Looking Back at the DJIA in July 2008 – Throwback Thursday

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In July 2008, I analyzed the Dow Jones Industrial Average (“DJIA”) to determine its overall valuation, and published the results here.  Overall, the DJIA was valued at 14,872.  On that day it closed at 11,397.56, which was about 75% of its value and right on the borderline of the ModernGraham margin of safety but leaning towards undervalued.  Since then, it has risen to 16,424.85, a rise of 44%.  But as I was looking through the archives to select a topic for this Throwback Thursday, I wondered how did the components that were rated well by the ModernGraham valuation model end up working out?  Did they beat the DJIA?  That’s what we’ll look at today.

The Table from 2008

The original post looked at only the components which qualified for either the Defensive Investor or the Enterprising Investor.  The following table summarizes the valuations and prices at the time of each component:

Ticker Name Value Price %Value
MMM 3M $107 $69.77 65.4%
AA Alcoa $59 $32.89 55.64%
T AT&T $34 $30.68 90.85%
BAC Bank of America $36 $28.16 77.96%
AIG American International Group $71 $23.24 32.56%
BA Boeing Corp $86 $62.64 72.81%
CVX Chevron Corp $216 $82.62 38.24%
C Citigroup $18 $16.95 94.38%
KO Coca-Cola $43 $51.21 118.93%
XOM Exxon-Mobil $162 $80.83 49.80%
GE General Electric $30 $27.78 91.62%
HPQ Hewlett-Packard $54 $43.22 80.48%
HD Home Depot $47 $23.30 50.03%
INTC Intel Corp $21 $21.64 100.98%
JNJ Johnson & Johnson $69 $68.55 98.83%
MSFT Microsoft $35 $25.52 72.40%
PFE Pfizer $19 $18.42 96.74%
PG Proctor & Gamble $57 $63.95 113.19%
VZ Verizon $27 $33.79 125.33%
WMT Walmart $58 $56.40 97.85%
DIS Walt Disney $46 $30.60 66.21%

The following companies were components at that time but are not included in the table, indicating they were deemed to be Speculative by the ModernGraham approach at the time:

  • American Express (AXP)
  • Caterpillar Inc. (CAT)
  • E. I. du Pont de Nemours and Co. (DD)
  • General Motors (GM)
  • International Business Machines (IBM)
  • JP Morgan Chase (JPM)
  • McDonald’s (MCD)
  • Merck & Co. (MRK)
  • United Technologies (UTX)

The Undervalued Companies

Next, we will take a look at the companies deemed undervalued at the time and see how they have done since then.  Overall, $10,000 invested in these 9 components would be worth $16,277.45, a gain of 62.77%.  Clearly, that result would have been even better had AIG not been included.

Ticker Name Value Price Then %Value Price Now Change
MMM 3M $107 $69.77 65.40% 136.77 96.03%
AA Alcoa $59 $32.89 55.64% 13.42 -59.20%
AIG American International Group $71 $464.80* 32.56% 50.39 -89.16%
BA Boeing Corp $86 $62.64 72.81% 126.04 101.21%
CVX Chevron Corp $216 $82.62 38.24% 121.83 47.46%
XOM Exxon-Mobil $162 $80.83 49.80% 99.94 23.64%
HD Home Depot $47 $23.30 50.03% 76.58 228.67%
MSFT Microsoft $35 $25.52 72.40% 40.4 58.31%
DIS Walt Disney $46 $30.60 66.21% 78.95 158.01%

*Adjusted for splits.

The Overvalued or Fairly Valued Companies

Now, take a look at the companies that were rated as overvalued or fairly valued at the time.  Overall, $10,000 invested in these 12 components would be worth only $11,390.84 today, which is a gain of 13.91%.

Ticker Name Value Price %Value Price Now Change
T AT&T $34 $30.68 90.85% 36.1 17.67%
BAC Bank of America $36 $28.16 77.96% 16.13 -42.72%
C Citigroup $18 $169.50* 94.38% 48.18 -71.58%
KO Coca-Cola $43 $25.61* 118.93% 40.59 58.49%
GE General Electric $30 $27.78 91.62% 26.12 -5.98%
HPQ Hewlett-Packard $54 $43.22 80.48% 32.49 -24.83%
INTC Intel Corp $21 $21.64 100.98% 26.93 24.45%
JNJ Johnson & Johnson $69 $68.55 98.83% 98.75 44.06%
PFE Pfizer $19 $18.42 96.74% 30.09 63.36%
PG Proctor & Gamble $57 $63.95 113.19% 81.65 27.68%
VZ Verizon $27 $33.79 125.33% 47.1 39.39%
WMT Walmart $58 $56.40 97.85% 77.22 36.91%

*Adjusted for splits.

The Speculative Companies

Taking a look at the companies deemed to be unsuitable for either the Defensive Investor or the Enterprising Investor, we see that one of them declared bankruptcy, General Motors, and $10,000 invested in these 9 components would have been worth $14,950.44, a gain of 49.50%.

Ticker Name Price Then Price Now Change
AXP American Express Company 37.52 87.4 132.94%
CAT Caterpillar Inc. 70.99 102.93 44.99%
DD E I Du Pont De Nemours And Co 43.56 67.72 55.46%
GM General Motors Company Declared Bankruptcy == 0 value -100.00%
IBM International Business Machines Corp. 127.66 196.4 53.85%
JPM JPMorgan Chase & Co. 40.75 55.26 35.61%
MCD McDonald’s Corporation 59.7 100.83 68.89%
MRK Merck & Co., Inc. 32.41 56.26 73.59%
UTX United Technologies Corporation 65.52 118.07 80.20%

Conclusion

Approach Gain
DJIA as a whole 44%
Undervalued 63%
Overvalued or Fairly Valued 14%
Speculative 50%

The companies rated as Undervalued and suitable for either the Defensive Investor or the Enterprising Investor significantly outperformed the alternatives.

Going Forward – How to Use this Information

One way to use this information going forward would be to follow along with the ModernGraham valuations through signing up for the free daily email list (and receive a free copy of the March 2014 issue of MG Stocks & Screens when you do), or by becoming a premium member and utilizing the MG Stocks & Screens monthly report.  Stocks & Screens lists all of the companies valued by ModernGraham and screens them to find the companies that are suitable for Defensive Investors or Enterprising Investors and undervalued.

Disclosure:  The author held a long position in DIS, and HD but no other companies at the time of publication and had no intention of changing that position in the next 72 hours.


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