The Dow 30

June 3, 2004

Of all the sacrosanct, everyone bow down and worship; the Dow 30 Industrials, are the stocks that set the trend for the stock market in America. All want to know "What the Dow did today," or "Did the Dow go up today?" The "Dow," is the benchmark of stock measurements. There are but 30 in the Dow, as opposed to thousands of stocks. 30 stocks, which on occasion are changed, but are the mother of all stock markets, Wall Street measures its gains and losses by the Dow. These 30, supposedly represent the whole of the American economy. So what are these so-called wonderful measurements everyone deals with?

Here they are, alphabetically, along with their symbols, P/E ratios and annual dividends, based on stock price, and recommendations by one of America's most trusted financial institutions, Edward Jones. My son is a broker for them, so if you wish to take action on any, call him at 1-608-827-0870. Two of the Dow 30, are not recommended by Jones, so their figures are not included. The 28 recommended then, are:

Alcoa (AA) (not recommended)
Altria (MO) - Sell - P/E - 11.6 - Dividend - 4.8%
American International (AIG) - Buy - P/E - 16.1 - Dividend - .04%
American Express (AXP) (not recommended)
Boeing (BA) -Hold - P/E - 19.5 - Dividend - 1.8%
Caterpillar (CAT) - Hold - P/E - 14.9 - Dividend - 1.9%
Citigroup (C) - Buy - P/E - 12.5 - Dividend - 3.3%
Coca Cola (KO) - Buy - P/E 23.7 - Dividend - 2.0%
Dupont (DD) - Hold - P/E - 19.6 - Dividend - 3.2%
Disney (DIS) - Buy - P/E - 25.1 - Dividend - .09%
Exxon-Mobil (XOM) - Buy - P/E - 19.8 - Dividend - 2.5%
GE (GE) - Hold - P/E - 19.4 - Dividend - 2.6%
GM (GM) - Sell - P/E - 6.8 - Dividend - 4.1%
Home Depot (HD) - Buy - P/E - 16.9 - Dividend - .08%
Honeywell (HON) - Buy - P/E - 21.7 - Dividend - 2.6%
Hewlett Packard (HPQ) - Buy - P/E - 13.7 - Dividend - 1.6%
IBM (IBM) - Hold - P/E - 18.1 - Dividend - .08%
Intel (INTL) - Buy - P/E - 21.9 - Dividend - .06%
Johnson & Johnson (JNJ) - Buy - P/E - 18.2 - Dividend - 2.1%
J.P. Morgan (JPM) - Hold - P/E - 10.8 - Dividend - 3.6%
3 M (MMM) - Hold - P/E - 23.5 - Dividend - 1.7%
McDonalds (MCD) - Hold - P/E - 16.5 - Dividend - 1.4%
Merck (MRK) - Hold - P/E - 15.2 - Dividend - 3.1%
Microsoft (MSFT) - Buy - P/E - 20.6 - Dividend - .06%
Pfizer (PFE) - Buy - P/E - 16.9 - Dividend - 1.9%
Procter & Gamble (PG) - Buy - P/E - 23.5 - Dividend - 1.9%
SBC Communications (SBC) - Hold - P/E - 15.9 - Dividend - 5.0%
United Technologies (UTX) - Buy - P/E - 16.6 - Dividend - 1.6%
Verizon (VZ) - Hold - P/E - 15.4 - Dividend - 4.1%
Wal Mart (WMT) - Buy - P/E - 24.6 - Dividend - .09%

That's the backbone of the American economy. 28 stocks, comprising the 30 Dow Industrials. Now let me tell you about them. You might as well know, as if they are shaky, maybe the whole economy is shaky too. Since these 28 stocks are what stock holders mostly depend on, and gauges their wealth and prosperity by, it is to be hoped that they are a good buy for an investor. That is not an unreasonable hypothesis, is it? If you want to invest in something, you must get a return, or dividend, if it is to be a good investment.

The average dividend on these 28 stocks is 2.04%…taxable. Whoopee! Even the lying government, says we are having more inflation that that. We are probably having 12-15% inflation, or more. If you own one of the 28, you'd be paying taxes on a 2.04% average dividend.

