think that the dividend is in jeopardy so the stock is, too. If it reverts to its typical multiple -- right now it is at a premium -- and it cuts the dividend, then $15 seems right.

Chevron has bottomed in my opinion. But if oil goes back to $33, you are not going to see this stock hold its $55 low. If you give it the same valuation of ConocoPhillips ( COP) and the same dividend, you are going to see a $50 stock pretty fast.

Coca-Cola ( KO) could turn out to be a stock that Warren Buffett has to sell in order to fund his big bank bets. There's always a bid. The growth here is more purchased growth, meaning by buybacks, than it is organic. It is one of the weakest dollar plays out there in an environment that is seeing the dollar soar. It could cut estimates by 25%. That would put the stock in the mid-$20s, but the yield seems fairly safe, as KO just raised the dividend. Split the difference and call it $30.

Disney ( DIS) is difficult because it is expensive, and its theme park, DVDs and television divisions are challenged, not leaving much else. ESPN could easily switch to a loss if the big autos and some of the beers and the like cut back, and I think they will. The company is locked into some high-priced contracts. DIS has real problems in owned and operated. I think its theme parks will be too expensive to attend for many individuals. This DVD problem is in its infancy and will take away a steady stream of profit, as it has become simply a thing of the past that people are building DVD libraries, even for Disney's excellent titles. It is not a cheap stock, and it has no dividend support. It doesn't get cheap until $12 if the earnings estimates need to be cut to more realistic levels. I doubt it can go much lower because of its franchise value, but remember, that hasn't halted any company's slide yet.

DuPont ( DD) Dave Peltier has made it clear repeatedly in his excellent dividend analysis that this one is totally at risk. Why can't this go the way of Dow, maybe plus some ag that Dow doesn't have? Heavy into housing and auto. Drug business being shredded by patent problems. People expect DuPont to earn $2, I say it would be lucky to earn half of that, but let's just say three-quarters of that, and make it $1.50 with a 7 multiple, as it trades there now: $11, as there will be no dividend support.

ExxonMobil ( XOM) is rich vs. the other oils. It doesn't have great dividend support. However, it did trade to $56 in the October lows, so I have to believe it is realistic to see them again, and it would still not be cheap vs. the other oils. That's OK, much loved, I think it holds $56 because I am a bull on oil.

General Motors ( GM) common stock gets canceled in my estimation in a bankruptcy which we all seem to know is coming. Goose egg.

General Electric ( GE): We have seen what the shorts can do here, and we know that their easily reached goal in this environment is to make GE beg for government money, which is amazing, given that it has much lower leverage than traditional banks and is getting no credit whatsoever for some solid industrial businesses. Therefore it goes to $3, not $1 like Citigroup, in a bear case.

Hewlett-Packard ( HPQ): The company reiterated its numbers the other day. I have to tell you that I think this stock is just trading at too cheap levels, but if it trades at 7 times earnings with no dividend to speak of, why can't it trade at 6, as the estimates will come into doubt. $24? I think it works to there.

Home Depot ( HD): In a true endless decline in housing prices and a potential dividend cut, it is still hard for me to see this company much below its October low of $17. Not bad!

IBM ( IBM): stocks that report good numbers are still getting crushed. IBM traded to $69 back in November. No dividend protection. I think it could earn $8 and could sell at 10 times earnings, not much less, but a really terrible market could give it a further haircut. It wouldn't shock me to see this one back to $75.

Intel ( INTC) has terrible earnings prospects, and its end markets are a shambles. It has a good dividend, but I can't view it as safe in this environment. Semis are no longer growth companies, with the level of semi sales back to levels of 20 years ago. Cut its earnings by 10%, cut its multiple by 10%, presume dividend OK for now, $10.

