Allocate Assets to Buy-Rated Dow Stocks

TheStreet.com

NEW YORK (TheStreet) -- My suggested allocation to stocks has been at a maximum of 50% focusing on utilities, brand name retailers and the buy-rated stocks in the Dow industrial average. The 15 buy-rated names in the Dow 30 provide this diversification. Among the 15 are three retail-wholesale stocks, two consumer staples stocks, four medical stocks, three multi-sector conglomerates, two utilities and one in the computer & technology sector.

On March 25 I wrote, 9 Consumer Staples Stocks at Risk of Reversion which included the buy-rated names in the Dow 30. On March 26 I wrote, Allocate U.S. Holdings to 14 Top Dow Stocks and since then three of the computer and technology stocks profiled in this post are now rated hold not buy.


Today www.ValuEngine.com shows that 63.7% of all stocks are overvalued, just below the 65.0% ValuEngine Valuation Warning threshold. The six sectors represented by the 14 buy-rated Dow stocks are overvalued; computer and technology by 15.6%, consumer staples by 26.1%, medical by 11.5%, multi-sector conglomerates by 9.1%, retail-wholesale by 17.5% and utilities by 13.0%.

Among today's 15 Dow stocks, all are trading above their 200-day simple moving averages showing risk of reversion to the mean even with buy ratings. All are overvalued vs. their fair value, which is the price at which they should be trading. As buy-rated stocks all are projected to gain between 5% and 12% over the next 12 months, but beware that nine have gained more than 12% over the last 12 months.

Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.


Value Level: Price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: Price at which to enter a GTC limit order to sell on strength.

General Electric ($23.57 vs. $23.24 on March 26) set its multi-year high at $23.90 on March 8. The weekly chart profile remains positive with a close this week above the five-week modified moving average at $23.04. My annual value level is $21.09 with a monthly pivot at $23.53 and no risky levels.

Home Depot ($76.76 vs. $69.47 on March 26) set another all-time high at $79.40 following an earnings beat on May 21. The weekly chart profile is positive but overbought with the five-week MMA at $74.56. My quarterly value level is $68.76 with a monthly pivot at $76.71 and no risky levels.

Hewlett-Packard ($21.18) set a 2013 high at $24.05 on April 1. The weekly chart profile is neutral with the five-week MMA at $20.89. My monthly value level is $18.64 with semiannual risky level at $24.31.


Johnson and Johnson ($88.01) set another multi-year high at $88.64 on May 21. The weekly chart profile is positive but overbought with the five-week MMA at $84.90. My monthly value level is $84.03 with a weekly risky level at $89.95.

Coca Cola ($42.38 vs. $40.04 on March 25) set a multi-year high at $43.43 on May 16. The weekly chart profile is positive but overbought with the five-week MMA at $41.71. My quarterly value level is $41.53 with a semiannual pivot at $42.26 and weekly risky level at $43.67.

McDonalds ($101.54 vs. $98.24 on March 26) set a multi-year high at $103.70 on April 12. The weekly chart profile is positive but overbought with the five-week MMA at $100.89. My annual value level is $99.38 with an annual risky level at $104.63.


3M ($111.72 vs. $105.17 on March 26) set another multi-year high at $112.34 on May 21. The weekly chart profile is positive but overbought with the five-week MMA at $108.39. My monthly value level is $103.87 with a semiannual pivot at $111.34 and no risky level.

Merck ($45.21) set its multi-year high at $48.79 on April 24. The weekly chart profile is neutral with the five-week MMA at $45.85. My semiannual value level is $43.41 with a monthly pivot at $45.87 and annual risky level at $46.99.

Pfizer ($28.70) set its multi-year high at $31.15 on April 23. The weekly chart profile is negative with the five-week MMA at $28.98. My quarterly value level is $27.07 with a monthly risky level at $29.80.


Procter & Gamble ($79.09 vs. $77.27 on March 25) set its multi-year high at $82.54 on April 23. The weekly chart profile shifts to negative given a close this week below the five-week MMA at $78.54. My annual value level is $78.73 with a monthly pivot at $79.09 and weekly risky level at $80.71.

AT&T ($37.22 vs. $36.39 on March 26) set its multi-year high at $39.00 on April 23. The weekly chart profile shifts to negative given a close this week below the five-week MMA at $37.17. My quarterly value level is $36.47 with an annual risky level at $39.86.

UnitedHealth ($62.56 vs. $54.86 on March 26) set its multi-year high at $63.95 on April 2. The weekly chart profile stays positive with the five-week MMA at $60.71. My semiannual value level is $59.89 with a quarterly risky level at $63.66.

United Technologies ($97.23 vs. $92.80 on March 26) set a new multi-year high at $98.15 on May 21. The weekly chart profile is positive but overbought with the five-week MMA at $94.69. My semiannual value level is $94.43 with no risky level.


Verizon ($52.74 vs. $49.16 on March 26) set a multi-year high at $54.31 on April 30. The weekly chart profile is positive but overbought with the five-week MMA at $51.58. My monthly value level is $51.44 with a weekly risky level at $54.92.

Wal-Mart Stores ($77.40 vs. $74.85 on March 26) set a multi-year high at $79.96 on May 15. The weekly chart profile is positive but overbought with the five-week MMA at $77.25. My monthly value level is $74.08 with a quarterly risky level at $78.49.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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