The average P/E ratio on these thirty stocks, is 17.8 to 1. In other words, they are priced at close to 18 times their earnings. Earnings are in no way dividends. Most people think that a P/E ratio of 10 to 1 or less, makes a stock a good buy. Edward Jones recommends selling the two stocks with the lowest P/E ratios and highest dividends, Altria and GM. I don't know why. I am certain there are reasons.

Experts who rate stocks, say that by historical values, based on dividends and P/E ratios, the Dow should be at 5131, not over 10000. These same experts say that 90% of the Dow stocks are over-valued (priced). So much for the Dow stocks. It appears to this scribe, that other than possibly GM and Altria, none of them are worthy of a smart investor's time and money.

DOUBLE WHAMMY

For you retirees and Social Security recipients, did you ever think about this: Your checks go up at the rate of inflation the government says it is, and that is a bit over 2%. Any boob can see by going to the gas station or grocery store, that the inflation rate is probably 12-15%. Government says Social Security is wonderful, and that you will get back every penny you put into it, long before you die. Oh yeah? Maybe actual pennies, but not inflated pennies. I am 70, and when I worked for my Dad at his drug store when a teen, my 75 cents an hour had Social Security taxes taken from it. This is when I was buying gas for my Plymouth at 20 cents a gallon, and getting a Coke for a nickel. Pennies taken from me in 1950, certainly aren't the pennies taken from me now. The actual dollars gotten back in those Social Security checks by actual dollar count, may be the same or more, but their purchasing power certainly isn't. No one will ever break even on their Social Security, purchasing power wise, even if they live to be a hundred. Besides that, one can't bow out. Social Security is removed from every pay check, and when I paid my taxes on April 15th, I had to pay taxes on my Social Security "benefits," if you wish to call them that.

The double whammy is that while the money goes down, your checks do not go up at the same rate. Oldsters are getting it in both ends. All the while, the dollar is losing ground, and of course buys less all the time. As each day passes, things "go up" in price, while the average wage or Social Security check goes up far slower. Americans are living at about the same standard of living as they lived perhaps sixty years ago, and the date is gong backwards, comparison wise. We may have air conditioned cars with automatic transmissions and power steering, but they cost a lot more than they did 60 years ago. About fifty times as much…in dollars.

What's a poor soul to do? Save? Hardly. At least not in decreasing dollars at 1% or less in taxable interest. Stocks? Not for me at a 2.04% return, which is taxable. It is said by those in the know, that CEO's are disposing of their stock in their own corporations as fast as they can, without being obvious. Me buy, when they're selling? No way. The insecurity we are now experiencing, is severe to those in the know. To the ignoramuses, all is well.

Nations and things, always appear strong, just before their fall. Homes that are infested with termites, always seem to be secure, because the termites always eat their merry way on the inside of the lumber, where their dastardly deeds cannot be seen…until the floor or wall caves in, at any rate. Enron appeared fine, till the whole thing came to a screeching halt. Investors in Long Term Capital Management, thought all was well…but it only appeared that way. NASDAQ stock holders, you remember the "dot com" stocks, thought there was no tomorrow. But there was, and it happened very quickly.

The Dow 30 Industrials, to me, don't seem to be a great way to invest one's surplus assets, since I believe that figure of 5131 mentioned above, will be achieved, or lower. Real Estate? No sir, when 30% of mortgages are ARMS, and are greatly over-priced and leveraged. Further, as far as real estate is concerned, the government just announced a new program where they will pay the down payment, up to $10,000, if a poor person wants to buy a home. Will these people default, throwing their homes on the market eventually, thereby making home prices go down faster? Real estate might well be termite ridden, and go down quickly, as defaults and job losses increase. Where else is there to invest? Gold and Silver? Yeah! Protect yourself.

Don Stott has been a precious metals broker since 1977, has written five books, hundreds of columns, and his web site is www.coloradogold.com

Gold has been discovered on every continent on earth.

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