Johnson & Johnson ( JNJ): Still a lot of Buffett stock that should come out, according to the analysis that Doug Kass is giving us. The average drug stock trades at about 6% yield, but this company has above-average characteristics. One times earnings can be a possibility here, though, and that means the stock should bottom at $40, where its yield will still be below average. Strong dollar makes earnings vulnerable, although I like the stock right here and don't believe the wheels are coming off the bus.

JPMorgan Chase ( JPM): All bank stocks get taken down to single digits. This one has a better franchise and will not need government shareholders, but at the same time, the shorts should be able to take it down to $4-$5 before Tim Geithner figures out a game plan. Let's err to the high side, given that it is a better-run bank, perhaps the best-run bank, in the country. I say $5.

Kraft ( KFT): This is the worst-run food company in the Dow. The second worst, Heinz, trades at 10 times earnings, and this one has a Buffett discount too, and I don't know about dividend coverage. Give it a Heinz multiple, and you get $18. Seems right.

3M ( MMM) has been crushed here, but in a worldwide recession it won't stop at $40, and the strong dollar is a huge headwind. Estimates are 10% too high in a best-case scenario, and that means, steady multiple, $35.

McDonald's ( MCD): A strong dollar could cut estimates, as could a decline in traffic in Europe, where MCD has a big franchise, Still, it's a solid company and a good bet, so I will call it no lower than $45, as dividend protection and great management could cushion any decline. I want to buy this one, too, when it gets to $50, as you have to start somewhere, and the idea of it going to $45 implies a garden-variety worldwide depression.

Merck ( MRK) has patent issues, and the new Supreme Court decision makes its products, particularly its vaccines, a free-fire zone. Also, this is the company that could be one of the most hurt by Obama's pitting of drug companies against each other to get a great price for the government. Chop a multiple point off it and cut earnings by a quarter, and let's call it $15.

Microsoft ( MSFT): Another one with the estimates too high and the dividend too low. $12-$13 gives it dividend parity to Intel, but it has a less cyclical earnings stream, so I don't think it has too much downside here. $13 is the high end -- let's take that.

Pfizer ( PFE): A disaster with a dividend that is too high once again and a merger that will put a lid on the stock for the foreseeable future. Don't forget huge, huge patent expiration problems and a government that's gunning for it. I think this one's going to $8 as the estimates and the dividend are too high, the latter even after the cut!

Procter & Gamble: Earnings estimates are too high, and dividend protection is slim, and the strong dollar will hurt here, hurt badly. At $36 it is more like Coca-Cola, a good compare, so I bet it gets there, and that's not nearly the haircut that it deserves in this environment. Still a PG premium.

United Technologies ( UTX): The dollar is killing this company, and we believe that there is a good chance of a 10% cut in estimates, or $31, which gives it about a 5% yield. I think it would be a stretch to go down there, given its steady businesses, but aerospace and elevators could hurt them.

Verizon's ( VZ) estimates are probably good, and the dividend is safe and should go higher this year, but at the same time it could return back to $23, the October low, in a hard selloff.

Wal-Mart ( WMT) just boosted the dividend, it delivered an excellent quarter, and I truly believe that we might have seen the low of the year at $46. We tend to revisit the lows in this market, although IBM reported better and it didn't. But 3 points isn't much of a decline, so I like it just to that level.

Remember, this is the bearish view, no worldwide pickup or continued decline, no kick-in of stimulus, no change in the Obama plan. That's how you get to these levels. Put simply, they are not unrealistic, although it is unlikely to think they all get to these lows at once, as they didn't in October or November. So consider this the worst case, and be ready if it happens.

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At the time of publication, Cramer was long CAT, CVX, GE, HPQ, JNJ, JPM and WMT.

Jim Cramer is co-founder and chairman of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC. To order Cramer's newest book -- "Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)," click here. Click here to order "Mad Money: Watch TV, Get Rich," click here to order "Real Money: Sane Investing in an Insane World," click here to get "You Got Screwed!" and click here for Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he appreciates your feedback and invites you to send comments by clicking here.

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