Buy-Rated Dow Components Slip To Ten

Richard Suttmeier

NEW YORK ( TheStreet) -- My suggested allocation to stocks continues to include at least 50% out of the market in cash equivalents. Part of the amounts invested in the stock market should be allocated to buy rated stocks in the Dow Industrial Average.

On May 22 when I wrote, Allocate Assets to Buy-Rated Dow Stocks there were 15 buy rated names to choose from. Today the ranks of the buy rated companies has thinned to 10, which is a warning that the stock market could be vulnerable in the second half of the year.

Fundamentally www.ValuEngine.com still shows that stocks are trading under the cloud of a valuation warning with more than 65% of all stocks overvalued.

In the Dow industrials there are two stocks rated sell, Boeing ($103.03) which has a monthly value level at $96.22 and a weekly risky level at $108.69, and DuPont ($53.70) which has a monthly value level at $48.23 and a weekly risky level at $59.73. The Dow has 18 hold rated components.

Investors should consider booking profits on Dow components not shown in today's table of stocks.

Note that only one out of 10 buy rated Dow stocks is undervalued that seven had double-digit gains of 10.0% to 45.5% over the last 12 months. The projected gains for the next 12 months should be limited to 4.6% to 8.8%. Caution flags are up as the 12 month trailing price-to-earnings ratios are becoming elevated between 14.7 and 23. All but one is above its 200-day simple moving averages which risks reversion to the mean.


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 ($23.77 vs. $23.66 May 22) set its multi-year high at $24.13 on May 22 when the Dow set its all-time high at 15,542.40. The weekly chart profile remains positive with a close this week above the five-week modified moving average (MMA) at $23.29. My monthly value level is $21.90 with this week's risky level at $24.67.

Home Depot ($76.14 vs. $78.71 on May 22) set another all time high at $81.56 on May 22 contributing to the Dow's all-time high. The weekly chart profile is positive but overbought with the five-week MMA at $76.14. My quarterly value level is $68.76 with a monthly risky level at $78.33.

Johnson and Johnson ($85.63 vs. $88.59 on May 22) set another multi-year high at $89.99 on May 22 contributing to the Dow's all-time high. The weekly chart profile shifts to negative on a close this week below the five-week MMA at $84.63. My quarterly value level is $81.05 with a monthly pivot at $85.71 and weekly risky level at $86.72.

Coca Cola ($40.68 vs. $42.34 on May 22) set a multi-year high at $43.43 on May 16 peaking before the Dow. The weekly chart stays negative given a close this week below its five-week MMA at $41.15. My monthly value level is $39.86 with a weekly pivot at $40.40 and quarterly risky level at $41.53.

McDonalds ($98.74 vs. $102.14 on May 22) set a multi-year high at $103.70 on April 12 well before the Dow peaked. The weekly chart stays negative given a close this week below the five-week MMA at $99.20. My monthly value level is $96.74 with an annual pivot at $99.38 and weekly risky level at $99.53, which was tested at Monday's high.

Procter & Gamble ($78.96 vs. $78.80 on May 22) set its multi-year high at $82.54 on April 23 well before the Dow peaked. The weekly chart stays negative given a close this week below the five-week MMA at $78.39. My annual value level is $75.13 with an annual pivot at $78.73.

AT&T ($35.76 vs. $36.94 on May 22) set its multi-year high at $39.00 on April 23 well before the Dow peaked. The weekly chart profile stays negative given a close this week below the five-week MMA at $36.35. My weekly value level is $34.65 with a quarterly pivot at $36.47 and annual risky level at $39.86.

United Technologies ($94.98 vs. $97.55 on May 22) set a new multi-year high at $98.18 on May 22 on the same day the Dow peaked. The weekly chart stays negative on a weekly close below the five-week MMA at $94.25. My annual value level is $90.05 with a semiannual pivot at $94.43 and weekly risky level at $95.52, which was tested at Monday's high.

Verizon ($50.71 vs. $52.07 on May 22) set a multi-year high at $54.31 on April 30 before the May 22 Dow peak. The weekly chart shifts to negative on a close this week below the five-week MMA at $50.79. My monthly value level is $48.25 with a weekly pivot at $51.04, which was a magnet on Monday.

Wal-Mart Stores ($74.95 vs. $77.40 on May 22) set a multi-year high at $79.96 on May 15 a week before the Dow peaked. The weekly chart stays negative on a close this week below the five-week MMA at $76.30. My monthly value level is $72.47 with a weekly pivot at $75.77 and 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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