dpdoor (42.03)

Why the DJIA likes 8500

December 29, 2008 – Comments (1)

 If the dow 30 stocks were to go to 15pe of next years estimated earnings the dow would be at 10300. If you cut the estimated earnings in half that would be 6700. If you take the average of those two numbers you get 8500.

 Right now less then half of the dow 30 stocks are estimated to make an average of 23% less earnings next year. Wall Street is discounting that more by using an average P/E (on Dec 26th with the dow at 8515) of 12.75. Alcoa, Citibank and GM are expected less then zero earnings.

An average of 16 of the stocks are estimated by annalist to make 22% more next year (include in that is Merk at 51% and BAC at 45%). Fortunately Wall Street has those 16 at an average of only 10.78 forward p/e.

If the estimated earnings were lowered by 15% and stocks returned to an average P/E of 15 the dow would be at 8500.

The above is from my rough math and the information available to me. You should do your own research before investing.